A Guide to Returns Management

What is returns management

  • $7 bn
    Cost of UK fashion returns in 2022

Returns management is the end to end process of receiving a customers order back to the retailer and includes the initiation of the return, the reverse logistics – getting the items from the customer to the warehouse- the processing of the order back into stock, re-working or disposal, and strategies to reduce the number of returns.
In 2022, customer returns cost the UK fashion industry alone, over £7 bn. The returns management process plays a crucial role in reducing the number and cost of these returns and the impact this has on the overall business.

According to 2023 Returns Report from DeliveryX.

How do returns work?

1. Initiation

A label is generated either by the end customer via a fully branded portal, or the sellers CS team. The customer repacks the items and sends the shipment using the pre-paid label.

2. Return logistics

The goods are received back into the warehouse and marked as received.

3. Inspection

Your hub manager inspects and grades the items according to a configurable scale, to establish if the item is in a resaleable condition.

4. Restock or disposal?

Depending on the status and agreed process, the returned goods are booked back into stock in the warehouse, sent back to the seller for re-work or disposed of.

5. Refund

The order is flagged for refund to be completed. The seller initiates the refund, part-refund, store credit or gift card for the value of the return to the end customer.

6. Generate reports

The Carrier collects from the 3PL partner and delivers to your customer.

Monitoring returns: 5 KPIs to track

Monitoring returns: 5 KPIs to track

1. Percentage of returns
2. Reason for return
3. Most returned SKU
4. Speed of return
5. Purchase frequency before vs after a return

Returns Benchmarking

Some product types are naturally more likely to have returns than others. The best example being women’s fashion/apparel as there are many more factors that consumers are critiquing during that post purchase evaluation stage, and these products are more often bought with the intention of returning part of the order (such as buying multiple sizes known as “bracketing”).

Compare this to consumer electronics for example and the evaluating factors are much simpler. Namely, does it do what I need it to do? You are unlikely to have many people buy multiple toasters to see how it looks in their kitchens and functionality is much easier to compare online so the reasons for returns are fewer.

The cost of returns

When a customer returns an order they expect the full amount back excluding any shipping costs from the initial order. (however with delivery as a service solutions and free delivery thresholds, even this is often absorbed by the seller.) resulting in return orders costing businesses as much as £27 per order when you take into account:

⇒ Return shipping cost
⇒ Packaging costs
⇒ Labour processing costs
⇒ Depreciation of goods
⇒ Opportunity cost while goods where out of stock

Beyond this, there is also a cost to future sales if the customer is dissatisfied with the resolution and stop ordering from your brand.

Should you charge customers for making a return?

To recoup some of the costs associated with returns, some retailers have started charging a small fee for returns. Between £1.99 and £2.99 in big name retailers. This is made to not cover the full costs but discourage customers from making unnecessary returns and to think before they buy.

The cost of returns

Achieving fulfilment success:
Eleven strategies to optimise returns

Provide detailed product descriptions

Materials, dimensions, size charts, providing as much detail as possible on your listings will help to reduce returns caused by the product not meeting the expectations of the customer in terms of quality and size. Optimising the layout of your product pages and trialling badges and buttons enable you to draw attention to key information that may be regularly overlooked.

Click to show more

Display high quality product images on your listings

Having good quality product imagery is essential to getting customers to add an item to their basket. Consider adding lifestyle imagery to the gallery showing the product in a real life setting, for example on a model or in a showroom, or a video showing every angle.

Click to show more

Use reviews to provide additional user information to potential buyers

Display customer reviews on your listings to provide potential customers with genuine opinions about the products value, fit and quality. This helps to give a more complete picture of the product before purchase so they select the right variant from the start.

Click to show more

Use appropriate packaging to ensure your products don’t arrive damaged.

For fragile items, ensure you are using appropriate protection for shipping. This could be packing paper, bubble wrap or reinforced cardboard boxes, whatever you decide to use it is a good idea to test this is up to task by sending yourself a test order or conducting onsite durability tests, and a process to ensure that this material is used when needed.

Click to show more

Keep a clean, well-organised warehouse with QA practises in place to reduce picking errors

Technology has helped to increase the accuracy of the fulfilment process from end to end. Paper-less picking and organised, well-kept warehousing can all help to ensure you are storing SKUs in the correct locations and in good condition to aid the picking process. Huboo has a number of QA processes in place to ensure we are able to pick orders with 99.9% accuracy.

Click to show more

Use data to identify customers who regularly abuse returns policies

Returns abuse happens more frequently than we like to believe. Setting a threshold or acceptable returns percentage per customer can help you to identify customers that are potentially taking advantage of your brand so you can take action to prevent this from continuing.

Click to show more

Encourage gift cards or store credit instead of refunds

To retain revenue from returned orders, consider offering store credit instead of refunds. This will help to ensure customers continue shopping with you after the experience and benefits your cash flow. In some cases this can also reduce returns as customers evaluate whether they would prefer another item from your store or the item they already ordered.

Click to show more

Offer exchanges

Bracketing is a term applied when customers order multiple sizes of the same item with the intention of returning part of their order. This often happens when offers are running to ensure they get the item in the right size or variant, at the same discounted price. One way to reduce this is to offer exchanges rather than refunds so that customers feel like they are less likely to miss out if they only order one.

Click to show more

Extend your returns policy

Giving customers more time to decide can also help to reduce returns that may result from customers making an impulsive decision to return the item rather than keep it. This is particularly common for January for example, so people have time to make an informed decision whether or not to keep a gift, rather than returning it as soon as possible.

Click to show more

Create product tutorial videos – Live streaming

Tutorial videos can be a great way to empower customers to try a product and act as a conversion tool as well as a method to reduce returns. If your product has multiple components or requires application or assembly, a tutorial can help customers to feel more confident using it and therefore keeping the product. This is common for beauty and electronics brands but can be more widely applied when you consider the impact live streaming on platforms such as TikTok Shop has had on the customer journey.

Click to show more

Ask for evidence in your returns initiation process

Although asking for evidence creates friction to the returns process it is also a useful tool to ensure that returns for reasons such as damage are warranted and can mean the customer doesn’t have to return the item to you, saving you the cost of return shipping and processing. It also provides valuable feedback that you can pass on to other teams within the business to understand how they can improve future products.

Click to show more

The futureof returns management

Disincentivising returns

As eCommerce sales continue to outperform bricks and mortar stores, returns rates are at risk of increasing with less opportunity for customers to see the products in real life before they buy. We are already seeing brands respond to this with returns fees and asking customers for more evidence when initiating a return but this also adds friction to the process so instead more focus could be given to implementing virtual try on technology, 360 product photography, size recommendations and chatbots to help customers make better shopping decisions.

Digitising the process

To reduce reliance on customer support teams to initiate returns on behalf of customers and create labels, branded returns portals can be used to personalise the experience for customers and make it easier than ever for them to return items without speaking to an agent while also providing greater information about the reason for the return. This data capture is also improving the warehouse operation, making it easier to sort and grade items once they are received.

A focus on sustainability

Returns is an important area for sustainability initiatives and innovation as they result in additional transport emissions getting back to the retailer for disposal – many times with items going to landfill due to the number of components and materials used, without being used. Retailers are beginning to offer buy-back or recycling programmes for pre-used goods as well as involvement in the resale market and providing repair/rework services to find alternative uses for returned goods.

Discover how we can help you grow