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Returns Management: What Are the Six Hidden Costs of Returns?

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The ecommerce sector is continuing to grow as consumers seek to find ever more convenient ways to procure goods.The COVID-19 pandemic only ramped up this trend further, as people needed safe ways to buy products without visiting physical store spaces.

Despite the continuously growing popularity of ecommerce, there are challenges for retailers associated with it. One of these challenges is returns. While only 9% of in-store purchases are returned, a whopping 30% of online purchases are returned. This could be due to a number of factors, ranging from lenient return policies to just the simple fact that it’s difficult for consumers to know if they want to keep something without seeing the physical item or trying it on.

Regardless, these high return rates pose a significant issue for retailers because of the time and financial losses associated with reverse logistics. The problem is that when examining losses related to returns, retailers tend to remain focused on transportation cost per parcel when returns are so much more complicated than that, and there are more factors that affect the profit margin besides cost per parcel. Many hidden costs of returns plague retailers, and the larger the company, the bigger the problem.

   

Table of Contents


What are these hidden costs of returns?
  1. Carrier Management
  2. Customer service calls
  3. Carrier Integrations
  4. Warehouse space and operations
  5. Value of the returned item
  6. Sustainability

What can you do to reduce these costs?

What are these hidden costs of returns?

1. Carrier Management

Returns_Management_pic2-pexels-pavel-danilyuk-6407541Retailers usually work with multiple postal carriers to help their returns operation run smoothly. It’s nice to offer consumers a variety of returns options within one country, but it is especially necessary to work with multiple carriers if retailers offer shipping to different countries. Managing the relationships with these various carriers takes a lot of work, and this responsibility falls on the retailer.

Someone from the retailer’s side needs to be responsible for reporting and finding lost packages, decreasing lead times if they are too long, managing SLA’s, and dealing with other logistics issues that are dependent on the carriers. All the time spent on emailing back and forth and updating excel files could be spent elsewhere, but instead is going to waste on these small yet important operational details.

2. Customer service calls

Calls to customer service can cost businesses between 3-15 euros on average, depending on the level of escalation required to answer the caller’s question. To calculate your customer service costs, you can use the following formula:

Cost per support ticket = Total cost of customer service / total number of tickets resolved in a given time period.

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Each inquiry requires a paid customer service representative to spend time understanding the caller’s question and finding a solution to their problem, which takes a lot of time. Studies show that most customer service calls are made to retail companies.

Slow refund time can be one of the reasons that consumers call customer service, along with a host of other issues. Additionally, retailers that work directly with carriers often lack data about when the returned item is in transit, creating a “black box” for both the consumer and the business because the information is limited. Thus, when customers call asking where their returned item is and when they will get a refund, customer service is often not able to give them a reliable answer based on actual data. Meanwhile, 89% of consumers are more likely to make another purchase after a positive customer service experience and after more than one bad experience, around 80% of consumers say they would prefer to do business with a competitor. So, ensuring that the black box is removed and customer can track their returns and refunds not only saves time and money that is spent on the customer service department, it also affects long-term customer retention rate and bottom line.

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3. Carrier Integrations

To ensure smooth carrier management and data flow, retailers need to have IT integration with all of them. Since each carrier sends information in different formats, it can be tough for a company to not only create the IT integrations themselves, but to also ensure that there is synergy between all the data sources.

After all, brands must not only gather but also be able to use the tracking data from all their carriers to ensure that consumers are able to track their returns. This gets increasingly complicated with the number of countries that a brand is present in and runs returns operations in.

4. Warehouse space and operations

If your company manages the entire returns process, this means that you need warehouse space to house all the returned items.

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Work benches are also required to process and sort the incoming merchandise. The higher the return volume, the more warehouse space you will need, and this costs a lot of money.

In addition to the warehouse space itself, you also need to pay warehouse workers to accept the incoming daily returns, which sometimes arrive in many individual parcels. Each of these packages must be scanned, opened, checked, and sometimes cleaned, repacked, and relabeled before they are ready to be sent back to stock.

Most online stores have hundreds or thousands of items in stock, so it’s easy to imagine that the number of returned items can easily become overwhelming to deal with. This becomes especially important during the “peak season” when sales volumes grow dramatically. In this challenging time, warehouse staff needs to both process increased volumes of outbound purchased and the returns on time not to let the stock run out.

5. Value of the returned item

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At first glance, it might seem like a return is no big deal. The item is shipped back to the company, the customer is refunded, and the item can be resold to someone else. But this scenario is more idealistic than realistic. Often, returned items depreciate in value. This is because back to stock time (the time period between the moment of return initiation and the time the item is back in stock and ready to be sold again) impacts the value of the item.

The explanation behind this is that items are only in season for a finite amount of time, and after the season ends, they must be offered at a discounted price. This is particularly relevant for fashion retailers, because items are often only in season for six weeks in this industry. Items in the fashion industry can lose a significant amount of their retail value per day that they are in the return process, and according to Klarna, the longer a customer sits on a product that is returned, the harder it is for retailers to sell it on at a full price. Thus, it is important not to forget about back to stock time in order to ensure that items retain their value.

6. Sustainability

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Returns, unfortunately, have a huge cost to the environment especially if the process isn’t being managed efficiently. Stock that sits in warehouses (or takes too before it gets back to shelf) often goes unsold, and then if brokers don’t buy it, it goes to the landfill. Wasted packaging also has a huge environmental impact, as well as the CO2 emissions from the trucks that the carriers use to transport the packages back to a warehouse. Not to mention the labels that are being used or thrown in the waste bin because the customer decides to keep their order.

Many companies provide return labels upfront in all of their packages. While this makes for a great customer experience, it has a high cost financially and also contributes to a lot of extra waste. It’s important to think about this cost as it impacts not only the environment itself, but also the reputation of your brand.

 


What can you do to reduce these costs?

It might be concerning to learn about all these potential losses throughout the reverse logistics process, but if you are aware of the problem, you are in a better place to begin solving it.

When looking at revenue, too many companies are focused on selling, shipping, and opening
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 more warehouses to accommodate returned items where they stay boxed up losing value and eventually not being sold. Instead, it’s time to flip the script and focus on optimizing the returns lifecycle to save money before it’s even lost, rather than trying to sell more to compensate for the losses.
 

Shift from Reverse Logistics to Returns Management

Optimizing returns is more complicated than you might think, especially if you aim to do it yourself. Ecommerce companies are beginning to shift from doing all reverse logistics in-house to outsourcing (parts of) the process to specialist returns management companies like Cycleon.

Cycleon is a global tech-enabled, end-to-end returns management company with over fifteen years of experience supporting clients around the world. At Cycleon, we have all of the expert knowledge, technology, and logistics partners to help businesses identify the bottlenecks in their returns process and optimize it to the fullest extent possible. We deal with your returns, so that you can focus on growing your business.

But what are the real benefits of outsourcing your returns? Continue reading to find out more.

Manage only one supplier

When you work with Cycleon, you only have to manage one supplier, and that’s us. We act like a one-stop-shop for returns, offering modular solutions that fit to your company’s specific needs. We take care of the IT implementation of our portals and can support your company with returns from all sales channels, including e-commerce, retail, marketplaces etc.

When you outsource your returns to Cycleon, we manage the relationships with all of the various carriers globally. Our large network of carriers also means that expanding your returns operation into new countries is quick and easy. Additionally, we aggregate all of the carrier data into one convenient format so that you can see it all in one place and make smart business decisions based on these insights. Lastly, if you have a problem, you only need to deal with us rather than tracking down the specific carrier in a country where a logistics issue might be present.

Reduce calls to customer service

When you work with us, we can help your company significantly reduce the number of customer service requests. First of all, we decrease the refund lead times. On average, we ensure that refunds can be issued within 3-4 days after the customer initiates their return. We reach such short timeline by registering items in our network of decentralized return centers.

Additionally, Cycleon collects and translates tracking data from all integrated carriers meaning that your consumers are able to track their returns. Clarity on the returns’ status and short refund lead time means that number of consumer calls to customer service will decrease and potentially disappear. Your customer service teams will have time to focus on more pressing issues and help your brand to maintain a good reputation and keep loyalty and retention rates high.

220117_Cycleon_pitch deck slide20Reduce warehouse costs

Cycleon not only manages returns from an IT perspective, we also manage a network of warehouses spread out globally. In our warehouses, we can handle the sorting, registering, reworking, relabeling and other activities related to getting products back in shape for being resold.

Our clients get products back consolidated and ready for restocking. This means that our clients need less work benches and warehouse space to carry out these activities, and less people to run the operations in warehouses.

Our control tower takes care that operations run smoothly, so that you can be guaranteed to get your products back to stock as quickly as possible. We can also help to make your returns operations leaner through data recapture in our warehouses, where we track which products are returned and in which state. We send this info back to you in advance, and you can use this data to do resource and inventory planning and adjust your manufacturing.

Manage your returns more sustainably

We have a strong focus on sustainability and are continuously searching for ways to reduce our carbon footprint. This means working with carriers who have largely electric fleets and regularly rating our suppliers on various sustainability factors. These results are shared with our clients in the Supplier Sustainability Score (SSS) report. Additionally, by accepting the parcels and consolidating the items in local returns centers we ensure that transport is used efficiently which means lower CO2 per each item.

We continue to invest back into our operations to reduce the overall environmental impact of returns while enabling the circular economy, with the ambition of becoming carbon neutral by 2025. By offering a variety of sustainability products, we are committed to helping our clients reach their sustainability goals as well.

Choose Cycleon and improve your returns process

We’ve already explained the challenges that companies face when managing their own returns and how we can help to solve them. You might still be wondering how much money we can help you save, and in what areas. That’s why when we make an offer, we give each of our potential clients a quantified value proposition so that they can see the hard numbers.

In this proposition, we take a number of industry-verified statistics about costs related to returns and compare this to our own returns data. We examine your current return volume per year, loaded labor return rate, opportunity cost per return space, return management workload, and use it to calculate your savings on logistics and operations, IT and management, and customer service and products. This way, you can see a breakdown of the financial gains that you can make by outsourcing your returns to Cycleon.

Curious to learn more about how we can help you save money and make your returns more sustainable? Simply leave your details below and we'll get back to you.

Want to learn more about how Cycleon can improve your returns process?

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