Keep operational costs down with returns automation
Matt Gottron
·March 28, 2024
E-commerce may still be consistently growing year over year, but that doesn’t mean brands are in the driver’s seat of their success. With inflation still at an all-time high, any growth opportunities are being compounded by rising operational costs.
And it’s even harder for new businesses to make their way into the market when legacy software solutions are continuously increasing their subscription costs in order to stay profitable themselves.
Simply, it costs more to build and operate a business than it used to. To some degree, everyone is suffering.
The Challenges with Rising Costs
- Inflation is still too high
- Consumers are spending less
- US retail sales fell 0.8% in January, well below economists’ expectations of a 0.1% decline.
- It’s more expensive to operate your brand
- Anywhere up to 30% of your sales may end in a return, and up to 50% of an item’s original value makes up the return cost, including shipping, warehousing, and labor costs.
What This Data Tells Us
Returns and Reverse Logistics Incur Significant Costs
The cost of returns can eat up almost half the cost of the item when you factor in customer support, shipping, warehousing, inspection, and labor.
There’s also more to a good returns process than just happy customers. It’s about giving your products a second chance at life, which is great for the planet and your wallet. And this would be all fine and dandy if not for the fact that only about 30% of returns can be restocked…
What do we mean?
The speed of returns is crucial for brands in some verticals, like fast fashion or highly promotional products, as it affects the likelihood of reselling the product.
For example, a summer dress that’s released in July can quickly go out of style in a couple of months. If it takes weeks to ship the item back, inspect it, process the return, and update the inventory count, it can result in missing the window for resale due to the product’s short lifecycle.
Delays in returns quickly become expensive. The process is far from optimized for brand operators.
Strategic Friction in Returns is Critical to Protect Profit Margins
It’s important to make your returns process easy for customers, but you also need to be careful about protecting your margins. Opening the floodgates can lead to a wave of additional abusive and fraudulent returns that eat up your team’s precious time.
How so? Every return requires a clear system for inspecting and processing returned items, which can strain your warehouse operations and logistics.
And for many brands, when a return does make it back to your warehouse, there’s often no clear system for what happens next.
Can the item be resold, recycled, or does it need to be trashed? These are the questions that need to be answered promptly. It’s important to sync your returns data with your 3PL to identify these next steps, but unfortunately most warehouse systems aren’t sophisticated enough for this.
If syncing returns data isn’t automated, it takes up too much time and allows for errors. This hurts a brand in two main ways:
- You miss out on valuable data that gives you transparency into what products are being returned and why.
- You miss the short timeframe you have to resell that item and protect your margins.
Speed makes all of the difference between retaining a customer and being able to resell an item. Without a streamlined process, your brand wastes time, product, and money.
There Is Hope
- It’s expected that inflation will average 1.9% from 2024 to 2028, falling just under the Fed’s 2.0% inflation target.
- Online retail sales are still currently projected to grow by 9.83% each year.
How to Overcome Rising Costs
Automate your Returns
Modern e-commerce is about achieving three core goals:
1. Minimizing manual processes and errors
2. Reducing operational costs
3. Customizing the customer experience to increase profits
While operators have come a long way with learning how to automate various aspects of their business—from email flows to customer support and even real-time inventory stock sync—one area of opportunity is automating returns.
Automated systems can process returns more quickly, leading to faster refunds or exchanges for customers. This speed is crucial for maintaining customer satisfaction and loyalty, especially in competitive international markets.
Additionally, Loop’s return policy and workflow capabilities specifically help strike a balance between customer satisfaction and margin protection.
Examples of Loop-powered workflows:
- Automate Returns Reviews/Transit Processing
- Automate Rate Shopping
- Automate Fees
- Automate Destinations
- Set Geo-Specific Return Policies
Proof These Solutions Work
- In the last 12 months, we estimate that Loop has saved our previously manual merchants a combined $7.79MM.
- Loop’s label rates are up to 50% cheaper than standard rates.
- Loop merchants see an average CX Time Savings of $3,600 within their first year on Loop (averaged across all Verticals and Market Segments)
Rising Costs Predictions
“Top line e-commerce growth rates have slowed and costs have increased across the board, putting greater pressure on margins. To combat these pressures, we’ve observed a rise in brands implementing return fees. In fact, 56% of Loop shops charged refund fees in 2023, up 6% from 2022. But at the same time, customers expect a more exceptional and modern returns experience. We expect to see more brands offering new and flexible return options such as at-home pickup, box-less/label-less drop off, return tracking capabilities for increased customer visibility, and an increase in additional post-purchase incentives like discounts and automatic enrollment into loyalty programs.”
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