Parcel Magazine, Multichannel Merchant, Journal of Commerce and Shipware, LLC collaborated to conduct the most extensive national survey to date dedicated to the subject of parcel returns. More than 10,000 shippers were invited to participate. The results were presented at the 2009 Parcel Forum in October and are published here for the first time ever.
While the overall percentage of returns compared to outbound shipments is relatively small at 5.2%, the volume of returns is on the rise (Source: Colography Group). Some online merchants and catalogers reported returns greater than 30% (Chart 1).
Chart 1: What are your returns as a percent of outbound shipments?
The growth in online retail contributes to rising returns rates because online orders inherently have higher returns for a number of reasons:
Product is unseen and upon receipt, may appear different than it looked on the website (or catalog). The customer often changes their mind about the purchase by the time the shipment is received (emotion purchase, etc.). Some consumers order different colors/sizes and return the unwanted items. Inventory availability, delivery and/or assembly challenges also contribute to higher returns rates.
It’s also noteworthy that eCommerce continues to grow at 4% annually, and is expected to increase to 6% by 2012 (Source: Morgan Stanley “US Consumer & Retail Research”). Returns, therefore, are expected to increase commensurate for this market segment.
Chart 2: On what basis, do you allow your customers to return products?
Many of these factors are unavoidable. However, the table above also includes controllable factors including the number one reason reported for returns: defective/damaged item. Referring to Chart 2, note also that mis-ships were the number three reason. Delivery and inventory issues are also potentially avoidable.
Leading retailers minimize costly returns and improve the customer experience by shipping the right order on time.
Not only are returns a drain to profitability, they are also inefficient. Returns typically require additional handling from many resources including distribution, warehouse operations, customer service, finance and even sales and marketing. In the typical return scenario, the customer notifies the merchant of a return and a Return Merchandise Authorization (RMA) is issued. Someone has to receive, inspect and validate returned items. Someone has to issue credit to the customer. Someone has to repackage, restock, destroy or make some other decision about the product. And throughout this process, customer service is fielding multiple calls from the customer about returns policies, shipment disposition, credit status and/or re-ship information.
With these costly processes, it’s not surprising that nearly half of all survey respondents reported losing money on returns. About a quarter reported to break even, and only 8% claim to make money on returns (Chart 3).
Chart 3: Are returns a profit or loss for your company?
Although many companies lose money on returns, more than a quarter of survey respondents do not have a strategy to reduce returns (Chart 4). To reduce the instances of returns, retailers must develop a plan on measure for ongoing improvement.
Chart 4: What strategies does your company employ to decrease returns ratios?
However, there is a direct correlation between flexible returns practices and future customer orders. 85% of online shoppers reported that they would NOT buy again from a merchant if the return process was not convenient (Source: ComScore “Package Delivery Study”). On the other hand, if the return is convenient, 95% would buy again (Chart 5).
Chart 5: Relationship between returns and customer experience
Zappos has made its returns policy a competitive differentiator, with a free returns, no questions asked policy. While Zappos returns rate is better than 35%, the company boasts extremely high reorder rates, customer satisfaction and loyalty.
Convenience plays a major role in customer satisfaction. Yet only 21% of shippers include a return label with the outbound order (Chart 6).
Chart 6: Does your company include a return label as part of the outbound order fulfillment process?
When determining returns policies, retailers need to make decisions regarding the tradeoff between customer satisfaction (low cost or free returns for any reason) and profitability (limits on returns with customer participation in costs).
Survey responses were fairly evenly split on the question of cost obligation between customer, merchant and shared costs (Chart 7).
Chart 7: Who pays for returns?
There is a split between strict policies that allow returns for defective and/or unopened items only, and more liberal policies that allow most or all purchases to be returned for any reason (Chart 8).
Chart 8: On what basis, do you allow your customers to return products?
About half of survey respondents have a 30 day limit on returns. The other half, greater than 30 days with some allowing returns more than one year (Chart 9).
Chart 9: What is your company’s primary policy on time limits for returns?
Charge back policies also varied. Some merchants charge customers for returns based on a flat rate or as a percentage of the dollar value of the order. Others try to recapture actual carrier costs and/or include a handling fee. 42% do not charge when the item is returned due shipper errors like incorrect order fulfillment, or defective product. And 19% of respondents do not charge customers for returns regardless of reason (Chart 10).
Chart 10: Which best describes your policy on charge back for returns?
While many of the survey responses were balanced amongst participants, there were a number of questions that yielded significant variance. To maximize the value of survey results, the survey hosts separated responses to develop a best practices group.
The best practices group was not based on profitability of returns, but rather those companies that shared the following characteristics:
- Have high visibility of return shipment disposition throughout the return cycle
- Ensure customer satisfaction re: returns policies by frequently evaluating and revising returns policies around customer feedback and other measurements
- Formally valuate the relationship of returns policies and customer loyalty
By defining these characteristics, a number of questions yielded sharp variances in survey responses. For example, to have greater visibility and return processing, the best practice group requires the use of RMAs (Chart 11).
Chart 11: Do you require use of Return Merchandise Authorization (RMA)?
The RMA and other shipment tracking strategies allows the merchant to become aware of the return, manage the customer experience and better anticipate receiving operations and product management. 66% of the general group has little or no visibility until a return arrives on their dock (Chart 12).
Chart 12: What level of shipment visibility do you have with returns?
As a critical element of successful returns management, we asked survey participants that reported return shipment visibility to state the primary uses of that information. Responses include enhanced customer communication and improved customer service, operational efficiencies, inventory management and product marketing (Chart 13).
Chart 13: Primary purposes/uses of return shipment visibility at your company?
100% of the best practices group surveys its customers to ensure satisfaction of returns policies and practices. More than half of the general group does not (Chart 14).
Chart 14: Do you survey your customers to ensure satisfaction of your returns policies and practices?
77% of the best practices group evaluates their returns policies at least every year, contrasted by only 37% with the general group. 31% of the general group do not periodically review returns policies (Chart 15).
Chart 15: How often do you evaluate your returns policies?
65% of the best practices group formally evaluates the relationship between return policies and customer retention as measured through reorders, future sales, customer loyalty, etc. (Chart 16).
Chart 16: Do you formally evaluate the relationship between return policies and customer retention (reorders, future sales, customer loyalty, etc.)?
In conclusion, the 2009 Parcel Returns Survey provides shippers with valuable information to compare your current returns policies and practices with a larger benchmark study, including a best practices group. Effective returns management can reduce transportation and operating costs, while enhancing the customer experience and future sales.
(April 2009, By Rob Martinez, President & CEO, Shipware, LLC)
Rob Martinez is President of Shipware LLC, a transportation spend management firm specializing in carrier contract negotiations, audit & pay and information management to help shippers reduce costs 10%-30%. He welcomes questions and comments at email@example.com.