Fashion retailers are working under severe time constraints to reprocess Black Friday and Christmas returns, but getting it right can protect margins and keep customers happy.
Clipper returns cropped
Christmas is done and dusted, the tinsel has been packed away and Black Friday is a distant memory. But with many January Sales still in full swing, there is no respite from the pressure on fashion retailers. It is a simple equation that high levels of outbound stock during the peak selling season add up to a spike in returns – up to 40% of purchases – as people send back unwanted items. The way in which retailers respond to this challenge is critical to protecting their margins.
Not only are retailers operating in an increasingly competitive and discount-driven environment, but if they do not get products back out in time for the Sale and before lines become fragmented, margins could become stretched to breaking point.
The fortunes of high street and online selling during Christmas 2015 and the Black Friday discounting bonanza (November 27 through to Cyber Monday on November 30) provided a tale of two halves for many retailers, making the issue of tackling returns even harder. Accountancy firm BDO reported that high street trading over the festive period was the worst since 2008: year-on-year sales decreased 5.3% in December, as many retailers discounted for Black Friday and were forced to stay on Sale to attract footfall.
In contrast with a downbeat outlook on the high street, online came good. Figures from Barclaycard show consumer spending grew 4% between November 22 and December 26 – almost completely driven by online. Overall clothing spend lifted by a meagre 1.2%, hindered by a 3.6% drop in sales on the high street, but online came to the rescue with a 14.6% rise.
What this means is that the consumer is increasingly value driven, forcing retailers to work on reduced margins by selling product at discount.
Then there is the fact that 25% to 40% of all product sold is returned, according to commonly accepted industry averages. This is normally at the higher end for ecommerce. And with all the associated costs of delivering the product and, upon return, extra handling and remedial work – such as reticketing, rebagging, steaming and cleaning to reprocess it into stock that is ready for resale – the challenge of making the model work becomes clear.
“What is happening now is that retailers are condensing their sales from what used to be a 13-week peak period from mid-October onwards into a six-week peak starting with Black Friday,” says Neil Weightman, commercial director of logistics firm iForce, which counts Cath Kidston and John Lewis among its clientele. “This means outbound is condensed and then retailers also have to deal with returns.”
Royal Mail has forecast that 46% of online shoppers will return clothing purchases after Christmas – its report on the period was due just after Drapers went to press. Meanwhile, retail intelligence firm Clear Returns expects 10% of the whole of 2016’s returns to hit retailers before the end of the month.
“What I have been reading in the press is supported by our own internal stats that show a lot of retailers have been busier online than they have been in stores and, as a consequence, if you have bought online, you are more likely to return,” says Tony Mannix, chief executive of Clipper Logistics.
Retailers had to move quickly on returns to retain as much margin as possible, in particular during the period between Black Friday and Christmas, when full margin could still be achieved, and between December 25 and New Year, when items such as party dresses were in high demand.
“It’s key for us to get returns on [the website] quickly during the Christmas period,” says Brett Young, operations director at online young womenswear retailer Missguided.
“When they are up against it, a lot of businesses take the labour off returns but it is a missed sales opportunity. Our aim is to get product back online for resale within 24 to 36 hours of receipt.”
He states that Missguided is at the lower end of returns, at about 25%, but adds that as a fast fashion business, it has a lot of regular new product online, with a shallow buy across many options. Getting product back online quickly is critical to avoid key sellers becoming sold out.
“Our aim is to have products reprocessed and back into stock the same day as they arrive,” says Qasim Akhlaq, managing director of footwear etailer Public Desire, which has a returns rate of 11%. “We hit this KPI more than 99% of the time. The only time this is extended to a maximum 72-hour turnaround is in peak season. This is a KPI we are very proud of and helps with customer loyalty, as our repeat customers have already experienced our great customer service.”
Clipper’s Mannix adds that “a clunky returns process delaying a product going back into inventory might mean a garment has gone into another level of markdown by the time it has been processed, costing the retailer margin”.
However, dealing with such a wave of returns can be a challenge. For many it will be about managing flow. For example, New Look and River Island refused to process returns in stores (but not online) on December 26 to free up till points in branches. New Look extended its returns policy from its usual 28 days for anything bought between October 31 and December 24, to allow customers to return until January 31. River Island extended its normal 14-day returns policy from December 26 until January 31. Similarly, Marks & Spencer extended its returns policy to allow customers to bring back online purchases until January 16 – the retailer usually offers a 35-day limit for full refunds.
“Retailers need to plan ahead and work closely with their logistics provider. That might mean having more people in the warehouse or having an extended Christmas returns period,” says Andrew Turner, business development manager for ecommerce fulfilment partner, XPO Logistics. The firm handles tens of millions of UK returns each year and Turner says XPO Logistics works closely with retail and fashion clients earlier in the year to plan for the Black Friday and Christmas peak, with the aim of reprocessing returns back into inventory and ready for resale within two days.
Antony Comyns, head of ecommerce at formalwear retailer Hawes & Curtis, says the process is becoming more challenging. “There is definitely increased pressure because we only have a certain window of opportunity to get that stock back and start selling it again,” he says. “Some goods come back ready for resale, so we can put them in store or online straight away. The ones that need more work we might keep for the next Sale.”
Dealing efficiently with returns is not just about speed of stock reprocessing – it is also about how quickly the customer is refunded.
“The faster a customer gets their refund, the faster they can potentially reorder,” says Turner.
The time it takes to return funds varies by bank, but retailers and logistics providers need to ensure that the time they take to pass the transaction on to the bank is as short as possible.
“The biggest message [for the industry] this year has been about time compression,” says Mannix. “Gone are the days when people would wait 28 days for delivery. Now, if something can’t be delivered the next morning, then it’s not an option. So why would you wait a week to get your money back? The returns service has to match the quality of the outbound service.”
Clipper’s Boomerang returns management services system, customers of which include Asos.com, John Lewis and Supergroup, checks that garments are fit for resale before the retailer’s system is automatically updated to show when the inventory has been processed. The update allows the retailer’s system to email customers to inform them that their refund is on its way.
“If you delay the process of return and the customer doesn’t get their money back rapidly, they get very annoyed on social media, which clearly can be damaging. But from the retailer’s perspective, they end up with a lot of working capital tied up in stock that is going nowhere,” says Mannix. “The key thing is to free up that inventory very quickly so it can be sold – and ideally sold at full margin in the appropriate season.”
Prevention is, of course, better than cure. Retailers should ensure that enough focus is given to their front-end websites to clearly explain sizing, offer good photography and functions such as zoom, 360-degree rotation, catwalk videos or even virtual fitting rooms, as provided by companies such as Fits.me, Virtusize or Metail.
“The key is at the front end, to make it clear what you are selling. With fashion, it is about sizing. You want someone to order the product and keep it,” says iForce’s Weightman.
Comyns agrees: “We are trying to get as much sizing information on [the website] as possible. It is a constant work in progress because everyone has a different view on how they want a shirt to fit. We have reintroduced the virtual Fits.me mannequin – we had only taken it off because we wanted some modifications made to the sleeve size – and it gives us good results.”
However, As Young says, prevention starts even further up the chain: “I think sizing is one of the biggest issues for returns. If your suppliers don’t hit the right sizing and you fail to check, then you will get returns. People expect sizing to differ between brands, but for us, we sell everything under our own label, so consistency is critical.”
The merits of offering free returns still stokes debate: some industry figures insist that it is important to keep customers happy, while others argue that it encourages “buy and try” purchase of multiple items, some of which will be rejected and returned – which puts margins at greater risk.
“Personally I wouldn’t be an advocate of free returns,” says Young. “I have always seen that free returns raise the number of returns you receive. It almost creates the old-type catalogue environment, with a girl ordering two dresses because she is not sure of her size. I am not convinced people expect free returns but they do expect an easy enough service, and that is very important.”
Missguided charges between £1.90 and £2.50, depending on the service a customer chooses for returns. In November it became one of the first retailers to sign up to Asda’s To You click-and-collect service, which allows customers to pick up and return goods via the supermarket’s 614 stores.
Weightman concludes that although retailers have become better at returns, there is still work to be done to safeguard margins.
“Unlike a Bentley Continental 1961, [fashion returns] are not going up in value, are they? Each day that goes by, the value is going down and the margins are skinnier than they have ever been for retailers, with very few exceptions,” he warns. “So preventing returns and dealing with them when they happen has never been more important.”
The peak season in numbers
14.6% – year-on-year increase in clothing spend online between November 22 and December 26, reported by Barclaycard
24.6% – year-on-year increase in Black Friday sales (Barclaycard)
25-40% – average rate of fashion returns (typical industry rate)
46% of shoppers will return product bought online, forecasts Royal Mail
10% of all returns this year will be in January, says Clear Returns