Analysis: Which retailers are top of their game with returns?

Managing returns effectively is vital when competing in the multichannel marketplace. Customer expectations of free and easy returns and the need to maximise the value of products coming back is creating huge challenges for retailers and placing stress on existing supply chains.

Not only do retailers have to guarantee that refunds are authorised quickly and credit returned back to the consumer, they also have to ensure merchandise is put back on sale immediately or disposed of - usually through auction websites, returns to manufacturers or recycling.

Dixons Retail focuses on these issues at its national distribution centre in Newark.

Some returned products need checking and repackaging, but unopened items can be put back into stock within two days. Paul Read, the company’s head of central operations and reverse logistics, says that is “critical to managing good stock levels”. Different types of merchandise are processed separately to maximise efficiency.

“By splitting product categories out it simplifies the process, meaning we can focus on putting the box in the right location depending on the exit route,” he says.

Shop Direct has also made fast processing a key priority. Head of returns James Harper says most returns can be credited to customers and returned to fulfilment centres on the day they arrive.

The company runs a returns centre in Oldham where it inspects goods and carries out steam cleaning, spot cleaning, reboxing and rebagging, along with minor repairs if necessary. Shop Direct’s returns rate ranges from more than 30% for ladieswear to 15% for kidswear and 5% for electricals and furniture.

“It’s crucial to reprocess returns to minimise wastage. We handle more than £500m of stock in returns every year. That makes returns the largest single supplier to our business,” Harper says.

One potential obstacle that retailers face in order to operate efficiently is a lack of knowledge about how much returned stock is in transit at any one time, causing them to miscalculate what warehousing resources they need.

Aurora Fashions pays a great deal of attention to this issue at its distribution centre in Stanton Harcourt, Oxfordshire, which serves both the store and online channels. Day-to-day its logistics operations are managed by Toll Supply Chain Solutions, which will continue to provide services for all its brands - Oasis, Warehouse and Coast - once Aurora’s break up of the business is completed.

The company analyses exactly when a rise in sales is likely to result in increased returns and plans its operations accordingly. Aurora is given further information each morning about what is coming back by Royal Mail and 24 hours in advance if returns have been made through Collect+.

For Chris Gunn, head of distribution services for Aurora, the key to success in returns management is having supply chain personnel that can deal with returns and turn their hand to any stage of the process. “The majority of our operatives are interchangeable - people on the outbound department are trained to work on returns and those on returns are trained to work on outbound,” he says.

Specialist IT systems can also help plan what resources to allocate. A system from technology firm Clear Returns uses predictive technology to examine what will be returned and when. Launched in 2013, it is so far being used by M&Co and a second as yet unnamed retailer.

Clear Returns chief executive Vicky Brock says: “We give retailers a heads up about what will come back 10 to 15 days in advance.”

The increasing volume of returns predicted for 2014 and beyond has implications for retailers’ distribution networks. Companies have to decide whether to operate a dedicated facility, perhaps in their existing warehouse, or to opt for a shared-user site where costs are spread between several clients.

Claire Muir, head of development for logistics firm Amethyst, believes that it usually makes sense for retailers to use their own warehouse. “The majority of ecommerce returns are not faulty or damaged and need to be processed, repacked and back in stock in order to resell as quickly as possible. Handling stock in the main warehouse is the simplest and most cost-effective way to achieve this,” she says.

However, Neil Weightman, commercial director of logistics firm iForce, maintains that although this approach is suitable for many retailers, those with large seasonal spikes who need varying resources throughout the year may benefit from being at a shared-user site. “There is no one-size-fits-all. It depends on the business,” he says.

Screwfix, for example, uses iForce’s shared-user facilities whereas Sainsbury’s has a dedicated e-fulfilment and returns centre in Corby.

Global expectations

As multichannel matures, new challenges emerge - handling returns from overseas customers, for instance, is a growing issue. The distances involved have consequences for both customer service and efficiency.

Aurora deals with any returns from Europe as soon as they arrive at its Oxfordshire distribution centre to speed up the process. Gunn explains: “It takes longer for the product to come back to the warehouse than from within the UK but customer expectations in terms of refunds are the same.”

Retailers also have to take account of higher returns rates in Europe. Gunn says on average returns from Europe are about 30% compared with 22% to 23% for the UK.

Asos is also facing these challenges - it serves 241 countries and overseas sales account for two-thirds of its business. It uses a multi-user Clipper operation in Selby, North Yorkshire to handle UK and European returns.

Carl Moore, Clipper’s operations director, believes that in future retailers will increasingly avoid sending items back to the UK at all. To meet this trend Clipper has set up a series of multi-user sites in Germany, which can be used to handle returns nearer to the customer.

“We not only achieve time efficiencies for the retailer, but we can also hold stock there to either be shipped back in a more appropriate and cost-effective quantity or to be resupplied to another customer in Europe,” he says.

And that’s not the only change on the horizon for retailers when it comes to returns. Customers increasingly expect a wider choice of ways to send the product back, bringing new challenges and meaning retailers’ returns management needs to be speedy and robust.

As well as offering returns through their stores and by post, one solution is independent collection points - where customers can not only pick up online purchases but also return them. These have proliferated during 2013, including the Collect+ network, which grew 23% in 2013. The service is now offered in 5,500 local stores including independent newsagents and convenience chains. About 260 online and multichannel retailers use the service.

Once goods have been returned to the Collect+ store they are collected by parcels carrier Yodel, one of the joint owners of the network along with Paypoint, and transported back to the retailer.  

Collect+ chief executive Neil Ashworth believes retailers will have to pay increasing attention to returns if they are to succeed. “Returns are part of the end-to-end logistical process and the reverse flow needs to be fast and reliable,” he says.

IMRG head of e-logistics Andrew Starkey concludes that retailers who neglect returns face dire consequences. “Managing returns well gives you a competitive edge but in future it will become a must-have.” If retailers don’t do it efficiently, they put their online businesses at risk.