Maintaining Profitability While Dealing With Rising E-Commerce Return Rates

Maintaining Profitability While Dealing With Rising E-Commerce Return Rates

  • Best Inc. by Best Inc.
  • July 21, 2020

These days, nobody shops online without checking first if returns are accepted. Consumers are unwilling to bear the risk of making an unsuitable purchase – hence the increase in policies regarding e-commerce return rates.

E-Commerce Return Rates

Research has shown that free returns or exchanges are the number two reason that makes consumers “more likely to shop online.” In addition, 62% “would buy again” from a brand offering free returns or exchanges (Dotcom Distribution, 2018), 69% are deterred from buying online by having to pay for return shipping and 67% by restocking fees (Narvar, 2018), 90% “highly value” free returns (Dotcom Distribution, 2018), and 96% would shop with a retailer again based on an “easy” or “very easy” return experience (Narvar, 2018).

However, in providing free and easy returns, businesses have to consider the costs involved. In the U.S. alone, Statista estimates return deliveries will cost $550 billion by 2020, 75.2% more than four years before. This is not inclusive of restocking expenses, inventory losses, or investments made to increase inventory capacity – making the final figure harder to estimate, but certainly worse. How can businesses hope to survive if they have to absorb the costs of returns?

Profile Your Customers

The first step is to understand customer behavior. Leverage on your data to coordinate return rates with net sales, thus creating a return profile for your most and least profitable customers. Create a graph showing return rate to net sales, so you can have an accurate representation of your business’ opportunities to maximize profits.

Segment Out Your Serial Returners

Once your customers have been profiled, it is possible to accurately identify which of them make it a habit of returning their purchases. To cut losses from serial returners, you can add them to a segment within an onsite personalization tool to exclude them from free shipping or refund offers; or, disable free shipping options at checkout with the right web script. It may seem harsh, but your bottom line will thank you.

E-Commerce Return Rates vs. Price vs. Value

Closely examine the relationship between price, value, and returns – especially when launching new products. Experiment with lowering prices to see customers’ responses. For example, some customers may be willing to pay $50 for a high quality shirt, but a large number may experience buyers’ regret and return the shirt afterwards. However, if you lower the price to $40, sales may increase significantly, and customers’ perceived value gained from their purchase may encourage them to keep the shirt instead of returning it, leading to greater profits.

Leverage On Reverse Logistics

One crucial aspect in which many retailers fail is in having a proper system in place to handle returns. A study by Intermec found 52% of distribution center managers don’t have the ability or resources to determine whether returned items should be sent to the vendor, moved into inventory, or discarded. They also found that 44% of distribution center managers consider returned items as a “pain point” in their operations.

According to the Reverse Logistics Association, managing the ‘return and repair’ process accounts for 10% of total supply chain costs. But, inefficiencies in supply chain processes can compound losses by 30% to 50%, accounting for the opportunity cost of selling returned products in secondary markets. Your e-commerce fulfillment company needs to be on top of their game in return and reverse logistics management. A company like BEST Inc. uses a combination of in-house order management (OMS) and warehouse management systems (WMS) to provide live data, so that clients always have full visibility into their supply chains. Get in touch with us today!