Tackling the merry-go-round

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PennyOdyOnline sales may be booming but so are the returns. With e-commerce now accounting for almost 20 per cent of UK non-food sales, reducing the returns rate – especially in the fashion sector – will be vital to maintain margins.

As reports of retail sales figures over the past month well demonstrate, UK shoppers voted with their fingers when it came to Christmas. Online orders accounted for 18.6 per cent of all non-food retail sales during December, according to the BRC/KPMG Online Sales Monitor, while online business  grew by 19.2 per cent – the fastest growth rate for three years.

The increase may have proved something of a nightmare for carriers but efficient delivery systems are central to successful online shopping as BRC director general Helen Dickinson acknowledged:  “The surge in the use of tablets and smartphones last year, together with the ever faster delivery times achieved by an increasing number of retailers, have provided a new spur of growth to online shopping.” Her KPMG colleague agreed, pointing out: “Retailers now need to focus on the ‘last mile’ and figure out how to get the item to the customer even faster. Retailers who can offer same day delivery, at a reasonable price, will be the winners in the race for sales in 2014, and steal a march on their competitors,” said David McCorquodale, KPMG retail head.

Matter of price

“Same day delivery at a reasonable price” may trip glibly off the tongue, but as both retailers and logistics service providers know only too well, it is rather harder to achieve.  Accurate stock records, real-time visibility, streamlined single-pick warehouses, 24-hour operations, and limitless carrier capacity apart, there is also the little matter of price.

And actually rushing the goods to Mrs Customer within hours of her clicking the buy button is just the start. There is then the problem of returns. In many product sectors, returns are quite low: one study last year suggested that for many general merchandise retailers the returns rate was less than five per cent and little more than 12 per cent of these rejected goods could not be returned to stock. It is rather different for the clothing sector. Returns rates here are typically 40-50 per cent with an increasing number of shoppers ordering several of the same style in different sizes or colours and then sending back the rejects. Nice convenient systems, such as Collect+, make it even easier to return the unwanted goods – “free of charge”, of course.

While such tactics can play havoc with both stock management systems and demand forecasting, the majority of shoppers are probably genuine – or at least one assumes so. WeDo Technologies chose last month’s NRF Retail show in New York – which attracted some 30,000 visitors to its 500 exhibitors – to focus on rather less honest customers. WeDo reports that some analysts suggest that, globally, returns fraud in the retail sector costs the industry $8.8 billlion a year. The latest fraud report from Lexis Nexis similarly puts returns/refund fraud high on the list accounting for 18 per cent of fraudulent transactions.

Some tactics are well known to retailers: “wardrobing” where shoppers return a garment, usually a special occasion outfit, having worn it to the function; “bogof” where the “free” item is later returned for a full refund once the promotion has ended; “label swapping” where the fraudster buys two similar items, swaps the packaging and returns the cheaper one while claiming the higher price as a refund and so on. Others may be in the “urban myth” category: the boxes of returned flat screen TVs that contain only bricks when opened at the returns centre; the designer merchandise replaced by fakes bought on eBay, or the shoplifters who claim refunds on their latest haul.

No refund

While logistics companies may appreciate the extra business in transporting returned goods or running the returns centres which handle them, retailers are, not surprisingly, looking for means to reduce both the returns and any related frauds. The simplest are strategically sited labels declaring “no refund if removed” on hats and dresses while “virtual fitting room” systems such as Fits-me can persuade those who tend to order three and keep one, that a single garment really will fit. Returned goods can often be “missing” from the stock files for several weeks which, in the world of fast fashion, inevitably also means lost full price sales and markdowns.

Others are turning to big data with companies like WeDo and Clear Returns using predictive analytics to quickly identify which lines are most likely to be returned, which are likely to be fraud targets, or which customers have the greatest propensity to return items.

Calculating the cost of returns – as with calculating the true cost of home delivery – didn’t matter very much when online sales were a tiny proportion of the business but, as December’s figures show, online can now account for approaching 20 per cent of non-food sales and for some retailers it is already significantly higher. Losing money or seeing margin erosion on that number of transactions very soon affects the bottom line so clearly more cost-effective models are needed. Retailers have already managed to cut home delivery costs with click and collect, delivery to train stations or drop boxes; similar tactics to reduce the true cost of returns must be on the agenda.

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