An Introduction to Returns Management in E-Commerce

Jun 14, 2022

Returns are the new normal in the retail industry. Whether it was a simple change of mind, a defective item, or unsatisfactory customer service, shoppers have returned their purchases for a wide variety of reasons. According to survey results from National Retail Federation and Appriss Retail, 16.6% of all products were returned on average last year. The rates tend to be even higher for companies that solely rely on e-commerce sales or worse, offer free shipping for returns.

Given the high cost and frequency of returns in today’s retail landscape, implementation of a proper returns management process is more crucial than ever. Doing so will not only enhance warehouse inventory and supply chain administration, but also help identify opportunities to promote sustainability by controlling reusable assets such as packaging. 

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With this in mind, we recently spoke with Justin Irvine, Director – Global Head of Product at SEKO ECommerce to give us an insider’s perspective on returns management in retail. From benefits and challenges of offering returns to tips on getting started, this article will serve as an introduction to the world of e-commerce returns.

Benefits of Offering E-Commerce Returns

One main benefit of online returns, according to Justin, is that it allows customers to make purchases with confidence that if something doesn’t meet expectations, or doesn’t fit, they can easily exchange or return the products like they would in a brick-and-mortar store. Without a solid, seamless and frictionless return offering, any retailer or e-tailer will struggle to acquire or retain their hard fought customers. How that fits into each company’s strategy on how they engage consumers in a sustainable fashion both for themselves and the environment, is an ever-evolving and exciting aspect of the supply chain.

Free Returns: Yay or Nay?

In today’s world of e-commerce, both digital engagement via portals and cross border operational returns experts have created an environment where plug and play solutions have surpassed legacy manual, and resource heavy solutions of the past. Returns as a whole have evolved over the last decade to go from a pain point, to a critical value proposition for retailers.

During our discussion with Justin, he pointed out the change of mindset around returns from being seen as a cost on the balance sheet to one that is seen as a critical part of customer acquisition and more importantly, customer retention

On one hand, the e-commerce industry has created a rod for its own back over the last few years with free returns creating a consumer expectation and behavior that saw returns percentages soar in mature markets like Europe, the United Kingdom and the United States. Fortunately for us, this is starting to become “more balanced” with retailers reducing or eliminating free returns in favor of charging in different markets around the world, while also preferring to offer free exchanges as an alternative that creates more value to the business, and the consumer. 

Fashion giant Zara, for instance, has started charging shoppers for returns alongside other big names like Uniqlo and Next. “It’s a growing trend, it started pre-pandemic and it will continue, as online shopping continues to grow,” said Nick Carroll, Associate Director of rRetail rResearch at Mintel.

Challenges in Returns Management

There are a number of challenges that are affecting not only the bottom line, but also sustainability as businesses become more accountable for their carbon footprint driven by consumers. The industry is currently grappling with how to have a profitable business that is sustainable for its shareholders and employees, while simultaneously striving to leave the world in a better place than they found it. While circular commerce and recommerce are still in their early stages, innovators in this space are already finding their feet and developing nimble and scalable services. 

Commercially speaking, the cost of relocating or repatriating returns around the world has become a major issue in day-to-day operational costs, where airfreight rates are sitting at 500-800% higher than pre-COVID days. Sea Freighting returns, while an option, means you have stock losing value on a vessel for 4-8 weeks depending on origin/destination. It’s not known with any certainty when the airlines and shipping lines will stabilize, but it certainly means that companies need to look at a better process than trying to save a few cents through negotiations.

Domestically in each country, having sustainable and varied options that can scale continues to be an issue in countries like Australia, New Zealand, Canada and throughout Asia. As a whole, the service industry needs to continue evolving and innovating to give commercially viable, frictionless options throughout the world for retailers and consumers. There has been some alignment between competing businesses recently that has ultimately seen a shift in thinking towards a better overall offering to the market. Co-opetition between frenemies is something that we will see far more of in the returns space.

How Retailers Can Optimize Returns

When asked what advice he has for retailers, Justin brought up a number of aspects, with the most reassuring one being that there is no one-size-fits-all approach to returns management. The key is to look to the respective industry for what is the new best-in-class offering, stay informed, but ensure that the business can sustain the strategies financially. 

Some elements to take into account are as follows:

  • Providing exchanges as part of your digital solution on your front-end portal 

  • Offering both pick-up and drop-off (PUDO) options for returns

  • Having the right operational partners to meet local customer expectations

  • Limiting returns for low-value products

  • Ramping up your recommerce strategy

Last but not least, measure for success! Know where you are now on Net Promoter Score (NPS) or Customer Satisfaction Score (CSAT) on returns specifically, customer lifetime value, repurchase rates, as minimum markers that are reviewed after implementing new initiatives. Commercial savings are easy to benchmark, but the true benefit of a good returns solution is about driving customer retention. Keeping a customer for 2-3 more purchases for $10 a return is certainly a lot cheaper than acquiring 2-3 more customers that only purchase once!

The Way Forward with E-Commerce Returns

Handling outbound logistics is a challenge as it is, but if 1 in 5 goods you deliver are sent back, it becomes a massive and costly operational challenge. While it is not compulsory for companies to invest in expensive product return management software, the lack of proper planning can slow down the delivery fleet and adversely affect customer satisfaction. With the right investments in technology solutions, retailers can ensure complete transparency of the e-commerce returns process across every aspect of the supply chain.

About Justin Irvine

Justin is a 28-year veteran of the freight and logistics industry who has spent the last 12 years building and selling e-commerce services and products. With his delivery and returns initiatives around the world, he has changed global thinking in the e-commerce scene including the way e-tailers view their customers’ journey.

Justin is a proud New Zealander that gets to call many regions around the world home, and from this extensive travel, drives a truly global best practice in the products he takes to market. Justin’s current role sees him moving to the USA full-time to join the SEKO Ecommerce leadership team to further develop and drive change through SEKO’s delivery suite in the US.

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