A Guide to Returns Management for D2C Brands
In the eCommerce landscape, product returns are deemed to be one of the most pervasive and complex problems to deal with. As the business expands, product returns also become a bigger deal. This brings us to two pressing questions, ‘what do we do with all of those returns?’ and ‘is it affecting our profit margins and inventory?’ The answer to these questions is quite simple, as any seasoned business owner, operations lead or eCommerce manager will choose more profits and better customer experience. The journey of a D2C brand begins and ends with creating an unmatched experience for its shoppers. Three pillars will help you deliver this experience:
In the eCommerce landscape, product returns are deemed to be one of the most pervasive and complex problems to deal with. As the business expands, product returns also become a bigger deal.
This brings us to two pressing questions, ‘what do we do with all of those returns?’ and ‘is it affecting our profit margins and inventory?’
The answer to these questions is quite simple, as any seasoned business owner, operations lead or eCommerce manager will choose more profits and better customer experience. The journey of a D2C brand begins and ends with creating an unmatched experience for its shoppers. Three pillars will help you deliver this experience:
Over the years, we have learned that an effective returns management process cannot be captured in one initiative, rather, it’s a holistic approach that develops into a multi-faceted methodology. In the retail world, this methodology is known as Returns Optimization.
The term ‘returns optimization’ suggests that product returns are not something to worry about, but they are meant to be taken as an opportunity to learn about the friction points in a buyer's journey. An effective returns management policy will lead to better customer lifetime value, increased profits, and enhanced eCommerce operations.
Before diving into steps that can help you implement a streamlined returns management process, let’s take a look at some key terms that will help you understand the essence of returns management.
1. Return Policy: A return policy consists of rules for the products that can be returned or exchanged so that all customers are treated fairly. It is made up of several different components like return types, that indicate if the product is eligible for returns and refund, store credit, and exchange. The second component is a return window that covers when those products can be returned. The third one is return rules, consisting of rules that govern what can and cannot be returned. And lastly, return reasons, where retailers determine and address the cause of return.
2. Return Centre: It is a simple customer-friendly portal where buyers create a return request and shop for exchange while following the rules and policies set by the brand.
3. Returns Management: Here, all the rules, policies, processes, and workflows that build a return for a buyer are aligned. Some brands also use specialized systems to receive, grade, and complete the returns.
4. Reverse Logistics: This term defines the processes involved in physically handling a returned product from the shopper and delivering it back to the retailers. The products are handled with care until they reach the final destination to maximize the recovery value of the product.
5. Product Dispositions: Comprises a set of conditions used to segregate the products once they are returned, such as new products, products with tags, dirty or damaged, and so on.
6. Returns Data: A repository of data generated by customers, products, returns, and the connection between all three aspects.
7. Returns Optimization: Strategies and processes that use returns data to enhance and improve the buyers' experience, operational efficiency, and profit margins.
Returns Management and Returns Logistics Go Hand in Hand
In the retail sector, ‘returns’ can be segmented into two sections, the front-end side of returns management and the back-end side of reverse logistics. The purpose of returns management is to create a smooth experience for shoppers that effectively enforces the return policies and automates the communication that happens in the backend of the company.
On the other hand, reverse logistics is all about handling the returned products and recovering the maximum value out of them. Many companies choose to perform reverse logistics by restocking their products back into the inventory and later selling them through off-price channels, recycling, or liquidation.
Looking at the connection between these two processes, it is safer to say that returns management feeds reverse logistics. These processes relay information back and forth and are co-dependent on the operational processes of the brand. For the customers, the returns center acts as a gateway between returns management and reverse logistics, enabling the shoppers to experience the transition into the operations of a returns management solution.
What happens to a returned product?
After the product arrives back at the retailer’s warehouse, the retailers should try to process the return as fast as possible. Here, automating the returns management process enables retailers to streamline the most time-consuming, repetitive, and labor-intensive tasks, while allowing them to control and maintain visibility over their returns process.
Every returned product costs retailers over each touchpoint, from an employee to every minute the product spends in the warehouse. On top of that, shoppers also demand speedy returns. This makes return processing speed a key backend component for a positive customer experience. Monitoring the returns management process carefully will help the operations team to determine where returns are getting stuck in the process and manage the inventory in a better way.
Once the returned product is processed at the backend, the next step is to direct the product to its new path, whether it is immediately restocking the product in the inventory, cleaning and repairing it for restocking, or pushing it to an aftermarket option such as liquidation and wholesaling.
The Next Step: Product Dispositions
Product dispositions are assigned to a product by the team that handles the returns in the warehouse. Later, the teams dictate what is supposed to be done with the product. With increasing returns, it might seem appealing to try to resolve as many product issues as possible to be in a suitable restock condition. But this is a common mistake in reverse logistics, as the number of returns becomes overwhelming as the business grows and teams end up spending a lot of time on rearranging those products.
It is important to consider the products' value in the future, as opposed to their value in the current situation. For instance, with apparel in particular, by the time a product is returned and processed by the retailer, it might become outdated and non-eligible for resale. This uncertainty adds more complexity to the process and slows it down while creating risk for the aftermarket shoppers and degrading the value of the product. To avoid the financial burden and other problems related to product returns, it is crucial to prevent ambiguity and errors in the operations at the backend.
Managing product returns can bring an ever-evolving series of challenges for eCommerce retailers. However, it is vital to keep in mind that these challenges are disguised as opportunities for growth for D2C brands. Efficient returns optimization allows enterprises to focus on the returns process, reducing return rates, streamlining operations at the backend, and increasing customers' lifetime value. When combined with reverse logistics, the returns management process can help brands to maximize the recovery value of returned products, while crafting a path for systematic growth in the D2C environment.
February 4th, 2021