Managing Returns: How to Turn Returns into Revenue

This trend is a result of the changing ways consumers shop, with the growing popularity of online channels and lenient return policies encouraging shoppers to treat purchases as risk-free discoveries rather than final shopping decisions. In 2020, American consumers returned $428 billion worth of goods, with e-commerce accounting for almost a quarter of returns volume.

The proportion of items returned through online clothing stores is particularly high at 25 percent, compared to 20 percent overall.

Despite the high volume of returns, many continue to view generous return policies as necessary for gaining and maintaining market share. They must, however, also weigh the impact of returns on profitability.

Delays in Returns Causes Price Erosion

Delays in returns can result in significant markdowns for merchandise being resold, particularly in a fashion-based business. Brands that sell through wholesale and direct-to-consumer channels face additional challenges, such as retailers returning products all at once at the end of a season, which can lead to price matching and value erosion from competing retailers.

Reverse logistics processes are challenging to implement efficiently, and returns management can be difficult due to the cross-functional nature of returns.

Few retailers have strategies to improve returns’ economics, with many resorting to disposing of damaged goods in landfills; an unfortunate and unsustainable solution.

Data and analytics can unlock the full potential of returns management for retailers, allowing them to find the most profitable disposition channel for a return and reduce unnecessary shipping and processing.

However, retailers often face challenges in collecting and integrating a wide range of data types from different areas of their business. To increase strategic focus and coordination, it is recommended to designate a single leader with responsibility for managing the end-to-end impact of returns and align key performance.

Managing returns through your distribution centre

Managing returns through a distribution centre can help businesses improve their returns management by streamlining processes and increasing efficiency. Here are some steps for managing returns through a distribution centre:

• Designate a central location: Choose a central location for your distribution centre that is easily accessible to your customers and can handle a high volume of returns.
• Implement an efficient reverse logistics process: Develop an efficient process for receiving, sorting, and processing returns. This should include a way to quickly determine the reason for the return, such as a label or code.
• Prioritise product inspection: Inspect returned products carefully to identify any damage, defects, or missing components. This information can help you identify the root causes of returns and make improvements to your products or processes.
• Determine the disposition of returned products: Decide whether to restock, refurbish, or dispose of returned products based on their condition and your business goals. This can help you maximise the value of returned products and reduce waste.
• Use data analytics to inform decisions: Collect and analyse data on returns to identify trends, root causes, and opportunities for improvement. This can help you make data-driven decisions to reduce returns and improve profitability.
• Provide transparent and convenient returns experiences: Make it easy for customers to return products by providing clear instructions, multiple return options, and transparent policies. This can help improve customer satisfaction and retention.

Steps for Effective Distribution Center Management

By following these steps, businesses can effectively manage returns through a distribution centre and improve their returns management processes.

Reselling goods returned to a distribution centre can also be a profitable strategy for retailers to recover some of the costs associated with returns. However, it requires a well-planned and efficient process to ensure that the goods are resold at the best possible price and in a timely manner.

Here are some steps that retailers can follow to effectively resell returned goods through their distribution centres:

• Evaluate the condition of the returned goods: Goods that are in new or like-new condition can be resold at a higher price than those that are damaged or have missing parts. Retailers should create a grading system for returned goods based on their condition to determine their resale value.
• Determine the resale channel: Retailers can choose from different resale channels such as their own website, third-party marketplaces, or brick-and-mortar stores to resell returned goods.
• Set the price: Retailers should set the resale price based on the condition of the returned goods, the original selling price, and the market demand. Pricing the goods too high will result in slow sales, while pricing them too low will result in lost profits.
• Optimise the sales process: Retailers can use various strategies to optimise the sales process, such as bundling the returned goods with complementary products, offering discounts and promoting the products through marketing campaigns.
• Monitor sales performance: Retailers should monitor the sales performance of the resold goods regularly to determine their profitability. If the goods are not selling well, retailers can consider further markdowns or liquidation to recover some of the costs associated with returns.

Takeaway

By effectively administering returned goods through their distribution centres, retailers can recover a portion of the costs associated with returns, increase their profitability and contribute to sustainability efforts by preventing products from ending up in landfills.