Counting the cost of returns in retail

Article by JLL Staff Reporter

Access to fast fashion online means consumers have more choice than ever but for retailers it’s turned the supply chain on its head: a retailer’s biggest single supplier is often its customers.

In the UK alone, between 25 percent and 50 percent of fashion items sold online are returned and this has a significant knock on effect on warehousing and logistics.

Failure to manage the customers’ right to refund and exchanges could prove costly, warns Jon Sleeman JLL Director of UK Logistics and Industrial Research.

“Returns logistics are all about the bottom line. How well these returned items are dealt with is critical to retailers’ margins and to the customers’ experience, which, of course, affects customer retention.

He adds: “When the day comes that virtual reality technology can reassure online customers that they are ordering the right size, returns may reduce in number. But we’re not there yet.”

Reliable labor supply

Unlike ‘virgin’ stock’ – fresh from suppliers – returns attract much more human labor when they arrive at the warehouse, eating into a retailer’s profit margin.

Sleeman explains: “The more times someone has to touch an item, the more the retailer’s margin is eroded. With returns this is inevitable.

“Somebody has to check each return in, check the customer’s accompanying paperwork, make the decision as what happens to the item – whether it goes back into stock immediately or has some remedial work done, such as sewing, cleaning or pressing, or is thrown away.” About five per cent of fashion items have to be disposed of because they’re so damaged, according to logistics firm Clipper.

Re-saleable items then need repackaging and with evidence suggesting that a return center’s packaging can influence whether the next customer keeps an item, making sure goods don’t bounce back again is a ‘measure of success’, says Sleeman.

Best warehouse location

Due to the onerous and unpredictable nature of returns, processing centers are often in locations with reliable labor that can be scaled up after peak online shopping periods, such as Black Friday or Christmas.

Equally important is being close to the retailer’s main distribution center. After all, the main aim is to get the goods back into stock as quickly as possible. The timelines are tight in fashion as clothes and accessories can quickly date and become hard to re-sell.

As an alternative to having a dedicated returns processing centre, returns centers are often set up within retailers’ distribution centers.

“It’s a sort of warehouse within a warehouse,” says Sleeman. “Although returns processing centers don’t need a huge amount of space, nor are they the biggest area of growth in the logistics, they’re an important part of the mix because of the impact of returns on retailers’ bottom lines.”

Preventing returns

Click and collect offers customers more choice in receiving online goods. But when a customer doesn’t collect, effectively another return is generated.

To prevent this, UK fashion retailer River Island is now offering to deliver uncollected goods from its shops to the customer’s home or office for a minimal charge. The service was launched in late 2015, after research revealed one in five customers who bought online will ask for a refund rather than collect in store. Ebay is now also offering the service and more retailers are expected to follow suit if River Island’s returns rates are seen to fall.

The creation of an unnecessary return is something all retailers want to avoid – not only because of the extra cost it attracts through handling, but also because of its long-lasting negative impact on the customer.

Sleeman explains: “Customers’ expectations from online shopping are so much higher than when a store orders in the wrong item or doesn’t have what they want. And with social media at their fingertips, irritated customers are a risk not only to customer loyalty but also a brand’s reputation.”

Similarly how the customer feels about their return experience has become a key part of their retention.

“Retailers need to make returning something as simple as buying it,” says Sleeman. “And from the retailer’s perspective, the sooner the customer gets their refund, the more likely they are to continue buying from the retailer. And the more quickly the item is back in the warehouse, the more quickly it can be dispatched to another customer.”

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