Outsourced Returns Management Benefits Third-Party Online Sellers
Big-box retailers aren’t the only ones contending with reverse logistics challenges. Returns are an expensive headache for third-party online sellers as well. Vendors on Amazon.com, eBay, Walmart.com, and Wish.com must handle excessive e-commerce returns, as 20 percent of all online purchases are sent back. Online sellers must also contend with higher consumer expectations for a seamless returns experience, including the ability to offer instant refunds.
Despite these challenges, most vendors manage their own returns or pay fulfillment fees for marketplaces to oversee the process. Both methods are costly — especially as platforms like Amazon increase vendor shipping fees by over 30 percent. As a result, sellers suffer tremendous losses, struggle to meet customer expectations, and rarely recover meaningful secondary sales profits. Fortunately, as the returns industry evolves, sellers can access turnkey returns software and supply chain partners to transform these losses into opportunities.
Returns Management Challenges
No. 1: Costs and Confusion
Returns management is a complex process of refunding customers, shipping products to centralized locations, identifying fraud and damages, and getting products back to market to be resold. Our data shows this process can cost 50 percent or more of its retail value depending on size, condition and transportation needs. Understandably, vendors don’t want to deal with this headache. As a result, nearly 30 percent of third-party sellers don’t accept returns at all.
There are consequences for these third-party sellers that choose not to accept returns. Inflexibility defies customer expectations, which negatively impacts sales. In the age of return anything, anywhere, anytime, 80 percent of customers want extended returns windows, 61 percent have no patience for refund delays, and most will look elsewhere if a brand doesn’t live up to their expectations. Sellers that ignore this reality can’t compete in today’s consumer-centric retail environment.
No. 2: Liability Risks
Sellers face considerable liability risks when processing returns in specific categories. For instance, by law, all returned electronics, if they have data storage capacity, regardless of whether they were opened or not, must be inspected and data-wiped to factory settings for privacy protection before being resold. However, sellers don’t always have the technical expertise or resources to reset all devices properly.
Beauty and cosmetics are another complicated returns category. Technically, there’s no FDA law banning sales of used cosmetics. In fact, platforms like Glambot and Poshmark are normalizing the practice. However, FDA guidelines warn against selling used cosmetics, sponges, and applicators due to contamination risks that can lead to cold sores and infections. Brands that defy the FDA’s warnings may put their customers’ health at risk, putting themselves at risk of getting sued for violating marketplace policies. For example, eBay doesn’t allow used cosmetics sales and actively bars vendors that list these items.
No. 3: Returns Fraud
Rising returns fraud is one of the biggest threats online sellers face, comprising nearly 11 percent of total returns volume. Smaller sellers suffer the most because they typically don’t have fraud prevention strategies and therefore have little recourse to dispute these transactions after they occur.
One issue is that platforms like Amazon typically refund customers for purchases before vendors receive those items back. Occasionally, those items arrive damaged or not at all. For instance, we've received iPhone boxes filled with tissue paper and TV boxes filled with 10-year-old models. Unfortunately, when this happens to smaller sellers that don’t have a direct relationship with Amazon, they struggle to get their money back.
No. 4: Lack of Intelligence
Online sellers often use third-party logistics (3PL) providers to fulfill orders and process returns. 3PLs pick up returns and efficiently route them to warehouses, where items are consolidated and liquidated for a fraction of market value. While 3PLs offer a convenient service, their revenue-producing capabilities are limited because they don’t intelligently disposition items to the best retail channel. 3PLs don’t distinguish between handling brand new laptops vs. used lipsticks. They don’t analyze whether the product’s resale value warrants any additional labor cost and they certainly don't have the resources to perform any value-add services to turn items into finished goods. They simply offer systematic supply chain support, and therefore they leave significant dollars on the table in recovery potential.
How Online Sellers Can Outsource Returns
Thanks to emerging returns solutions, online sellers of all sizes can make better returns decisions.
1. Returns Gateway Technology
Most eBay, Amazon, and Walmart.com merchants log into seller portals to handle every return and refund request. Emerging software can eliminate this manual process by integrating with seller portals and automating returns management with intelligent market-driven logic.
Embedded gateways allow sellers to upload catalogs, vendor policies, inventory, returns addresses, and shipping accounts to better manage the process. From this interface, they can set returns disposition rules to prevent unnecessary shipping costs and improve resale margins. For example, sellers might create rules against shipping low-value returns that don’t warrant freight costs. In these cases, they might allow the customer to keep the item or offer discount incentives for the customer to keep the items. Vendors can also set condition-based rules that distinguish between how to handle damaged goods, open-box, and brand new items. Once the vendor sets the rules, the software executes the process. The gateway will issue the refund, reconcile the transaction, and route the product to the seller’s chosen destination as efficiently as possible.
- Faster refunds
- Reduced freight costs
- Fewer headaches
- Reporting and analytics
2. End-to-End Returns Management
Sellers can use return gateways as standalone solutions where they set up the configuration, or they can choose to outsource the process completely. In the latter scenario, sellers can connect their returns gateway to a third-party returns management provider to receive all returns and resell them for the highest recovery.
Fully managed solutions are essential for large retailers with thousands of vendors that deal with high volumes of e-commerce returns. By centralizing policies, managed portals ensure brands get return credits whenever they’re eligible. By making immediate disposition recommendations, returns management software routes items directly to the appropriate destination, cutting down on freight fees and costly touchpoints. By calculating resale potential, this technology determines when and where to re-list items, and on which secondary marketplace(s).
Sellers that choose this option also benefit from fraud protection. Major returns solution providers inspect all returns to quickly identify fraud. They can also leverage relationships with platforms like Amazon and eBay to insure a quick refund to the seller for any associated losses.
- End-to-end management
- Guaranteed highest possible recoveries
- Fraud protection
- Fewer returns processing costs
The Bottom Line
Online sellers that want to increase revenue must accept that returns will rise as sales do. Sellers must embrace returns as part of their sales strategy to garner customer loyalty. Fortunately, online returns don’t have to be a costly, error-prone headache anymore. Vendors that outsource returns management to experienced partners that offer custom returns management software can thrive in today’s retail landscape.
Chuck Johnston is the chief strategy officer of goTRG, a turnkey reverse logistics company that specializes in recovering lost profits from returns and distressed inventory while eliminating inefficiencies and contributing to a more sustainable planet.
Related story: How the Right Returns Management System Can Be Crucial to Solidifying Customer Loyalty
Chuck is CSO at goTRG, a global leader in the implementation and execution of omnichannel and supply chain solutions. He was formerly the Director of Reverse Logistics for The Home Depot, responsible for all return and repair operations. Prior to that he oversaw the Reverse Logistics operations for Wal-Mart Stores Inc. Chuck has been involved in the Reverse Logistics industry for over 20 years and is considered the foremost expert in the field. He is a sought after speaker and considered one of the most innovative thinkers in the industry. In addition to his experience in the reverse space, he has led numerous Specialty Distribution Operations in his 23 years with Wal-Mart. While at Wal-Mart, Chuck was responsible for the development of a profitable, “best in class” Reverse Logistics organization that is still the benchmark for all other retailers. Under Chuck’s leadership, The Home Depot was able to improve the financial performance in the reverse and repair business by 48%. In just two years, the organization has grown to the second largest repair operation in the country.