4 Strategies for Decreasing Returns

Larry Alton
Larry Alton
Guest Contributor

Returns might be unavoidable part of retailing, but cost of excessive returns can be mitigated with a few purposeful strategies.

When profits are soaring, returns can reduce a substantial chunk of those financial gains. Unfortunately, in the retail industry, returns are an unavoidable reality.

Customers return items for any number of reasons. Clothes don’t fit properly, products turn out to be defective, and sometimes employees steal goods and have somebody else return them for the money that was never paid for them.

There’s no way to prevent returns entirely, sad to say, but there are strategies you can employ to cut their likelihood of happening to you so often.

1 – Establish a clearly visible, posted return policy

A clear return policy accomplishes two important things: It protects you from fraud, and it prevents excessive returns. You’ll always have to deal with some, but a vague return policy will result in your having to process an excessive amount of returns involving customers who have poor shopping habits.

Customers might not like the rules, but once they understand your return policy, they’ll make future purchase decisions with those mandates in mind. For instance, most people know stores won’t accept the return of electronics, games, and software once the packaging has been opened.

Someone only has to learn this the hard way once to become discerning about such purchases after that.

2 – Find the balance between clear and strict

A return policy doesn’t have to be strict to be clear … although a strict return policy will probably help you to manage your sales forecasts more accurately.

A return policy that’s too strict will deter some people from risking any purchase at all. Certain people regularly buy clothing without ever trying it on.

That type of shopper will probably never buy clothing from Forever 21 or Sears, because those are two of the top five retailers that maintain the strictest return policies, according to Time Magazine. Forever 21 only issues refunds in store credit; and at Sears, returns aren’t accepted if the customer lacks a receipt.

From the outside, it might seem like poor marketing to discourage purchases. But if viewed from the other side, for some retailers it’s a very smart move.

The Retail Equation conducted a six-month study to learn how return policies can affect a retailer’s net sales. Stores were divided into three groups, and asked to adjust their return policies.

The first group was asked to create stricter return policies, the second was asked to create a friendlier return practices, and the control group kept their existing guidelines for returns. The group that tightened their return policies experienced an 11.2 percent reduction in net sales, while the group that relaxed their return guidelines showed a 6.4 percent cut in net sales.

Now, a reduction in net sales isn’t bad if a strict return policy prevents frivolous purchases that would have been returned anyway. The key is to find the balance.

If your return rate is high, you’re not just losing sales, but having to spend extra money paying employees to process those returns. You have to plug the hole somewhere.

If people are making frivolous, impulse purchases, your return rates will be high. Only a stricter return policy will prevent that.

3 – Measure and track data meticulously

Identifying a high rate of returns doesn’t necessarily tell you why those returns are occurring. Tracking customer data, and more important, looking at overall patterns, can provide a solid clue.

If you create a retail dashboard displaying specific metrics, you can track consumer patterns and develop the data necessary to reduce your return rate. For example, if your data reveals the majority of returns occur following a large sale, you might consider tightening your return policy for sale items.

You might also look deeper into the type of deals that were offered. For example, say you notice a high rate of returns after a BOGO sale, and you accept returns without a receipt.

People might be taking advantage of your lax return policy to return the free items for cash or store credit. Tracking the data will tell you where to find the source of returns, and show you what to change.

4 – Keep items in stock

Allowing items to run out of stock can have dire effects beyond lost sales. Many people will choose a substitute item in the moment, take it home, and return it the next day.

If the item they originally wanted isn’t in stock when they return, they’ll buy from a competitor.

Returns cost you more than lost sales

Remember, the true cost of a return entails more than just a lost sale. For every preventable return, you’re losing money by having to pay employees to process and restock that return.

A good percentage of your labor costs might be supporting excessive returns without your knowledge. Dig deeply into the insights contained in the data you collect, and you can take appropriate action.

Returns are an unavoidable part of doing business, but excessive returns can be prevented.

About the writer: Larry Alton is an independent business consultant specializing in tech, social media trends, business, and entrepreneurship. Follow him on Twitter @LarryAlton3 and on LinkedIn.

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