Returns management is a retail and e-commerce process that handles unwanted, recently purchased merchandise. It starts when a customer requests to return an item and concludes with the item being either returned to inventory, refurbished, recycled, or otherwise disposed of.
Returns are an unavoidable aspect of retail (with a total return rate of 16.6% in 2021), making returns management a necessary operating expense for any retailer. Optimizing your returns management process can help reduce costs, save time, and enhance the customer experience.
Here are some strategies for effective returns management.
1. Gather & Evaluate Returns Data
To process returns efficiently, it’s crucial to understand the reasons behind customer returns. Track your returns data to identify which products have the highest return rates and investigate the underlying causes.
Consider four key data aspects of returns management to understand and optimize your returns workflow. Effectively tracking these aspects will provide insights into your product inventory and bottom line, helping you minimize avoidable returns and improve your business operations.
- Volume of Returned Products
- Sales Percentage
- Returned Product’s Condition
- Financial Value
Generally, return rates of 10% and below are considered positive, while a 60% return rate is detrimental to business. To manage returns effectively, monitor the volume of returned items and consider the following:
- Are the same items being returned repeatedly?
- Is this happening in large volumes?
Refer to standard return rates per category (for example, apparel has a higher return rate than beauty products, 12.2% vs 4.3%).
If you answer yes to either question, you may have a manufacturing or product issue. Consider a product recall or an overhaul of your production process. A third-party logistics (3PL) company can assist in reporting the number of returns and identifying the specific batches they originated from.
Monitor these key metrics:
- The percentage of sales lost due to product returns
- The number of returned products that can be reintegrated into your supply chain through the returns management process
By tracking these metrics, you can devise strategies to minimize revenue losses. For instance, retailers specializing in consumer electronics can invest in tools and systems to repackage refurbished items for new shipments or outsource this task to a 3PL provider.
Identify any failure patterns among the returned products. Quality assurance becomes crucial in this aspect. You need to figure out what went wrong to correct the problem before it happens again.
You can lose millions of dollars in potential revenue if you do not monitor your returns management process. Assess the value of a returned product and determine if any part can be refurbished, reused, or provide value back to your company. Automation tools such as fulfillment, inventory, and returns management software can help you monitor the number of returned or lost items, which you can then use to track the total profit those returns cost you.
Evaluating returns data also gives you insights on your returns management workflow and helps you understand the following:
- Each product and product category’s return rate
- Percentage of returns resold at full price, at a discount, or salvaged
- How to optimize your returns routing for efficiency
- The cost to process returns per product through each return channel
Related: Learn more about: ecommerce return rates.
2. Design Your Returns Management Workflow Properly
Making it easy for customers to return products builds trust and enhances customer loyalty. According to the latest Narvar Consumer Returns Study, 70% of shoppers who initiated returns are more likely to stick with the retailer if the returns or exchange process is straightforward.
An efficient returns management process reduces the time between a customer initiating a return and receiving a refund or replacement product. Here are some ways to streamline the returns process and improve the customer experience:
- Have a Clear Return Policy: Ensure your return policy is easily accessible and clearly outlines the steps for returning items.
- Offer Free Return Shipping: Providing free return shipping can encourage customers to make purchases without the fear of difficult returns.
- Provide Tracking Numbers: Give customers tracking numbers for their returns so they can monitor the process.
- Issue Timely Refunds or Store Credits: Promptly issue refunds or credit customers’ accounts with equivalent store credits.
On the backend, there are tools and processes you can implement to optimize the returns process:
- Return Merchandise Authorization (RMA): Use RMA numbers to easily identify and manage incoming returns. An RMA is a numbered authorization provided by e-commerce or mail order businesses to facilitate product returns.
- Barcode/RFID Readers and Scanners: Utilize barcode or RFID readers and handheld, wireless scanners to speed up the scanning and tracking of returns. Wearable technology, such as scanners attached to gloves or wrists, can further improve productivity and efficiency.
- Warehouse Management System (WMS): Implement a WMS to serve as the system of record for your operations and increase inventory visibility. A WMS can also provide valuable returns data to help your team process returns more effectively and improve the returns management workflow. Designate a specific area in the warehouse dedicated to handling returns.
- Standard Operating Procedure (SOP) Manuals: Develop SOP manuals that cover all procedures and policies related to returns. These manuals should detail the disposition categories (restock, repair, recycle, repackage, return) and communicate these processes to the returns handling team.
Did you know? Expanding in-store return options is one of the top retail trends of 2023.
3. Automate Your Returns Management Process
Automating your returns management workflow boosts efficiency in routing and processing requests, while reducing costs and errors. A returns management tool can streamline the entire returns process from start to finish.
Return management systems are web- or cloud-based platforms that assist sellers in handling returns smoothly. These platforms are usually available as SaaS (software as a service), and some options are free.
These tools enable you to create an online portal where customers can initiate returns and have their requests approved based on automated criteria—significantly reducing the need for manual labor and minimizing errors. They also facilitate exchanges, issue credits, and make return transactions easier to track. Additionally, these systems simplify the process of providing return labels to customers by automatically generating and emailing them.
Many top shipping software solutions include returns management tools; ShipStation, in particular, is renowned for its comprehensive returns management features.
4. Outsource to a Fulfillment Company
Integrating your returns (reverse logistics) with your fulfillment (outbound logistics) can greatly enhance your returns management process. Partnering with a fulfillment company allows you to outsource many labor-intensive tasks, including fulfillment, inventory, and returns management.
With this approach, you can streamline returns processing by setting your return policy and disposition preferences with the fulfillment center in advance. Then, all returned merchandise can be sent directly to the fulfillment company’s warehouse.
Not all 3PL fulfillment centers offer return services, but those that do typically provide platforms to keep you updated on returned merchandise that is ready for re-listing.
5. Have a Clearly-Written Return Policy
Customers are unlikely to trust a retailer without a clear and agreeable return policy. Your return policy can set you apart from the competition or drive potential customers to seek similar products elsewhere.
Did You Know?
Lack of transparency and convenient return options can deter customers from making a purchase. A study revealed that 39% of shoppers wouldn’t buy if they can’t find the return policy or initiate a return by mail, and 28% will abandon their purchase if they have to contact support to initiate a return.
By providing a clear and comprehensive return policy, you foster trust, confidence, and loyalty in your brand, making the decision to buy much easier for customers.
It’s vital to make your policy accessible and easy to understand. Here are some tips for creating your own:
Cover the Details
Write your return policy to ensure your return policy is comprehensive and clear, make sure to cover all the details of how the return transaction works. Include the following information as it applies to your store:
- Eligible Items for Return: Specify which items can be returned.
- Non-returnable, Non-refundable, and Non-exchangeable Items: List items that cannot be returned, refunded, or exchanged.
- Return Window: State the timeframe within which items can be returned (e.g., 30 days after the purchase date).
- Condition Requirements: Detail the condition items must be in to be eligible for return (e.g., tags intact, in original packaging, lightly worn, etc.).
- Customer Compensation: Explain what customers will receive for their return (e.g., store credit, full refund, refund minus restocking/return fee, product of equal value, etc.).
- Return Initiation Process: Provide instructions on how to initiate a return (e.g., contact email address, a form to fill out, a returns portal to use, etc.).
- Return Shipping Costs: Clarify who is responsible for paying return shipping (e.g., the store or the customer).
- Return Shipping Labels: Explain how customers can obtain a return shipping label.
- Eligible Countries: Specify which countries are eligible for refunds and returns.
By thoroughly covering these points in your return policy, you can help ensure a smooth and transparent return process for your customers.
Use the Right Language
Write your return policies in clear, simple language that’s appropriate for your customer base.
- Prioritize clarity. You can infuse your brand’s personality into your return policy by using an intentional tone, but make your word clear and direct to the point.
- Avoid intimidating legal jargon like “you are required to” or “we are not responsible for.” Instead, opt for friendlier ways to explain the process.
Make It Easy to Find
If you’re an ecommerce seller: Make sure the link to your return policy is accessible and easily visible from every page of your site. It also helps to use bullet points or infographics to convey the core details of your policy quickly.
A few key places you can display your return policy are the following:
- Your website footer
- FAQ page
- Product page
- Cart
- Checkout
- Order confirmation emails
- Website chat
If you are a brick-and-mortar retailer: Display a physical copy of your policy near the checkout, the front door, or both. Also, include the policy in your receipt. Ensure your staff has the details memorized (including seasonal changes) and can quickly answer any related questions.
Learn how to write a retail return policy for your store.
6. Minimize Controllable Returns
The most effective way to handle returns is by preventing them altogether. While some returns, such as customers changing their minds or no longer needing the product, are unavoidable (“uncontrollable returns”), the primary reasons for product returns are typically “controllable.”
Controllable returns often result from issues like size and fit discrepancies, products arriving damaged, and items not meeting customer expectations. Retailers can mitigate these returns through improved operations.
Common causes of controllable returns include:
- Inaccurate Product Representations: Ensure product descriptions, images, and specifications are accurate and detailed.
- Insecure Packaging Materials: Use high-quality, secure packaging to prevent damage during shipping.
- Manufacturing Issues: Maintain strict quality control standards to avoid defects and inconsistencies.
- General Mismanagement: Streamline operations to reduce errors and improve overall efficiency.
Additionally, factors such as customers finding similar products at better prices can be considered controllable, as both product quality and pricing are within your control.
By addressing these areas, retailers can significantly reduce the incidence of controllable returns.
Here are some strategies to prevent controllable returns:
Increase Accuracy & Quality Control
A report noted that 23% of ecommerce returns are due to the consumer receiving the wrong item. Picking errors are a highly controllable factor in minimizing returns.
- Refine your order fulfillment process and quality control. In-house fulfillment operations can improve accuracy by modifying their shipping workflow to include an order-checking stage. This step is most effective when performed in a dedicated workspace by employees other than the pickers and packers.
- Establish clear standard operating procedures (commonly called SOPs). SOPs are the best way to create an error-free operation. Read our guide to ecommerce shipping and handling to download free SOP checklists or make your own.
- Using specialized software can do wonders for retail fulfillment. Shipping software and inventory management platforms can streamline order data and automate repetitive tasks—reducing the risk of human error.
- Outsource to specialists. Ultimately, the most effective way to perfect your fulfillment process is to outsource it to specialists. In our breakdown of in-house vs outsourced fulfillment, we found that hiring a fulfillment center is often more cost-effective for small retail businesses.
Use Protective Packaging
One of the leading reasons for e-commerce returns is damaged merchandise, accounting for 17% of all returns. While you have limited control over how parcels are handled during transit, you can minimize damaged orders by using protective packaging.
Here are some strategies:
- Quality Dunnage: Use high-quality dunnage, such as air cushions or honeycomb sleeves, to protect items during shipping. Crinkle paper is an elegant option that can enhance the unboxing experience—just ensure you use enough to cushion the product adequately.
- Waterproof Packaging: For items susceptible to water damage, use waterproof lining or water-resistant poly mailers to keep merchandise safe from moisture.
By implementing these packaging practices, you can reduce the likelihood of returns due to damaged goods.
Level Up Your Product Listings
While there’s growing interest in “fit technology” tools like augmented reality (AR)—with 32% of shoppers indicating they’d use them if available—most customers still rely on traditional resources. Nearly 90% use photos, descriptions, reviews, and sizing guides to make purchasing decisions. To reduce returns due to fit, size, and color issues, ensure each product listing on your e-commerce site is accurate and comprehensive.
Enhance Product Descriptions:
- Write clear and informative product descriptions that highlight features and benefits.
- Include essential details such as materials, size, dimensions, usage, and other relevant information.
Provide Detailed Sizing Information:
- For apparel, include sizing and conversion charts to help customers understand how items will fit.
- Consider implementing a UX tool like ASOS’s Fit Assistant, which recommends sizes based on user input and data from similar shoppers’ unreturned purchases.
Use High-Quality Product Photos:
- Ensure your product photos provide comprehensive information. Aim for four to 12 images per item, showcasing different angles and details.
- Include various photo types to answer common questions customers might have. For more tips, refer to our product photography guide.
Incorporate Product Videos:
- Add videos to your product listings. These don’t need to be high-budget productions; a professional and informative clip can significantly enhance the customer experience.
- Keep in mind that 69% of customers prefer to get information from a short video rather than from photos or text.
By leveling up your product listings with these strategies, you can provide a better shopping experience and minimize returns.
Encourage Customer Feedback
Feedback from your customers is invaluable for identifying pain points and reducing returns. It’s important to ask for their reason when they return a product.
Request Return Reasons:
- On the initial return form or during communication, provide an option for customers to specify why they are returning the item.
- Be mindful that some customers may feel scrutinized when asked for return reasons. If they feel they need to justify their return, they might provide inaccurate responses.
Offer a Range of Valid Return Reasons:
- To gather the best data, provide a variety of valid return reasons. If your return policy allows, include options such as:
- “Incorrect size”
- “Item arrived damaged”
- “Simply changed my mind”
- “Found a better price elsewhere”
Analyze Return Patterns:
- Regularly analyze the reasons for returns and identify any patterns.
- Use these insights to make necessary adjustments to your products, descriptions, or processes.
By encouraging honest feedback and analyzing return reasons, you can make informed decisions to improve your products and reduce returns.
Benefits of an Optimized Returns Process for Your Store
Streamlining your returns management offers numerous benefits, including cost savings, happier customers, and improved sustainability.
Faster Turnaround
An optimized returns process allows customers to return and receive replacement products quickly, boosting customer satisfaction. A faster turnaround also enables your business to repair, refurbish, or reuse returned products, reducing the need to purchase new inventory.
Reduced Waste & Improved Sustainability
A streamlined returns management process helps you find ways to reuse, resell, or recycle materials that might otherwise end up in a landfill. This not only protects your product margins but also enhances your brand’s reputation for social and environmental responsibility by extending the lifecycle of products through remanufacturing or refurbishing.
Better Profit Margins
Optimizing returns can reduce costs in various areas, such as transportation and inventory management. By effectively absorbing and reselling returned items, you can significantly improve your profit margins.
Increased Customer Satisfaction
How your business handles returns greatly impacts customer perceptions of your brand. Statistics show that 77% of first-time shoppers who had a positive return experience expressed intent to shop with the same retailer again. This number jumps to 96% when considering both first-time and repeat customers who rated their return experience positively.
Bottom Line
Returns are an inevitable part of operating a retail business, whether you sell online, in-store, or both. Therefore, returns management should be an integral part of your business strategy. Implementing effective strategies for your returns process can enhance profit margins, customer experience, and overall satisfaction. By adopting a comprehensive return policy, preventative measures, and efficient receiving procedures, you can minimize the impact of returns on your bottom line.
Retailers should no longer view returns as a mere operating cost but as a critical component of their retail strategy.
