Returns have always been a part of retail business. And each business has created policies and procedures that work for them. E-commerce is not different. In fact, the e-commerce trend is for increased returns. Ultimately this will be as high, if not higher, than retail, depending on product category. 

Our experience is that a well-managed returns and refurbishment program can save the marketer in the long run – the proverbial ‘Gold in Them Hills’. In this article we examine the reasons for returns, key elements of a return strategy, program cost elements, and our preferred method to minimize costs and maximize revenues. 

What causes returns in the first place? This occurs for several reasons. First, e-commerce businesses aggressively position themselves as customer friendly. Well-defined and communicated policies and procedures is a selling tool. Our “Amazon World” environment is fast becoming the norm. 

Second, the very nature of e-commerce creates situations where the consumer does not have the same touch and feel experience that exists at retail. The absolute need for returning items might be greater. Apparel has always experienced high rates of return compared to many other types of products. This could easily be higher with e-commerce than at retail. 

Third, the ease of returning, and even the anonymity of returning goods could be greater for the e-commerce customer. Whereas a consumer may feel uncomfortable returning an item to a retail store, and explaining the reason(s) for the return, who has a problem popping something into the mail?

These market forces and trends motivate businesses to have well-established plans for returns. The key objectives of any return policy and procedure should: 
1) Be based on a sustainable financial model associated with the returns – this varies with each business and product line. 
2) Have a well-organized mechanism for feedback and improvement leading to goals for on-going process improvement to reduce costs. 
3) Create and maintain satisfied and loyal customers. 

Let’s review these key objectives.
1) Setting up a return and refurbishment process starts with calculating all costs. This is important because it ties back to your sustainable financial model. If you under-estimate your true costs, you may think that you can sustain a higher level of returns, and still achieve your financial goals. You will deceive yourself until a more detailed financial audit reveals the additional costs. If you over-estimate your costs, you might be presenting a less friendly customer service level, which could result in lower sales. What are the cost elements for a returns and refurbishment program? 
   a) Customer service. This is mostly a function of agent phone time. There are multiple touch points with the customer including when they call to make a return, follow up on the status of their return (and credit), and any proactive programs implemented to communicate with the customer. 
   b) Shipping costs. This is one of the highest cost categories. Who pays for the shipping? What method is used for shipping? How fast is it returned? Our preferred solution helps to reduce this. 
   c) Receiving costs for the returns.
   d) Processing of returned goods. A well-designed program to open, inspect and evaluate will help to reduce costs. 
   e) Refurbishing of the returns includes cleaning, adjusting, rebuilding, repackaging. This is a big opportunity for many companies. Any product or component that can be saved will result in cost savings. All operate under the protocols that you design. Definitely ‘Gold in Them Hills’ here. 
   f) Recycling of product or even components. There are many different approaches to this function. Refurbished items can be returned to the manufacturer or re-injected into the inventory stream at the processing center. 
   g) Disposal of returned items and components, including environmental issues associated with disposal. 
   h) Storage of returned items, components and space for performing return-related activities.

2) Next, a good feedback mechanism must include three critical functions to capture information on the reasons for returns. Your customer service department, order management system, and your fulfillment/returns center are uniquely situated to collect and compile information. Accurate and timely information gives you the ability to take the next step. Ideally the information is as detailed as possible, i.e. by product category and item level.

The basis of a returns program must incorporate an understanding of why returns occur. Buyer’s remorse is always a contributing factor. Often, products do not meet the customer’s expectations. This is more common in e-commerce than at retail, because the buyer does not have the same opportunity to experience the product. Examples are product not fitting properly or the customer doesn’t like it. There may be product quality issues, such as damaged goods or missing components.

Now that you understand the reasons for the returns, you have the tools to address the rate and ultimately make a financial impact. What expectations did you set with the customer? This includes product promises, item availability, order processing time, and shipping and delivery time. Your business can refine the product promise message to more accurately shape the customer’s expectation. A good order management system allows the customer service agent and consumer using the shopping cart to know whether or not the product is in stock. A fulfillment center capable of processing orders quickly reduces time from order to delivery. Geographic location can reduce time in transit, and lower shipping costs. Where are your customers located? Can you position your fulfillment so that the majority of the customers can be reached within say, two days via ground service? 

3) The level of customer satisfaction and loyalty are key elements in a returns strategy and start with your strategic intent. What is the profile and message that you wish to project to your customer? Along a wide continuum of possibilities, where will your program fall? Will returns be a friendly action, with an easy process for the customer? Or, do you wish to make is more difficult, by raising various barriers for the customer? There is no right or wrong answer. Each business has to have a starting point. For example, for one product category the goal might be to have a return threshold at 10% of orders. Another product category might be 35%. Whatever level you select should tie to your sustainable financial model. 

There are several options for handling customer return requests. For low cost/low value items, it may be cheaper to allow the customer to retain the item, avoiding physical returns. This greatly simplifies the process. Cost functions incurred are customer service time and issuing of the refund/credit. 

In another model the customer pays the cost of the return. This is through a return fee and/or payment of shipping. This model is less costly for the retailer, but can create bad feeling with the customer resulting in a lost customer, as well as negative publicity via social media. This is especially detrimental to branded products, which rely on customer loyalty and good social media. 

Our preferred model is one in which the customer is given options. This puts them in charge with choices and tradeoffs based on their needs. 

The customer may select from a range of options allowing them to return the product with varying degrees of hassle by paying a portion, or all of the shipping cost. This results in good customer relations and can reduce the cost to the retailer by eliminating or reducing the shipping cost category. 

How does this work? The customer pays the return postage but the marketer makes the process convenient (at a price). Marketers offer prepaid labels by email or mail at discounted postage rates. This allows the customer to skip the post office lines and simply drop the package in their own mailbox. Or even schedule a free pick up! And many customers are willing to pay for this convenience. 

This is a ‘Gold in Them Hills’ option because everyone is happy and the marketer can introduce it only after the Save-the-Sale attempts have failed.

There’s more. By controlling the return method, marketers proactively can notify the customer of the return status, dramatically reducing customer service calls. Techniques include emails confirming the package is in the mail stream and on its way, when it arrives at the warehouse, when processed and when the credit or refund is issued. All of these actions contribute to customer satisfaction. And they reduce customer service costs. Ultimately your goal is to create a loyal customer who will communicate positively about you on social media about their experience. 

Refurbishment is one of the hidden financial benefits of a return program. Our experience shows that many orders are returned with products and components completely reusable. This is a good example of the benefits of a good information gathering process. From the customer service agent to the return center employee opening the returned package, decision criteria can be established to take appropriate action. 
If the item or components can be salvaged, then they can be re-injected into inventory. Finished goods can go back to inventory. Components can be sent back to the manufacturing or assembly stages. Both save you money. 

Here is a great example. A company manufactures, assembles, and packages in China. The product has a high return rate, say 40%. But 50% of the returns have product or components that can be refurbished. The company actually can move the production, assembly, and packaging to the USA – even with higher labor costs! 

Refurbishing also reduces the amount of material that needs to be disposed. That saves money, especially if environmental issues exist. 

Other considerations for a returns and refurbishment operation: 

Should your fulfillment center also be your returns/refurbishment center? This is not completely necessary. Expertise in one function does not confer expertise in the other. Ultimately, it is important to make sure that they are competent in their assigned functions. Some advantages of function consolidation include: one set of inventory, single OM system, and greater ease to reintroduce product and components back into inventory and manufacturing. 

Select a partner who has ample experience in running returns and refurbishment programs. Their experience will be valuable. They know how to integrate the various functions, can provide you with expectations for returns quantities and reasons and they have the experience to monitor changes in the process. They will be a strong business partner.

The processing center should be located centrally, close to the majority of customers making returns. This minimizes shipping costs. Look for low labor costs, which is critical. The processing center must be quick and agile to react to changing needs. 

The customer service function must be well-trained to support your return program. An organization whose primary function is outbound sales may not be the best for a return program. Select a partner that has ample expertise to meet your needs. 

Another consideration for a return program is the ability to service Canada and other international markets. Sometimes you can consolidate returns into one country. This occurs often for the US and Canada. In other cases, you will need to perform the function in multiple markets. 

Finally, in your selection of both fulfillment and return/refurbishment centers you need to decide what relationship you wish to have. Will you be a little fish in a big pond? Or a big fish in a little pond? There are pros and cons to each relationship. What is best for your company? 

Ayal Latz is President and founder of a2b Fulfillment, Inc. The company evolved from Ayal’s family toy business which affiliated with other toy companies, becoming their distributor. Today, a2b is a leading provider of fulfillment, customer service, warehouse and logistics services for Consumer Direct and e-commerce. Contact him at 866-843-3827 x 118,, or