How A Return Policy Can Impact Inventory Management

Order Management

Retailers frequently revolve around creating the best customer experience possible. From the moment prospects log onto an eCommerce storefront or walk into a brick-and-mortar location, merchants want everything to go smoothly. The general vibe has to be inviting, browsing inventory must be seamless and when it comes to checking out, it should be a quick and painless process.

However, one aspect of the customer experience that retailers often forget is the returns process. This makes sense – in some ways, a return represents failure on the behalf of the merchant. Whether the customer was unsatisfied with the quality of the product, the price at which it was purchased or any other reason, returns only happen when something goes wrong somewhere along the line.

The fact is that the return process is a part of the customer experience, and merchants not planning for exchanges are committing a huge strategic error. While returns are never desirable outcomes – data from MIT Sloan Management Review suggests that retailers spend $100 billion (3.8 percent of their profits) per year restocking and repackaging returns – stores still need to have a good exchange policy if they want to ensure these prospects come back for future purchases.

“What retailers are discovering is that they must walk a fine line,” Times Magazine contributor Kit Yarrow explains. “A simple and easy return policy boosts sales, as shoppers are more willing to make purchases with the knowledge that returning them won’t be a hassle. On the other hand, if too many returns are made, it causes havoc to the retailer’s bottom line. There’s a dance going on because authenticity, transparency and ‘living up to promises’ are important values to consumers.”

Creating a Customer-Centric Return Policy

An effective return policy is multi-faceted. First and foremost, it revolves around the customer experience. While sometimes merchants have the right to refuse a refund, they need to walk that line carefully. Even if an exchange doesn’t work out in the favor of a merchant the first time, the owner needs to think in the long term – it’s much harder to win a new customer than it is to keep an existing one. If retailers can reasonably avoid a customer walking away from a refund scenario unhappy, then they should strive to do so.

In essence, a return policy needs to be flexible and lenient, but not so much so that customers walk all over a merchant’s bottom line with constant or unfair returns. The key is for retailers to put themselves in their customers’ shoes. Would they find a return policy fair, given a variety of possibilities?

Creating a Retailer-Centric Return Policy

The other consideration that merchants need to keep in mind is the impact of returns on their inventory management strategy. Getting massive amounts of inventory back in stock can affect a retailer’s ability to sell new product. Additionally, getting goods back to a sellable state can also create downtime in which the product’s value is essentially frozen – it can’t be sold because it’s opened, yet is still an asset in merchants’ books.

Inventory management is a core part of any retail business and should be able to account for issues such as returns. By utilizing an eCommerce solution that provides merchants with real-time data on their inventory and stock, merchants will be better positioned to deal with products as they return.