Since Black Friday and Cyber Monday are still fresh in mind – and Christmas & Boxing Days Shopping are just few days ago, I think it is the perfect timing for discussing about the customer returns.During the BF, in just one day, and only in UK – the volume of sales was more than £2.5bn!
Customer Returns – are around 10% across the industries – whereas in apparel the percentage is higher. So, £250,000,000 of stock will be returned only for BF and 4 times more in the next days.
This huge stock will put pressure on the logistics, on the already stretched warehouse staff and not latest on the bottom line of the manufacturers & retailers P&Ls.
Why people return a product? These will be the reasons I found out since 2005 when I got in touch for the first time with this industry:
1. Change their mind – they buy because of the impulse but then they realise they do not need the product anymore. Usually this is a not used product
2. Swap the product – they bought the item few days & weeks before – used it – and then they see the promotion and prefer to returned the initial bought item and buy the same one but cheaper. This will be a used product.
3. Unwanted gift – especially on Xmas – there are many gifts received – and not all are welcomed, so they prefer to return it. This is a new – not used product
4. The product was needed for a short period of time – you need a camera for taking pictures to a certain event – you buy a product, use it for a while – and return it while you still can, being refunded in full (not nice – but the shops accept it). Is it worse while you see certain persons buying a fancy dress for an event, hiding the label under and returning the next day (!!! I know – but it is a practice). This is a used item.
5. Failed delivery - the client is not reachable and the item is returned – in case of online shops; this is a new item.
6. Damaged in transit or in the network – the couriers didn’t pay attention, or the box got wet – or any other accidents and the product is not suitable – hence the return. This is a faulty item.
7. The product is faulty – there is a technical fault and it cannot be used.
8. The client doesn’t know how to use it - and prefers to return it – and get his money back
9. The product is not as per the client’s expectations - The client tries it and not being satisfied – it decided to return it back. Again – a used item.
And I think there are many other more reasons more or less justified, but the bottom line is that in this fight of getting more & more clients, the retailers accepts all returns without debating.
So all these products are returned and clients refunded. Few years ago, these returns were re-sold to jobbers as they come without sifting & sorting etc.
These days, when the margins are smaller and smaller and the volumes increased, a 10% in profit make these companies to pay attention on this process. First decision was to remove the new items from the returns and to put them back in the sale stock. Then, they start looking for better routes to maximise the return for the rest of the stock.
There are many solutions for this and ARLL is one route – but I do not want to discuss about this in this article – but about who will buy this stock and why some end up being dissatisfied with the quality of it.
· This stock is 90% used, and by used – the buyer should expect for dust in the vacuum cleaner, oil in the fryer or breadcrumbs in the toaster.
· The original package is removed, and the items are in plastic bags or loose.
· If the item had initial accessories included – when returned – they might be missing
· Some of them can be faulty.
Who should buy these products?
· There are workshops/factories – that take these items and refurbish them.
· They test it - and repair if the case
· Complete it with accessories;
· Put them in the original box (if this exists) or in a generic one
By this process, the products get a second life and the impact on the environment is minimised.
If you are new in this business and you are “charmed” by the low price – and you think that paying a fraction of the retail price for a returned item will make you rich over night – forget about this.
If you are ready to invest in a long term & profitable business, refurbishing these items, please don’t forget about hidden costs:
- Spare parts – if you cannot cannibalise the faulty units and get parts to repair & make complete ones – you will have to buy the necessary parts.
- Technical staff – not everyone can repair & fix a vacuum cleaner engine! So you will need qualified skilled workforce and this is not cheap!
- Consumables: boxes, plastic bags, plug adaptors – etc
- Scrap rate – sometimes – around 25% of the whole stock cannot be repaired.
A reasonable buying price for customer returns is < 25% RRP of the stock.
In many years, since I worked in this business I always took the time to explain this to my clients – and rarely I got to deaf ears and ended up with upset and unsatisfied ones – but who is to be blamed?
Gina IonescuManaging DirectorATTRACTING REAL LEVERAGE Ltd