Recouping Product Value: How Retailers Can Regain the 66% Product Value Lost During the Returns Process
Returns without technology solutions currently lose 66 percent of product value. Between wages, transportation, merchandise value loss and disposition loss, this totals about $65.50 per item on the average e-commerce order.
Due to record fuel prices and supply chain disruptions, some major retailers are even considering letting customers keep their returns and refunding them regardless — creating double the loss for brands. How can retailers regain control over the returns process and recoup losses?
Overview of Current Market Solutions
Retailers currently have two options for processing returns: handle returns in-house or work with a technology partner to manage the process.
Returns go through the following phases: initiation, induction and network, and processing and disposition. Retailers without a technology partner often pay around $3 for a customer service wage that helps process the online, phone or physical return during the initiation phase. After this, returns move into the induction and network phase, where retailers often spend about $8.00 in transportation costs via shipping and handling for returns. Finally, returns move to the processing and disposition phase where products often lose around $15.00 in value due to markdowns and seasonality, spend $2.50 on average in warehouse wages, and can even see $40 in disposition loss if products cannot be resold. These costs for returns can total around $65.50.
Returns processed with a technology partner can help reduce these costs. Initiation fees can often be automated and reduced to a $.60 software fee vs. paying customer service wages, saving 80 percent of costs. Retailers using a returns solution can also automate the induction process, which can save anywhere from 10 percent to 48 percent depending on transport costs, pickup revenue and more. Current offerings on the market are also looking at innovative ways to lower processing and disposition loss, reducing return costs even further.
The Future of Returns: Transforming Returns From an Inconvenience to Asset
While current market solutions can help recoup 50 percent to 70 percent of a returned product's value, there's still a market need for an end-to-end solution that can transform returns from a loss to a revenue-generating opportunity.
Standard processing models are beginning to explore what revenue-generating methods could look like for returns. Some have started with the burgeoning resale revenue market while others are looking at innovative ways to automate exchanges and offer return pickup options that generate revenue. Early projection models show that, if successful, these new methods could transform returns from a 66 percent loss to recoup 103 percent of product value.
Instead of taking a loss, CFOs should re-evaluate returns on the balance sheet and look to solutions that can transform returns from an inconvenience to an asset.
Ben Freedman is the CEO of Boomerang, a company that provides detailed return logistics solutions that are underpinned by pickup.
Related story: What Retailers Can Learn From Last Year’s Historic Wave of Holiday Returns
Ben Freedman is the CEO of Boomerang, a platform transforming returns from an inconvenience to an asset for e-commerce brands. Previous to Boomerang, Ben worked for several years in UPS’s Corporate Strategy Group, was then Jet’s fourth supply chain employee and then managed a $650 million supply chain for Walmart.