Each year, the season of giving also sparks the season of giving back — and not of the philanthropic measure. With U.S. holiday sales projected to increase nearly 5% this year over last, and averaging as much as 30% of a store’s total annual revenue, the holidays present a massive profit potential for brands and retailers. However, these increased product sales can also lead to increased returns once the wrapping paper is torn off. In fact, one in three people will return a gift, amounting to about $90 billion in merchandise returned to U.S. retailers.
Returns are a recurring pain point for all retailers, but as return rates for e-Commerce purchases triple those of in-store purchases, they are a much larger threat to profit potential for brands and retailers on Amazon. When you begin to add up shipping costs, picking and packaging fees, refurbishing fees, advertising costs and customer support, it becomes clear how much returns can cut into profit margins. In many cases, the combined losses from these fees equals 50% of the shelf price of the item, an almost guaranteed loss of profit on that item. When managed properly, returns can also create opportunities to drive new sales and increase customer loyalty — in fact, more than 70% of shoppers say they would make another purchase from a retailer that they had a positive returns experience with.
Here are some simple solutions you can begin implementing today to ensure that it really is the most wonderful time of the year for your Amazon business:
Take A Two-Pronged Approach
A traditional approach to managing returns includes three parts. First, you must manage the customer communication and provide them with a shipping label to return the item. Then, you need to steer the tone of a potential product review by responding within hours, not days. This responsiveness will increase the likelihood of positive customer engagement. Convincing a shopper that a returned item does not deserve a one-star review is often a time-consuming and expensive effort, but worthwhile.
Your attentiveness and willingness to find a solution — like free replacements, free parts, free accessories — is crucial to ensuring they still have a positive experience with your brand. Lastly, you need to refurbish the item and put it back on sale. This approach is best for smaller operations (those selling less than $10 million annually) that frequently have personal engagements with customers and have the ability to handle each step of this process quickly and thoroughly.
Many brands and retailers elect to use return-specific software to manage the process from start to finish. This software auto-generates processes such as creating labels, sending customer emails and distributing refunds. It also allows customers to return multiple products in a single request and gives customers the option to create prepaid shipping labels. A streamlined approach is best for large operations (those selling more than $10 million annually), in which customers typically purchase multiple items at once.
No matter which method you choose for your return, it’s important to keep the customer front of mind every step of the way. Amazon’s ‘Return Dissatisfaction Rate’ is the combined percentage of return requests not answered within 48 hours, incorrectly rejected, or with negative customer feedback. Pay close attention to this metric, as it provides powerful insight into issues that may cause negative customer feedback as well as directly impacts your Buy Box share.
Find The Root Cause For The Return
Identifying the cause behind one return can prevent many others in the future. A return may be isolated to a specific product from a specific vendor, supplier or warehouse, so it’s important to conduct regular checks on your products for defects and read customer reviews to ensure your items are coming from quality sources. Fulfilled by Merchant or Seller Fulfilled Prime sellers can contact the warehouse directly to determine the cause behind a trend in returns, and Fulfilled by Amazon sellers can contact the manufacturer's warehouse to communicate any product defects.
Management can also influence return rates. If you have multiple managers overseeing your product line, one manager may have a higher return volume than others. It’s important to maintain open communication with all managers, especially those who oversee your product line and are responsible for getting your items safely in the hands of your customers. Constant communication helps you identify any roadblocks your team may be facing in the shipping or returns process.
Assess The Impact
Your final step is to always evaluate the impact the return has on your bottom line. When it comes to returns, the greatest variable influencing your profit margins is usually your fulfillment method. For example, FBA returns generally have more expensive shipping costs than other options, because Amazon charges you to send the product back to your warehouse from the FBA fulfillment center. You’ll also have to pay shipping costs to send the item back to the supplier to learn what is wrong with that batch of products. Each step in this process has associated fees that often fly under the radar until they begin to noticeably eat into your margins.
On the other hand, SFP sellers will receive a prepaid label from Amazon to handle the return, which means that all returns are automatically accepted. Setting up Terms of Trade with your supplier is another tactic you can use to help manage customer returns because it gives you the ability to approach your supplier to negotiate more favorable deals and rates.
As Amazon continues to evolve with new fees and policy updates, it’s important for sellers to gain a renewed focus of the returns management process. The holiday season creates an opportunity for brands and retailers to net profit margins that carry their business well into the new year. With a proper returns management strategy that creates a customer-centric approach, identifies the cause of return and assesses the overall impact on your business, brands and retailers can effectively mitigate the challenges of returns and maximize their Amazon store’s profit potential.
Before founding Feedvisor, Victor Rosenman was a founder of an innovative social media marketing startup and a senior R&D manager at Sun Microsystems. He holds a B.Sc. in Computer Science and an Executive MBA from Kellogg Northwestern.