Retailers: it's time to shout about your returns policy

This article is brought to you by Retail Technology Review: Retailers: it's time to shout about your returns policy.

For a long time processing returns had been a head-scratcher for retailers but a growing number are grasping the nettle and realising that opportunities exist for not only gaining revenue but also for providing better customer service.

Legislative challenges brought about by the Distance Selling Act and the WEEE Directive although still open to interpretation are, however, focussing people's minds on the issue of returns processing. Yet the strongest driver behind returns processing remains the continued pressure of market driven price deflation. This places a significant and growing need for an efficient processing solution to ease working capital pressure on retailers and to maximise the value of returned goods.

The cost of processing a return can be 2-3 times that of an outbound shipment of the same item. That's why returns can devour some 30-35 per cent of profits. However, as between 70-90 per cent of the asset's value goes straight to the bottom line, getting returns processing right can uncork some very attractive cash flow possibilities, not to mention significant customer service advantages.

Having a returns policy is one thing but it is only when you have the solution to make that policy work effectively that it will then become something to shout about - as a growing number of successful retailers are indeed now doing. Retailers who can process returns but with systems that are simply not cost effective or efficient will prefer to keep their returns policy quiet, while those retailers who, because they have no means to process returns, will actually make it difficult for the retailer  no return their goods. Ask yourself which retailer is likely to retain the customer?

Creating a returns processing operation that carries significant appeal to retailers requires a solution built around a technologically advanced streamlined processing system, using software to provide real time information enabling clients to pre-plan work schedules and agree disposition/delivery routes before the items have been received at the returns centre. There are big number throughputs coming through these centres. iForce, for example, currently processes over 15,000 individual items per day at its returns processing centre in Saltley, near Birmingham, where clients include Tesco and House of Fraser.

Outsourcing returns processing to a specialist who can provide a scaleable solution is one way of dealing with the issue, particularly if the specialist can guarantee same-day processing with the returns centre delivering cash flow via the agreed credit/disposition route while delivering 100 per cent on Key Performance Indicators (KPIs).

To achieve this the specialist needs to adopt a partnership approach to client relations, allowing it to engage with the client and gain a deeper understanding of the critical business issues they face. It can then provide a value added service to constantly improve the strength of the partnership through innovative solutions required for processing returns such as: grading, refurbishment, testing and recoup, web sales, jobbing batch management and a dwell time reduction programme.  

Whether the retailer decides to outsouce returns processing to a specialist or not, of all the issues involved in an effective solution the two most prominent are onward sale and access to returns processing management systems and the information they provide.

Receiving returns
Accessing returns information effectively starts with how the retailer goes about receiving the returns themselves. It's important to find the most efficient means and this rarely includes using delivery vans to pick up returns: while customers may find waiting in for a product acceptable, hanging around for unwanted goods to be collected would be less appealing. In addition this is an expensive way to collect goods.

Pureplay online retailers will need to consider the procedure to receive returns by post. The most popular method is getting the consumer to fill in a form, which may be part of the delivery note, and return the goods by applying an address label provided by a retailer but the consumer will pay the cost of postage himself or herself. There is a growing trend of retailers asking customers to log the return on an online management system before returning the goods.

For bricks and mortar as well as multi-channel retailers (where goods delivered direct to the customer as well as sold through stores), relying on the customer to send back returns will add further complexity to a returns processing solution. Therefore encouraging the customer to return the product to a counter at a local branch even if they bought it online will simplify the returns process - for both customer and the retailer - and make it more efficient.

At the counter the retailer can set the returns process in motion. This of course requires sophisticated returns processing management software to work out the routes of dispersal and it is also the key to making onward sales possible.

Many large retail chains can build a system that links a till to this software, allowing staff to take a return from the customer at the counter and process it through the till. This can be a costly implementation, especially for smaller users. With systems such as iForce's ReSCUT it is now possible to have an Internet connection to returns processing software with its analysis tools and the real-time information provided by the bar code scanning process. With these tools the retailer can pre-plan work schedules and agree disposition routes before the items are received at the returns centre.

The retail assistant can simply click on an icon on a computer screen to process the return. All that's required is a broadband Internet connection. Furthermore, unlike using a wired-up till connection, this connectivity allows the user to utilise the full returns management software package. This has the potential to save the retailer a lot of money.

Returns system
A returns system should be based round a simple three-part transaction process that will include: processing credit refunds, updating the customer file and determining the product disposition. This will all be managed by the real-time returns processing management system that processes data such as the items, European Article Number (EAN) codes or serial numbers, types and suppliers, and the reason for their return.

The goods collected at the counter can then be shipped back to the returns centre where testing, repair and repacking prior to goods being returned for resale can then be carried out.

The returns centre itself requires a different set of characteristics to an outbound logistics facility. Having adequate space for work and goods-in areas is the first thing to think about. Workstations need space for staff to remove packaging and systems to deal with the rubbish and to recycle wherever possible.

Staff should be trained to handle returns. Adopting barcode scanning will reduce the amount of errors and provide realtime data for the management systems and will allow quick and efficient return of stock to inventory. Procedures need to be in place and set in motion the returns process within the necessary time frame and at regular cycles to ensure goods do not clog up. Crossdocking, where possible, will help with this. Where the product is on backorder, it can be shipped to the waiting customer rather than sent to inventory. Deciding the disposition routes, even when doing so in line with clear instructions and procedures, will however require experienced staff and clear procedures.

Gaining value from the return
Of all the disposition options, the most attractive is to put the return back in to stock so it can sell again at full price. After that, it is either return to vendor or onward sale, depending on how cost versus possible onward sale amount works out. In the past it has been a challenge to sell anything that comes back and stock has often gathered dust in a corner of a warehouse or has simply been disposed off; inspection of goods and then repair and repackaging adds further complexity.

A process needs to be in place to identify the route of dispersal, which can be numerous:
. products in perfect condition can be sent directly back to warehouse stock or the retail outlet shelf;
. if the product needs simple cleaning repair or repacking, this can be processed and again returned to stock;
. if the product cannot be repaired and/or returned then it needs to be disposed of and, depending on the product, this may require specialist disposal.
. where possible the product, or as much of it as possible, should be recycled. iForce, for example has a partnership with one of the UK's leading recycling businesses that is recycling over 90 per cent of electrical components. This makes the client WEEE compliant (which targets over 70 per cent) as well as minimising landfill.

The rise of the 'no-quibble' returns policy is generating an escalation in the number of goods being returned in perfect condition; in fact around 75 per cent of all returned goods are not defective. But there is a further category into which a great many returns fall: if a product cannot be sent back to stock 'as new' but could be sold as a 'distressed' item then a new route for dispersal needs to be found. In the past this has been the 'managers specials' but stores will only have space for a few of these items and more importantly will not want a shop full of 'special offers' detracting from its main lines.

This has led to a growing number of outlet stores, which have become a popular retail experience for shoppers who are looking for a bargain and understand the source of the product. Then there are the multi-selling market making systems for disposing of distressed stocks for maximum value - essentially offering outlet stores online. Good examples of such operators are those achieving "Merchant@" status on Amazon and retailers on eBay. Business-to-business (B2B) sales channels are another potential route for returns.

With an effective returns solution in place a retailer can start shouting about it. In fact the retailer should ensure customers are aware of the policy by making it available at the store, in the catalogue and on a web site. The policy may of course need to be adjusted according to the retail channel. Frequently asked questions should be able to deal with most enquiries.

All this can lead to a customer returning a product they do not want and being sufficiently satisfied by the service to return to buy again; a retailer being able to resell that item to regain value from it and a new customer being able to purchase a bargain. There is another happy beneficiary: the environment - as fewer products will be disposed of, burnt, or sent to landfill.