Labour - Restocking is not the only labour cost, there is also unloading, opening, and unpacking of the returned packs. There could also be time spent filing a courier claim, and once the product has been returned, it may need to be sold, recycled, or repaired, all of which are drains on time and resources.
Making your packaging returns-friendly with opening features and enabling the customer to use the original packaging can help your staff members reduce restocking time. It is important that they can open and remove the product without causing damage or using tools, as in some cases I have seen items returned in a refuse bag wrapped in parcel tape.
Financial – Refunds or compensation for damaged products, along with an area for processing and storing returns all have financials costs, eroding at your profits and margins.
In this situation, prevention can help to reduce the space required for processing returns, along with refunds or compensation. Again, testing your packaging for supply chain suitability and training your staff in best practices is critical.
Brand – Receiving a damaged item is incredibly frustrating. Your order triggers a dopamine stimulation and then there is the feeling of disappointment when the product arrives broken. It is important to think about “soft costs” in this situation, how much can a negative review, or dissatisfied customer posting images on social media really cost you.
Your packaging is the first point of contact, so good packaging not only shows you care, but that you also value the customer’s order. In some cases, this can have a positive effect and see your customer posting about their great unboxing experience on social media.
Sustainability - Returns shipments not only use additional fuel and emit more CO2, but they also result in extra materials being used and the generation of further waste. Damages and claims are not always tracked under sustainability targets, but they can certainly have a great impact on them.
How much can damage or a return cost?
My wife received a delivery of two small glass cosmetic bottles this week, one of which was leaking. They were wrapped in paper and filled 10% of the overall case volumetric, the material was a good quality and showed no signs of damage upon arrival. However, poor packing in the fulfilment centre allowed the product to move inside and, combined with a box that was too large, resulted in product failure.
The pack had no printed instructions on how to open it, resulting in it being ripped open and making it difficult to return. The packaging should have worked, but poor fulfilment resulted in us contacting customer services, as well as the need for a replacement to be shipped. This damage was caused by not using enough void fill, combined with a poor choice of packing boxes, all of which could have been prevented.
What was the cost of this damage and return? The order was €52.50, which would provide a profit of €10.50 at 20% margin. However, once the replacements had been sent and damaged items returned, the incident created a loss of over €31.50. This means that one damaged delivery requires three further orders of the same value to break even.
These costs and the depth of business that can be affected highlight the importance of understanding and reducing returns.