How eCommerce Retailers Should Prepare for Holiday Returns
If you are an ecommerce retailer, the holidays are an exciting time for potential sales and the overall growth of your brand. It is easy to get caught up in orders and sales projections, imagining the notoriety that will come following big numbers in Q4.
What is often not considered, though, is the inevitability of returns during this season. A positive bump in sales may be eminent, but returns must be thought of as prorated.
Few marketing campaigns or conversion funnels can help reduce the bottom line when it comes to returns. But returns do not always have to be viewed as a necessary evil poised to take a bite out of an overall Holiday spike.
In reframing the way we think about returns- as opportunities to improve customer relations and an important battle ground for the protection of the brand’s integrity- we may find we are able to put a few more integers between units sold and rate of return.
The main tenets of any great ecommerce brand with regards to customer service are logistics and communications, and sometimes these are two in the same. Failure to prepare logistically and effectively manage the customer experience with returns can be detrimental to a brands reputation.
Make certain the hay is in the barn as your company gears up for increased holiday season returns by asking three simple questions:
- How many?
- How much?
- And Why?
Sales are much more fun to project, but these numbers mean nothing if the number of returns are not also weighed and measured down to highest level of exactitude possible.
There are two data points of particular importance: the rate of return categories and the number of returns expected in peak return weeks.
If you have a few years and a good growth algorithm by which to predict categorical return rates than you are already a step ahead. For start-ups who lack Q4 numbers from last year or a veteran understanding of how their product behaves during peak season, it is a good idea to look at some general categorical numbers and project conservatively, accounting for the high end.
Here are the holiday return rate increases by category from 2017. The categories outlined below are purposely broad and based on the top 40% of ecommerce orders:
- Hard goods/gifts…1-5%
- Home decor….5-9%
- Casual Apparel…10-20%
- Fitted Apparel…20-30%
- High Fashion…25-40%
With a realistic set of expectations concerning holiday returns, your company can begin thinking about how these numbers may effect overall operations, not just those that have to do with returns.
The unfortunate truth is that these two facets of your fulfillment operation- orders and returns- are not mutually exclusive. A botched return process can have a huge impact on order shipment, creating lag times of up to weeks.
By estimating how many returns per day/per week will need to be processed based on the categorical rate increase estimation, brands are better suited to evaluate the space they will need and processes they will need to put in place in order to stay efficient and keep customers happy.
Generally, returns cost companies more to process than orders. Having a good sense of these costs will help your brand make informed decisions about all phases of the business, from inventory, marketing, and beyond. This way, the best business is being done during this important time of year.
Here are just a few of the associated areas affected by returns. Depending on product type, some of these may not apply. Conversely, your company may incur costs from additional areas as well.
- Handling- unloading returns, processing through customer service, merchandise disposition, and put away
- Refurbishing product for resale, re-packaging
- Pick/ship exchanges- the labor, materials, and shipping costs associated with exchanges (as high as 30% of returns received)
- Lost gross margin if product is damaged in shipping
- Lost gross margin on sale if not an exchange, but simply a return
- Most importantly, customer service. Poor return handling or product quality can result in the loss of a customer indefinitely.
Having a system in place that allows the reason for return to be stated and quantified is an important step in preparing for the return season. Plan to ask customers why they have decided to return a product, then be prepared to track this by vendor, item, and SKU.
These numbers should be analyzed against all aspects of the company from merchandising and inventory control to creative. The processes you put in place here will allow for your brand to action plan around reasons stated that are within their control.
Here is a sample list of categories, which return customers can be surveyed to report. This type of categorization can help your company organize how a return should be treated or what can be done on a companywide level to reduce instances of one or more return reason:
- Poor product quality
- Damaged in shipping
- Wrong size/specification
- Wrong item sent
- Received late
- Product not as advertised
All of these are, to some degree, controllable cases. Adding an additional choice (i.e. unspecified or other) will give customers an option to choose when the reason is not within the scenarios your company has outlined as one it can manage or amend processes to solve. This way, a customer does not select randomly when the real reason for their return- one that may be uncontrollable- is not listed.
Fulfillment & 3PL Implications
Regardless of whether or not you are using a 3PL, you need to be sure that the fulfillment end of your company is capable of handling the influx of returns that are inevitable during the holiday season. What’s more important is the ability to process those returns expeditiously in order to maintain positive customer relations.
If it becomes clear your current operations cannot uphold those standards it may be time to enlist the help of a seasoned fulfillment company. When working with a 3PL, it is absolutely vital that your company can provide as accurate a returns forecast as possible.
Each outgoing shipment should include a return label, and a reason for return card which identify the customer and the reason for the return respectively.
All of this helps return operators keep that information in tact so that it can be accurately reported back to your company. From this sea of data, vital trends may be revealed that can help your company leverage its strengths and reinforce its weaknesses establishing a brand that will hold up in any market and through every season.