If there was a sensible way to retain an additional 1.5% or more of your topline revenue would you do it? There is and we can tell you how.
Keeping more of your top line depends on two things: Customers buying your products, of course, but also ensuring that customers keep the products they purchase. Alignment between buying and keeping is critical, especially as you work to salvage 2020. Simply stated, if you can do a better job of presenting, selling, and delivering your products, customers will respond by keeping more, resulting in fewer returns.
It is hard to remember a time when retailers didn’t use the promise of free and frictionless product returns to encourage their customers to buy. But the math is simple: Allowing unencumbered returns is never going to be profitable.
The Simple Math of Product Returns
To make the math easy, let’s make a few assumptions:
- Average Order Value: $100
- Cost of goods sold: 40%
- Pack/pick/ship expenses: 10% of gross sales
processing costs: $12
- So, you lose $12 on every product that customers return
Pretend your customer purchases 5 products at $20 each ($100).
If that customer returns 1 product:
- Net Sales: $80
- COGS: 0.40 x $60 = $32
- Pick/Pack/Ship Expense = $10
- Net Returns Expense: $12
- Profit: $80 – $32 – $10 – $12 = $26
It could be worse…
But what if your customer returns 2 products:
- Net Sales: $60
- COGS: 0.40 x $80 = $24
- Pick/Pack/Ship Expense = $10
- Net Returns Expense: $24
- Profit: $60 – $24 – $10 – $24 = $2
That’s your profit for a customer who keeps 3 out of 5 products. Any less than that, and you are paying for it.
Source: Adapted from Kevin Hillstrom’s MineThatData example.
The Returns Problem Is Real
The coronavirus pandemic has accelerated eCommerce growth, and as a result return rates are higher than ever AND will continue to escalate if left unchecked. All retailers face this challenge, but apparel retailers are particularly at risk for falling into the returns trap. According to IHL Research: “While fashion purchased in a store typically sees return rates of 10-20%, online return rates can be as high as 50%… Closing dressing rooms will push these in-store return rates higher towards the online rates for returns.”
Reducing Returns: The Opportunity
Our research shows that more than 65% of returns occur for a broad spectrum of reasons under the direct influence of retailer action. The key is to leverage this data to do a better job of selling and delivering. With the right intelligence delivered at the right time, retailers can identify those opportunities and take corrective actions early and when it matters. The payoff is substantial. Financial models show that every $1M in returns reduction equals at least $0.5M to your bottom line. The example below illustrates the meaningful potential of returns reduction. Visit our Returns Reduction Calculator to discover your financial opportunity
Can You Afford Not to Reduce Returns?
Knowing this, how can retailers look past a clear opportunity to both retain more of their topline revenue and improve their bottom lines? For many organizations, the challenge of developing and implementing a return reduction strategy seems too daunting a task, especially with current COVID-related resource constraints. The backbone of returns reduction is the consolidation of timely data collected from multiple sources, interpreted, prioritized, and the results then distributed to responsible business teams to drive action. Without the right blend of technology, process, expertise, and resources it can seem like a Herculean feat. Fortunately, at Newmine, we saw this coming and knew that a real returns reduction solution could be delivered when we blended the power of AI with a streamlined and easy to use platform that could start delivering results in less than 90 days.
Reduce Returns with Chief Returns Officer® and Improve your Bottom Line in Less Than 90 days!
The Chief Returns Officer® platform from Newmine transforms your data to actionable intelligence necessary to drive sustainable returns reduction. This includes all your key data from all relevant sources: Transactional, product review, CRM, Intelligent Customer Experience Platforms, product catalog, supplier, etc.
The unified power of AI allows the Chief Returns Officer platform to inspect, monitor, predict, prioritize, and manage opportunities in a way never possible. It’s like having your own Returns Reduction Legion working on your behalf 24x7x365.
Returns reduction is real. Our clients have achieved fast, scalable, and sustainable results in less than 90 days. There IS a sensible way to retain an additional 1.5% or more of your topline revenue and we can tell you how.