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Can Retailers Profit From Returns?

For many retailers, the scariest thing you can do is return merchandise.

They’ve heard that returns are costly, that they result in loss, that they could be bankrupt by this behavior from customers, but the truth is that on average only about eight percent of merchandise was returned in 2015. If margins are that thin, there’s a lot more wrong with your business model than merchandise returns. Retail giants like Zappos have found an even better solution for returns: they turn their lemons into lemonade and their reverse logistics into profit.

How to Profit from Returns

Profiting from returns may sound like a foreign concept because the cost of shipping both ways and a reverse logistics team to handle it all means that the product in question is always losing some amount of money. Luckily there’s a lot more to returns than meets the eye. There are ways to profit from returns, even if it’s not on the merchandise itself.

These are a few ways to increase your profits by using your reverse logistics process:

  • Make returns easy and improve customer satisfaction. It’s a fact that customers want to work with companies that make it easy to buy. Those same customers also want to know that they can return an item with no hassle if they don’t like the product they purchased. The fact that only 63 percent of consumers surveyed by UPS were satisfied with their ability to find a retailer’s return policy means that this area still has a lot of room for improvement.According to Craig Adkins, VP of Operations at Zappos, “Our best customers have the highest return rates, but they are also the ones that spend the most money with us and are our most profitable customers.”
  • Create a transparent returns policy to reduce hesitation in new buyers. Transparent and flexible returns policies are the key to everything. According to ReadyCloud, a fulfillment software company, 81 percent of shoppers are likely to abandon their cart if the returns policy is too stringent. In short, the less accommodating your returns policy, the more shoppers you’re going to turn off from the start.There’s no way to know how much those shopping cart abandoners might have spent with you, either, but it certainly could have meant a great deal more income than the amount you’re saving with strict policies.
  • Keep refunds fast and always encourage retargeting. When a customer returns an item, they often purchase additional merchandise along with the replacement item. This is the biggest reason that fast returns mean more profit. Retargeting that customer will help to retain them, so offering an in-store only coupon when a return happens could mean bigger overall volume from that single initial purchase and subsequent returns to your store. Items purchased in-store are far less likely to be returned, too, since they can be seen, touched and tried on.

Although returns can seem costly from a retailer’s perspective, they can easily be turned into tools to improve customer retention and encourage more sales. You might argue that this still means that returns aren’t profitable, but your profits will suffer without a really great returns policy, so it’s really a matter of perspective.

 

February 28, 2017
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