With the right solution in place, a retailer can turn potential losses from a return into gains, says Mark Hewitt, CEO of iForce.
Retail has sharpened its focus on returns not just because of legislative factors, such as the WEEE directive, and the need to lessen what’s sent to landfill. Succeeding in the increasingly completive retail world requires a returns policy that lets customers buy, try and then easily return a product, not only when it is defective but simply due to a change of mind.
This is now an important part of many online retail offerings and has contributed to the fast growth of sectors such as fashion apparel. UK consumers are Europe’s biggest online shoppers, spending £38bn last year, which is 10% of total UK retail sales, and they returned £1.3bn worth of goods. Yet a recent report1, looking at the returns processes of 100 UK e-tailers, found that returning goods bought online is becoming more difficult for customers. This was backed up by another recent survey2 that found 60% of shoppers were less likely to take back goods purchased online, compared with items purchased direct from shops. Not understanding how to return products, waiting for couriers to arrive at their home, queuing at a post office and paying for the return are some of the factors contributing to putting off a return.
While not returning a product absolves the retailer from the cost and effort of dealing with it, they will ultimately lose out because, as these reports found, consumers who experience a poor service in returns, as with delivery, will shop elsewhere next time. However, with the right system in place retailers can not only provide a returns policy that allows them to provide excellent customer service but one that can also turn a profit.
Multi-channel retailers can leverage their networks by allowing their stores to accept returned goods that were purchased online. Customers will be further encouraged to purchase online if they know they can return or exchange goods at the local store, which they find more convenient. For the retailer, this will also increase footfall into their prime sales channel.
With growing volumes of returns into its stores a retailer will gain an advantage by linking the store’s tills to a decision-making system that offers comprehensive management of the return. Such has been the case at Tesco, which for the last 6 years has received a completely visible and auditable Returns Processing service from iForce that swiftly removes returned products from its stores and processes them for its onward disposition.
When a return is brought to the customer service desk in a Tesco store, the till system feeds the data directly into iForce’s in-house developed returns management software, called ReSCU, fully integrated with Tesco. The product is scanned and documented and given a code according to the reason for its return. Human intervention is required to validate this but from then on it’s an automatic process.
ReSCU provides a series of prompts to manage the return and then carries out operational assessments and load planning for the items being sent to the returns centre for processing, which gives the centre advanced warning, allowing it to be ready to deploy the resources required to deal with the profile of returned goods arriving.
iForce pre-programs ReSCU with rules regarding the correct disposition for each of its customers and all of their items. It is vital to agree with the retailer on how to deal with specific items and circumstances. The item might be returned to stock, repackaged, refurbished or scrapped. The route back to market could see it being restored to the original supplier, auctioned using iForce’s own BuyForce site, sold to jobbers or fed back into the retail stream where revenue can be maximised, given that 25% of margin can be lost by selling through intermediaries.
In 60% of cases when returned products are inspected, no fault is found. In many cases the only problem is with the packaging. Keeping returned packaging that is in good condition when the product inside is not, helps build up a stock of packing. Furthermore, many manufacturers will over order their packaging by a few percent to ensure they have spare stocks, which can be used to bring back returns to ‘as new’ standard. It is therefore possible to restore significant quantities of goods to the original supply chain, or at least to the supplier, often gaining high residual value.
ReSCU decides how much resource is required to recover the item for resale to give the maximum available margin. This will range from simple visual checks to repackaging to reworking and perhaps even basic repair work. The trick is determining how much action is required before it becomes uneconomic.
Once the reverse route is determined, it is then important to minimise the amount of handling because a product will be degraded every time it’s touched whilst the costs associated with resolving the return increase. Approximately 25% of a return’s disposal cost arises from transport and time is also an important factor as it imposes storage costs and ties up capital.
For all of iForce’s clients, all products are processed within 24hrs of receipt into the iForce returns processing centre at Saltley, which automatically updates the clients’ own supply chain systems. This speed helps the retailer improve cash flow while the system’s accuracy allows supplier credits and debits to be managed more efficiently and retailers have benefited through far greater visibility of the volume of returns.
Some retailers will attempt to manage returns processing themselves but will inevitably hit the brick wall represented by its cost and complexity. Scale is the sledge-hammer that can to break through that wall to maximise revenue from the process. That’s why retailers are looking to the third party sector to deal with the issue. Not only can third party suppliers offer scale by leveraging the processes they operate for multiple clients, they can also provide expertise in what is a highly specialised and hitherto neglected aspect of supply chain management.