Counting the cost of Black Friday returns
A new report from Clear Returns finds that while Black Friday may generate sales of £1bn in the UK, about £160m of this stock will sent back and then be caught up in the ‘returns loop’ during the critical Christmas sales period. “On the surface, Black Friday is a successful key trading day, but it’s a gloomier picture once returns are factored in,” said Vicky Brock, CEO and founder of Clear Returns. “Our data suggests the true cost of acquiring customers during such promotions is likely to be very high; at peak trading periods anything between 15-50% of promotional items might be returned at a time when staff will be stretched to fulfil other more profitable orders in the run up to Christmas.”
Clear Returns predicts that the problem of the “returns loop” will be at its most acute on 12 December – the day it has dubbed “Out of Stock Saturday”.
The report, entitled Playing For Keeps, found that there is a broad spectrum of “return behaviour” which can have a significant impact on what it calls “customer lifetime value”.
“At one end of the scale there are over buyers – consumers that frequently purchase goods but take most of them back,” said the report. “Typically, these shoppers only account for around 5% of a retailer’s customer base, yet they are responsible for 40% of all returned goods.
“However, under the current sales-based value model, you may be marketing to them more often, and incentivising them more than other groups, because of the fact they make purchases so frequently.
“At the other end of the scale, there are loyal customers – shoppers who may not buy from you constantly, but they always keep what they purchase.
“It’s easy to take a loyal shopper for granted, but our studies have shown that disappointing this demographic has serious long-term consequences; because they are seriously committed to your brand. If a loyal customer has to return a product, they are unlikely to shop with you again.”
The report also noted that 80% of first time shoppers who return won’t buy from that brand again, “not only meaning their cost of acquisition is wasted but the customer’s lifetime value is also lost”.
Black Friday is the big sales promotion that has captured the media’s attention, but the returns problem will continue to mount over the whole Christmas peak season.
The report explained: “Based on figures from last year, Clear Returns calculates that around £160m ‘stock on loan’ will re-enter the system as a result of Black Friday 2015.
“This means that although it has been returned by the customer, it either hasn’t arrived in the warehouse, or it hasn’t been processed yet, so is unavailable to buy.
“And that’s just from a single day’s trading. Add to this returns from other promotions such as Cyber Monday and general early December shopping, and we estimate there will be a further £600 million stock tied up in the returns loop by mid-December.”
The report urged retailers to get their returns strategy right – because it can have a significant impact on profits.
“On average, every 0.75-1% reduction in return rates generates a 1% increase in operating profit,” claimed Clear Returns.
Strategies that the report identified as being important in reducing returns included: focusing more on loyal customers’ needs (rather than chasing the “over-buyers”); better marketing, so the products are line with customers’ expectations; and avoiding “toxic goods”.
“Not only do some purchases have a high return rate in their own right, they can cause an entire basket to be sent back – rather than shoppers just returning that one item,” explained Clear Returns.
“Examples of toxic products could include a ladies’ fashion top where the armholes have been cut too small – the shopper can’t exchange it for a bigger size, as then it won’t fit elsewhere – or in consumer electronics, a remote control signal receiver set in the wrong place on the television, leading purchasers to believe there is a problem with the remote.”
