Guest Post: How 3PLs Handle Return Shipping for E-commerce Businesses
A third-party logistics company can help your eCommerce business in a host of ways: flexible warehouse space, faster order fulfillment, professional packing, and multiple shipping options, at the most basic level. Not all 3PL services handle returns, but if you work with one that does, your fulfillment company can give an enormous boost to your reverse logistics.
Why reverse logistics is critical to eCommerce success
Returns are a fact of life in eCommerce, and a solid returns policy is an excellent way to build consumer trust and convince new customers to try your brand. The National Retail Federation reported that online returns averaged 16.5% in 2022, the same as in-person retail and a decline from 20.8% the year before.
However, return rates for items purchased online vary widely by category. Apparel, unsurprisingly, has the highest return rates, estimated as high as 40%. Large items may have below-average return rates. For example, 7% of beds sold online are returned to manufacturers.
Whether your returns rate is on the low or high end, getting products from consumers to you, giving refunds, and processing returned items (reverse logistics) is a critical piece of your fulfillment puzzle that affects customer satisfaction and profitability.
How 3PL returns work
There are several ways to process returns. You can have returned items shipped directly to you. That lets you assess returned products and determine whether they are in new condition and can be placed back in stock. It gives you valuable information about why customers are making returns that you can use to improve your manufacturing or fulfillment operations.
However, processing returns yourself has downsides as well. Most importantly, it’s time-consuming, negating some of the value of using a 3PL for fulfillment. And you’ll have the extra work of shipping products that can be resold to your fulfillment warehouse — or, more likely, having them pile up in your offices.
Your 3PL has several advantages in returns processing. First, the warehouse stores and ships your products, so its staff knows how to handle them safely. Second, if a returned item is pristine, it can return to stock quickly. Third, and perhaps most important, the professional staff at your fulfillment provider can process returns rapidly, allowing you to give refunds faster and classify returned stock.
Best practices for 3PL returns
The first step in your returns process is to make it easy for your customers. Include a return label in the package or allow customers to print one out online. When you do this, be sure the return location is set to the closest fulfillment center to the customer. This will help keep the cost low, and if low enough, allow you to cover the cost of returns.
A well-run 3PL will have a reverse logistics process that allows you to evaluate returned items. Ask for photos of the pieces that come back, particularly if there’s any question about the condition of an object.
You can help your warehouse by providing a checklist of issues to look for in returned merchandise. In addition, you’ll need a plan for dealing with returned items so they don’t end up in a question mark pile in the warehouse. Returns can still cost you after you process the refund if you pay for storing items you can’t sell.
3 ways to handle returned products
Returns can feel painful, especially for small companies. But burying your head in the sand and not making a plan makes the problem worse, not better. (And you’d be surprised how many companies do that.) Make a plan to deal with returns that work for your business model, your products, and your brand image. Here are three common return strategies; you can mix and match as needed.
Sell as new
Some returned items, such as food products, must be discarded because reselling food is not legal. However, many other consumer goods can be resold.
Many online returns aren’t because of defects or damage; the customer simply decided they didn’t want the product once they had it in their hands.
You can increase your chances of being able to put returns back into stock if you provide return packaging (perhaps in the original shipping box) or a returns drop-off service at a retailer or delivery company. In addition, giving your 3PL materials to repackage items that are in excellent condition but with damaged packaging can give your returns a second life.
Discount and sell
Many returned items aren’t in good enough condition to sell as new, but they’re still usable. They may have ripped packaging, or the product might be slightly damaged. Many online retailers offer customers a trial period, so products may come back used. Some online retailers have developed sales verticals dedicated to lightly used or dented products sold at a discount. Consumers like the lower prices and the fact that products don’t end up in the dump, sparing the environment.
Donate or discard
You won’t be able to resell all returned items can’t and, unfortunately, many of these products end up in landfills. If a product is too damaged to be usable, the dump may be the only option. However, if your brand can’t resell gently used merchandise, donating to a charitable organization is an excellent option.
Whatever strategy or strategies you choose, create a clear policy with your 3PL so returns don’t clog the warehouse. Keeping reverse logistics moving is almost as crucial as sending orders to customers.
Tips to minimize returns costs
When you calculate your cost of goods sold and set retail prices, include the cost of returns so the returns process doesn’t kill your profit margin. At the same time, you can take steps to reduce the cost of returns. Here are a few ways to save on reverse logistics.
Refund without return
For low-value items, the cost of return shipping could exceed the value of the merchandise. For example, suppose a customer wants to return a $3 scarf and return shipping and processing is $2.50. You might find it’s more cost-effective to refund the customer without asking them to put the item in the mail, particularly if the scarf has a flaw and might not be resalable.
Of course, refunding without return shipping increases the risk of refund fraud, so be sure and take steps to protect your business before implementing this policy.
Speed up the processing time
Using a 3PL can help you process returns faster. That gets salable inventory back on the shelf quicker and keeps returns from bogging down your supply chain. You also enhance the customer experience with a faster turnaround on refunds. It may seem counterintuitive, but an efficient and pleasant returns process is a powerful way to build customer loyalty.
Negotiate discounts on return shipping
Shipping is one of the most significant costs of eCommerce fulfillment, including in the returns process. Work with your 3PL to negotiate carrier discounts and develop strategies, such as drop-off sites, to reduce the cost of return shipping.
Reduce returns with excellent fulfillment
Some returns are unavoidable: a garment isn’t the right size, or the product doesn’t perform as expected. But you can avoid returns due to mis-picked or mis-packed orders. Mis-picking puts the wrong items or the wrong quantity in the box. Mis-packing includes using insufficient packaging or infill, leading to damage during shipping.
Working with a top 3PL that has an error rate of less than 1% can save you money by lowering your return rate due to fulfillment errors. Choose a fulfillment partner with accuracy guarantees and processes to check and recheck orders during processing and send test packages periodically to check that your 3PL is properly packing your orders for shipping.
Why returns are critical to the long-term health of your business and how you can use them to increase customer satisfaction
Consumers feel more comfortable making an online purchase if they know they can easily return products that don’t meet their expectations. One of the keys to Amazon’s eCommerce success is the company’s customer-friendly returns policy.
Having a simple returns policy clearly outlined on your website can increase your sales. And a good experience with a return process builds goodwill, encouraging a shopper to return to your online store for future purchases.
Your 3PL is a valuable partner in setting up a reverse logistics operation that works for your customers and your enterprise. Lean on your fulfillment company for assistance with this crucial element of your online business.
This blog was written by Alex Selwitz, the Director of SEO for Red Stag Fulfillment, an eCommerce fulfillment warehouse that was born out of eCommerce. He has years of experience in eCommerce and digital marketing. In his free time, Alex enjoys playing guitar and learning about new trends in the digital world.