4 Ways to Minimize the Impact of Returns on Profitability

Abby Jenkins, Product Marketing Manager

January 5, 2022

Many businesses view returns as a necessary evil but changing that mindset and treating returns as an important aspect of the customer experience can have positive results.

The value of returned merchandise increases each year, up 26% in 2020(opens in new tab) vs. the previous year, according to UPS, for a total of $428 billion in returned merchandise. The increase in ecommerce sales adds to the problem: the average rate of return is about 10%, but for online purchases that can climb to 40%. In certain industries it is even higher as 62% of shoppers(opens in new tab) “bracket” their purchases, meaning they purchase multiple items (sizes for example) with the intent of returning the ones they don’t want according to DigitalCommerce360, an ecommerce news site.

The fact is returns are a part of the customer buying experience. According to UPS, 73% of shoppers say the returns experience directly affects the likelihood of a future purchase.

Processing returned merchandise can seem like a daunting task, especially when you factor in fraud-- there were an estimated $7.7 billion(opens in new tab) in fraudulent ecommerce returns in 2020 according to the National Retail Federation. Without business processes in place to handle returns, many businesses choose to cut their losses and dispose of returns, with the assumption that the time and effort necessary to get them back into inventory outweighs the loss of the item itself. This severely cuts into profits and results in 5 billion pounds(opens in new tab) of brand-new merchandise in the landfill each year, according to Optoro, a company that specializes in returns logistics.

Some of the common challenges businesses face when dealing with returned merchandise are:

  • Inability to track and manage returns
  • Inability to identify and prevent fraud
  • Excess returns impacting profits

Adopting a returns management system helps to make reverse logistics more manageable and increase profitability, but it requires a strong foundation of technology and processes.

Inventory visibility. Inventory control and visibility is central to minimizing the costs of returns. Once an item has been returned it is important to ensure that item is returned to inventory immediately across all selling channels to provide the best chance of re-selling that item at the highest price possible. This is especially true if items are seasonal or have a limited shelf life.

Flexible fulfillment. No matter where a product was originally purchased, today’s customer expects to be able to return it to the store. However, without the right processes in place, this can put a large burden on the store associates and increase the cost of goods sold (COGS(opens in new tab)). The ability to accept returns at the store level and use them to fulfill future online orders, without incurring the additional cost of sending those items back to the warehouse or fulfillment center, is critical to minimizing the cost of returns.

Returns policy. Ensuring a positive customer experience with a buy anywhere, fulfill anywhere, return anywhere shopping experience begins with an established returns policy. A returns policy ensures both customers, and sales associates understand what items can be returned. Using an order management system(opens in new tab) that tracks customer purchases greatly increases the ease of validating returns and preventing fraud as customer purchases are recorded in the system and can be accessed by the associate.

Returned merchandise authorization (RMA) process. Establishing an RMA process ensures that, once a return is accepted from the customer, it will be inspected and processed appropriately. A defined process ensures staff understands how to inspect returned inventory to determine whether it can be resold or not.

NetSuite simplifies the returns process and increases profitability of returns by ensuring items are immediately returned to inventory, offering the best chance of re-selling items at the highest price point possible. With NetSuite businesses can:

  • Accept returns across all channels
  • Complete exchanges
  • Manage how the return will be handled
  • Set returns process rules

NetSuite eliminates points of failure common with disparate systems, ensuring that returns are managed accurately and saleable items make it back into available-to-promise (ATP) inventory without delay. NetSuite helps ensure a positive customer experience with a buy anywhere, fulfill anywhere, return anywhere shopping experience.

To learn more join the upcoming webinar Minimize the Cost of Returns(opens in new tab).

NetSuite has packaged the experience gained from tens of thousands of worldwide deployments over two decades into a set of leading practices that pave a clear path to success and are proven to deliver rapid business value. With NetSuite, you go live in a predictable timeframe — smart, stepped implementations begin with sales and span the entire customer lifecycle, so there's continuity from sales to services to support.