Over the
last weekend in the UK – the “Black Friday Weekend”, estimates of sales volumes
indicated a total spend of approximately £2.3 Billion on Friday alone, and circa £5 billion over the whole weekend
through to Monday.
The
increasing use of smartphones, enabled by both larger screen sizes and better
mobile interface with retailer websites, resulted in a marked increase in purchases
made by mobile, with some estimates showing mobile purchases ahead of those
made by desktop for the first time; and a substantial overall majority of
website visits being made from mobiles.
At
first glance, this looks promising for retailers as sales were ahead of prior
years, and the proportion of onlines sales continued to grow – all warmly
welcomed by stock markets and traders alike.
But
underneath, the news that an estimated 20% of all purchases will be returned by
customers is a frightening statistic.
The negative implications of this
activity are massive. Not only is the sales bubble affected by many low
margin special offers to entice customers - lowering the overall margin
achieved during this single weekend, but the cost of handling and processing
such volumes of returns will be many times the value of the margin originally
achieved.
For
all sellers the cost impact for handling returns for any reason cannot be
underestimated. Each returned item will have to be checked for quality, in many
cases repacked, and then if ok, put back into stock on an individual basis.
Many products are likely to be writen off, or sold off at a loss, as they can
no longer be regarded as being in pristine condition for resale. The actual
cost to the reseller of processing a return is also significant.
The
hunting down of the original transaction and processing of the financial credit
is time consuming, and the time taken to return a single item back to its
stocking or retail space location is typically twice the cost of picking it
originally.
From
a vendor management and replenishment perspective, it is unlikely that many
retailers would have a single supplier that accounts for 20% of their
merchandising range. Yet with a volume of returns running at this level,
companies will need to consider treating their product returns process as their
single biggest priority vendor – albeit that the goods are booked in and
restocked in a single item basis, and not in pallet quantities.
Overall,
it is not difficult to believe that the cost to the seller of receiving and
restocking a return will typically be somewhere between two to three times the
orginal cost of stocking, selling and despatching the product.
There
is also a substantial environmental impact. The returns volume not only
accounts for 20% of outbound delivery mileage, but of course is doubled for the
return mileage, whether goods are returned by carrier or by additional customer
trips back to the shops. An incredible, substantial negative carbon footprint impact.
For
all businesses, understanding the true cost of returns, and and working methodically
to reduce the cause of returns is of paramount importance. Indicatively, a
reduction in returns could financially significantly outweigh the advantage
gained by increased margin from incremental sales growth – by a factor of two
plus.
Three
thoughts for consideration
- Is
the quality of data available for and through mobile devices is a contributory
cause of additional levels of returns? Would be interested to hear of anyone
who has measured returns level by channel by cause over recent months –
comparing the “Black Friday Weekend” against the current norm.
- There
must be a consideration for retailers to consider charging a small re-stocking
fee for non fault returns to defray the cost and possibly encourage wiser
purchasing habits.
- And
if many of the returns anticipated will not take place until after Christmas,
(and stock technically not available for sale or resale for four weeks), the
financial reporting of many businesses whose year finishes at the end of
December could be substantially affected by the necessary provisions needed for
anticipated credits and stock value increase in the new year.
Contact
Cygnus
Business -
to review the cost impact of returns within your business.
Cygnus Business - working with growing companies to improve
business effectiveness and grow sales and profitability. www.cygnusbusiness.com. Are we LinkedIn?
© Cygnus Business Limited 2016
