Returned Products in Online Retail – How much of it is avoidable?

2011 was the most successful year for online retailers up to now and the trend is clear. More people are spending a larger share of their budget on the internet. So far, so simple. But unfortunately, an increase in orders usually leads to more returns as well. This in turn leads to higher costs for the retailer and reduces his earnings, sometimes considerably.

From the perspective of companies, returns are a two-edged sword: on the one hand, it is important for customers to have the right to return products they are not happy with. This was a prerequisite in establishing distance selling as an alternative to brick-and-mortar retailers. On the other hand, dealing with returned items is costly and also more complicated then shipping them to the customer in the first place.

The reason for this is that handling returns is a task that can hardly be automated, at least not today. Incoming packages vary greatly in shape and size, need to be opened and unpacked by hand. Employees have to check the products for damages and then either discard them or feed them back into the system for reselling. Some items are as good as new; others have to be cleaned first or can only be sold as second quality.

Overall, this is a personnel-intensive process with many potential sources of error and a high need for monitoring and control. High costs are then a result of the large number of returns. In German online retail, for example, unbelievable 40% of the ordered goods get returned to the shop!

It’s only natural to assume that many of these returns would be avoidable – and indeed they are. And it’s not about complicated strategies, but rather about simple steps that most online retailers are already familiar with. Yet when we do research on the internet, we still dig up plenty of shops that don’t follow even the most basic advice.

What can online retailers do to limit the amount of returned goods?

1. The most common reason for returning items is „un-met expectations about the product“. That’s why it’s so important to describe products online or in catalogues as accurately as possible. Not surprisingly, three-dimensional views of products are becoming more and more popular. Items without any picture or with just a category image (“product image serves as example only”) don’t have much of a future in modern online retail. In case you run such a shop, make sure to use accurate pictures that show the colours as they really are. Besides, it makes sense to set up a hotline so that customers can get their product-related questions answered quickly.

2. The second-most common reason for returns is damaged goods. This could be caused by inappropriate storage, poor packaging or careless handling in the transport chain to the customer. This already provides some ideas about the starting point in reducing the number of returns. Now you only need to know where exactly the products get damaged.

One idea is to send a shock data logger (also called acceleration logger, see picture) through your distribution centre. It is able to tell you how strong the outside forces are, that the package has to cope with. Then you’ll find out, where the technology or the staff treat the merchandise particularly roughly. Armed with this knowledge, you’ll be able to take countermeasures.

3. The third reason for returning an item is one on which retailers have little influence at first glance: poor product quality. However, it’s the retailers that advertise the product and communicate its characteristics to the customer. If the retailer overstates the product’s features, he shouldn’t be surprised if customers are disappointed. There’s a fine line of course, and no one likes to downplay the product’s quality and thereby crush the incentive to buy. Also, retailers often get their product information directly from the producers and have little or no possibilities of verifying it all.

4. Delayed shipping and/or incomplete shipments are another reason why many online shoppers return the goods they ordered. By now, the customers are used to getting their orders delivered in 2 or 3 days, because the market leaders (Amazon etc.) have set the bar pretty high. So if you already know or expect that your deliveries are going to take longer, give the customer a heads up. He can then make up his own mind about whether he accepts the delay or goes somewhere else.

Cutting delivery times by investing in more sophisticated intralogistics solutions might or might not be a workable alternative. When in doubt, consult with experienced logistics planners, who are going to tell you, what is possible and what isn’t.

5. Aside from all the justified returns, there are unfortunately a number of people misusing this option, to the detriment of retailers and honest customers. Particularly clothes that are meant for certain occasions are devalued in this way. The customer orders a suit or a cocktail dress, wears it to an event and then returns the item the next day for a full refund.

Online retailers should therefore feel free to put these customers on a blacklist. This list simply keeps track of those customers that misuse the right to return merchandise. Businesses using such a list will usually not communicate this externally, but instead try to get rid of respective customers on the quiet. Remember the 80-20 rule: it might be that 80% (or more) of returned items come from just 20% (or less) of your customers.

Despite all these measures, there will still be returns to deal with. What a business can do to keep the costs of handling these returns low, is the subject of an article coming soon.