How to minimise returns and maximise value: interview with Andrew Starkey of IMRG

A new shirt is born: a fashion designer designs it; a manufacturer agrees to make it. Materials are sourced from all around the globe: cotton from the banks of the Nile, plastic buttons from the oilfields of Saudi.

It is shipped from the factory, stored and marketed; then sold, packaged, shipped, delivered and worn.

But then the customer decides that they don't really like it. Cornflower blue just isn't their thing. Under the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, they return it within the statutory cooling off period.

So that's it: game over. A great deal of effort for nothing?

Not necessarily.

The increase in e-commerce means that handling returns is an increasingly important fact of life for retailers.

Recently, we spoke with Andrew Starkey, head of e-Logistics, IMRG. He discusses developments in this field and how retailers can minimise their losses on returns:

https://twitter.com/imrgupdate/status/496285408976986112

Is there a common way for retailers to manage returned goods to recover maximum value, such as through the contractual arrangements with their suppliers?

Retailers have a range of ways of dealing with returns.

Ideally they take them back and put them on sale again as quickly as possible and at as high a price as possible, but the process can be complex. Goods have to be quality inspected and may need some work—like laundering—before they are resold.

When they have gone through this process:

  • they may be offered for resale online or through a store or sold through a third-party even including eBay at a discounted rate
  • they could be sold to buyers in other countries—if some time has passed and they are season sensitive, this may be the best option, and
  • they could be sold to a pound shop, given to a charity or destroyed

Retailers often have an agreement with suppliers and manufacturers for the goods to be returned to them. They may, for example, have a sale or return agreement for a percentage of the total of goods sold.

To what extent are suppliers playing an active part in any reverse logistics operations?

They do play an active role, as mentioned above, through their agreements with retailers. Some retailers in fact don't even try to sell the goods again themselves but return them straight to the suppliers. Suppliers may then sell the goods again through another channel.

Are retailers using methods to minimise returns? Have the information provision requirements in regulations had any impact in this area and are there any trends in this area?

Yes, retailers certainly try to minimise returns.

However, it's pretty widely understood now that retailers who simply put up barriers to returning goods make it more difficult to sell to customers in the first place. If you have a strict policy about returns and stick rigidly to the law it's likely to be commercially counter-productive. Many customers now read the returns policy—certainly for online sales even before they start to browse for the thing they want to buy. If a very strict policy prevails or the returns process is too costly or inconvenient, the customer simply won't buy in the first place. It's increasingly important for retailers to understand this.

A recent survey—the IMRG Blackbay UK Consumer Home Delivery survey for 2015—has revealed that 78% of customers say it's important or very important to them that the retailers provide an easy return process otherwise they will not be inclined to shop with them.

Therefore, more enlightened retailers must have a very easy return solution and be very open about their returns policy. They also have to appreciate that they therefore have to have a good process for dealing with them efficiently to recover their money.

Additionally, retailers must go to some lengths to ensure that they avoid returns. That means having good quality goods in the first place, good sales material (especially for online sales), good packaging and branding. Some websites now have very good illustrations of the goods on sale and even 'magic mirrors' so customers can see how they may look in the products before they buy.

I would say, however, that not enough effort is being put into cross-border returns although some retailers will offer free returns from places like Australia. The regulations have to be borne in mind of course and must be complied with, but it is good commercial practice to have a good returns policy and process.

To what extent have retailers outsourced this process?

The returns process can be long and complex. It can involve a handover process which may be at a post-office or a place where the goods can be picked up or dropped off.

Retailers are trying to make the process more convenient for customers so they are outsourcing some of the process to parcel shops and couriers who will collect from the customer's home, as well as the Post Office. Once the goods come back they may go back to the supplier or a third-party. There are some large companies that are returns specialists—like iForce and Norbert Dentressangle—who handle returns for retailers so they can maximise their stock value and avoid some of the work involved themselves.

How do retailers typically deal with packaging issues and reuse of goods that have only been used for a short period?

Returned goods will be inspected and if the goods have only been used for a short period they may be laundered or refurbished and re-packaged to be sold again as new—if they can't, they may be sold as seconds or sold through another source.

Packaging is increasingly important. Customers don't want goods to arrive damaged and brands have to be well represented so deliveries must be well packed and branded.

In addition, customers are increasingly environmentally aware and don't like to see waste in packaging like lots of shredded paper. So a lot of effort is going into packaging. It has to be the right size for the product and be good for the brand. It should also be able to be used for any return and to the greatest extent possible, reusable even for resale. Customers feel better about returns if this is the case.

Have any industries developed any best practice to minimise returns and to deal with them in an efficient way?

Yes they have and some of the ways in which returns are being dealt with are referred to above.

But there is generally a lot of discussion on best practice for returns and how to best deal with customers and get products back into the network as soon as possible. If 20% of stock ends up being returned you have to hold an additional supply of stock while this is out of circulation. It is therefore important get it back into supply as quickly as possible. Good returns policies are also vital, as discussed, for customer loyalty.

Does 'big data' yet have a role to play in dealing with returns?

Yes and there are individuals and organisations that provide good analysis for companies on their returns policies and procedures. Good research and analysis underpins best practice. You have to do this to minimise cost and create customer loyalty. Returns are a fact of life for retailers so you really have to do it right.

So how do your clients deal with returned goods? Should the law be changed to reflect practice? Or, when all things are said and done, does it work? Do let us have your thoughts.

Interviewed by Diana Bentley.  The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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