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02 December 2019

The real cost of returns

Principal Lecturer

Monday 2nd December • Reading time: 2 minutes

Black Friday and Cyber Monday are the busiest online shopping days of the year. But when you change your mind and return a product, the real cost is much more than the postage.

When people buy clothes online, they might buy up to six variants of one item. That’s three tee shirt sizes in two colours.

It makes sense — sizes vary from retailer to retailer, and some colours appear different on screen. Also, buying six probably means the customer will get free shipping. They simply return the five surplus shirts within a few days, receiving their refund shortly after.

For retailers, the process isn’t so simple. If they’ve offered free shipping, then each delivery costs approximately £4 each way. That means a £8 loss can be made from a single return. And then a courier is hired, admin is undertaken, and clothes may need to be repressed, repaired and repackaged. For cheaper items like tee shirts or accessories, this can all have a big impact on profit margins.

And that's before discounts and excess stock have been taken into account. Retailers have to buy extra stock to account for returns — so for every 10,000 items they expect to sell, they may have bought 12,000. The remaining 2,000 will then have to be discounted to clear. 

The electronics market faces similar issues. A TV may have to be discounted after a single return. What's more, extra transportation and staffing are required to deliver and collect heavy, valuable items.

During busy sale seasons like Black Friday, where goods are discounted and deliveries increase, margins are particularly tight. But in a competitive marketplace, it's essential to keep your customers on side.

Competitive markets

Brand loyalty is volatile where returns are concerned. Customers will quickly switch to a competitor if they’re not getting the best deal. In fact, 70% of shoppers won’t buy from a retailer at all if they don’t offer free returns. 

A poorly-executed returns policy can cause big problems. Word gets around quickly on social media, and bad customer experiences can quickly escalate into full-blown PR issues.

'Wardrobing' is another issue that retailers battle with. Wardrobing is the practice of buying products for a particular occasion (such as a suit for a wedding, or camping equipment for the summer) and then returning it for a full refund.

And the more people buy online, the less likely they are to visit a physical store. This is taking its toll on the high street and the environment.

Declining town centres and environmental issues

The current state of the British high street is often seen as a symptom of the post 2008 recession, austerity and industrial decline. But it could be argued that the rise of online sales has also played a part in the downturn.

Meanwhile, the transportation involved in global eCommerce, coupled with the production and usage of single-use plastics, has released 14 million tons of Co2 into the atmosphere. It’s also sent four billion pounds worth of goods to landfill.

While many brands are more environmentally conscious than ever and use reusable, biodegradable packaging, there’s no escaping the inefficiency and excess of returns and eCommerce.

A toolkit for change

Returns aren't sustainable — either for business or the environment. That's why I’m part of a team of researchers helping to make returns more efficient.

The Reverse Logistics Toolkit was created by researchers from Sheffield Hallam University, The University of Sheffield and Cranfield University.

Founded in 2006, it allows businesses to assess industry best practice, collaborate, and find new ways of improving their returns processes. We’ve worked with over 40 major retailers, 3pls (third party logistics businesses) and manufacturers on the project and received initial funding from the Department for Transport.

By helping businesses to work together, we’re helping create a stronger, more sustainable future for retail.

Dr Jonathan Gorst is a Principal Lecturer at Sheffield Business School, where he lectures in the areas of Quality Management, Supply Management and Logistics. Jonathan has been researching in the area of Reverse Logistics for the last twelve years and in recent years this has been focused on Retail Returns.

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