Returns management in online retail: challenges and solutions

However, the shopping frenzy is often followed by a wave of returns. Many customers use the right of return to try out alternatives or exchange gifts. Each return incurs an average cost of around seven euros per parcel, depending on the product category and the returns process. These costs are made up of shipping costs, loss of value, customer support and processing.

Returns in figures: Twice around the world

A study of 302 online retailers illustrates the dimensions of the returns problem:

• 5,774,560 returns were processed during the study period.
• The retailers achieved a total turnover of 793,808,397 euros.
• Returns-to-sales ratio: 0.00727 returns per euro transacted.

Extrapolated to the entire German mail order business, this results in an estimate of around 286 million returns per year, based on an annual turnover of 39.3 billion euros. If these returns were lined up in parcels with an edge length of 40 cm, this would result in a distance of around 114,400 kilometres – almost 2.86 circumnavigations of the earth!

A balancing act between customer satisfaction and cost efficiency

Customer-friendly returns management strengthens customer loyalty. However, high returns rates can have a negative impact on profitability. Retailers are therefore faced with a difficult balancing act: a generous returns policy promotes customer satisfaction, but can also lead to excessive costs.

Legal framework and restrictions

According to EU law, retailers must take back goods within 14 days of receipt without giving a reason. This gives retailers little influence over customers’ decisions. However, they can organise the returns process efficiently and minimise the number of incorrect orders from the outset.

The typical returns process: from the returns note to the refund
A well thought-out returns process comprises several steps:

1. register the return: The customer registers the return via an online portal and receives a returns label.
2. goods receipt and inspection: On arrival, the condition of the goods is checked and documented.
3. further processing: Depending on the condition, the goods are either put back into storage, sold as B-goods or disposed of.
4. customer support and finalisation: The process ends with a refund or exchange.

Optimising the returns process: a selection of strategies.

• Efficient processes: Standardise your processes for goods receipt and inspection to save time and costs.
• Mobile solutions: Equip your employees with mobile devices to carry out inspections directly at the storage location.
• Data analysis: Use collected data to identify common reasons for returns and adapt your products or processes accordingly.
• Flexible warehousing: Organise your warehouse so that you can react quickly to returns and process the goods efficiently.
• B-goods sales: Use platforms for the sale of B-goods to maximise the value of your returns.

Measures to reduce returns

Retailers also have a great interest in minimising returns. There are various approaches to this:

• Shipping cost regulation: should return shipping be free or partially transferred to the customer? This decision has an influence on customer behaviour.
• Virtual try-on and augmented reality: Body measurement tools or virtual try-ons can help prevent incorrect purchases, especially in the clothing sector. These technologies are on the rise and can reduce the returns rate in the long term.
• Clear product information: Precise descriptions, informative photographs and clear size charts enable customers to make informed decisions and reduce bad purchases.

Returns management: a balancing act with future potential

Returns management remains a challenge. If you want to satisfy customers, you cannot limit returns too much, but the associated costs are considerable. The solution lies in the optimisation of processes and targeted investment in digital technologies.

Process optimisation through transparency with CKL software

Efficient returns management relies on precise processes and digital workflows. The cost accounting module from CKL Software, integrated into Microsoft Dynamics Business Central, offers helpful support in process cost analysis, such as the recording of labour and process times, booking of production data and automated inventory adjustments. In addition, CKL’s apps offer functions for greater data transparency on the way to intelligent returns management:

• Detailed basic returns recording: this function enables accurate data collection as the basis for analysing and precisely optimising processes.
• Customised workflows: Retailers can have specific workflows for different reasons for returns. This level of detail is important and offers different perspectives on the fields of action as a basis for reducing costs.
• Comprehensive reporting: Detailed analyses of return rates and costs support strategic decisions and ensure long-term survival in a highly competitive market

Discover these possibilities for yourself and attend one of our next webinars on cost accounting: information and registration can be found on our website.