Background to the Group 12 th February 2019, 13.00 GMT
The ECR Community Shrinkage and OSA Group A ‘save to invest’ group focused on retail loss – a problem that can be >3% of retail sales and circa €100 billion in lost profits for European retailers Positions/roles held by group members include retail store operations, loss prevention, profit protection, supply chain innovation, buying and on- shelf availability The Group promotes the role of collaboration 3
Research Webinar Series Buy Online, Return to Store 12 th February 2019, 13.00 GMT
“Buy Online, Phone In store Return to Store” There’s no such thing Social Internet media as a free return This Photo by Unknown Author is licensed under CC BY-NC-ND Prof Lisa Jack Mobile Dr Regina Frei Dr Sally-Ann Krzyzaniak ECR Shrink & OSA Group Webinar, 12 th February 2019
Presentation Outline • Who we are • Cost of returns? • Why it matters? • Lean returns? • What did we do? • A circular economy? • Calls to action
Who we are Professor Lisa Jack began her career as an auditor, before moving into teaching professional accountancy and management studies. Lisa specialises in research in management control and accounting for the food industry and forensic accounting. Dr Regina Frei , Chartered Engineer is a Senior Lecturer in manufacturing engineering and supply chain management. She specialises in Reverse Supply Chains and the Circular Economy. Dr Sally-Ann Krzyzaniak is a Research Fellow at Portsmouth Business School. Her research focuses primarily on management control systems in the food industry.
Why it matters 89% of online shoppers have returned an purchase in the last three years Global retail e-commerce sales 2014-2021 6000 4,878 Sales in billion U.S. dollars 5000 4,135 3,453 4000 2,842 3000 2,304 1,845 1,548 2000 1,336 1000 0 2014 2015 2016 2017 2018* 2019* 2020* 2021* Note: Worldwide; 2014 to 2017 From SHOPIFY: https://cdn2.hubspot.net/hubfs/442636/BFCM%20- Further information regarding this statistic can be found on page 8. %20Guide%20to%20Holiday%20Returns/2018_holiday_ecommerce_returns_guide.pdf Source(s): eMarketer; ID 379046 http://www.cbre.us/real-estate-services/real-estate-industries/omnichannel/the-definitive-guide-to-omnichannel-real-estate/by-the- numbers/how-does-e-commerce-vary-by-category
Why it matters Cost of returns for manufacturers between 9% and 15% of total revenue (Newcastle Systems, 2017). Based on our model: US estimates give the cost of returns to both manufacturers and retailers as Improvement in rate $100 billion, in terms of lost sales, of return by 100 transportation, handling and disposal (Blanchard, 2007). basis points equals a potential 0.4% rise in Clear Returns estimates that returns net profit cost UK retailers £60bn a year, £20bn of which is generated by items bought over the internet. As the proportion of online purchases increases, so will the cost of returns (Ram, The FT, 27/1/16).
What we did Qualitative Case Studies Structured interviews Community Feedback Returns Cost Calculator Desk review of company returns policies 100 websites reviewed. Multiple options In-store, post, courier) Free returns commonplace, especially for in-store Return to store offered by 74% companies Some restrictions on in-store returns (e.g. size of parcels, type of store)
What we did Desk review of Structured interviews Community Feedback Returns Cost Calculator company returns policies Qualitative Case Studies 4 large companies, annual sales €10 – 55 billion 2015/16 Interviews. 25 participants - finance, loss prevention, store & distribution centre management Observations: stores & returns centres Process mapping Thematic analysis Development of returns cost calculator
What we did Desk review of Community Feedback Returns Cost Calculator Qualitative Case Studies company returns policies Structured interviews 17 interviews (telephone, face-to-face, email) Elaboration of issues and practicalities elicited in case studies
What we did Desk review of Returns Cost Calculator Qualitative Case Studies Structured interviews company returns policies Community Feedback Presentation of interim findings at ECR Shrink & OSA and Oris Forum events Generation of further insights and applicability of findings across the retail sector
What we did Desk review of Qualitative Case Studies Structured interviews Community Feedback company returns policies Returns Cost Calculator Further work with 2 of the case study organisations Further development of cost calculator
What is the cost of returning products? • Cost to the consumer • Cost to business • Cost to the environment
The true nature of costs for ‘Buy Online, Return in Store’ To paraphrase a quote from the 1930s (Adrian Bell, Silver Lea ): The customer: “For the privilege of buying a chicken prepared for the oven whenever you want you have to pay for all the days the chicken was there and you didn’t want it.” The Store: “For giving the customer the opportunity to make returns whenever they want in the expectation it will increase future sales, you have to pay for all the days that they don’t make use of it – and all the days they choose to overuse and abuse it.”
Examples of costs & losses from ‘BORIS’ Increased losses from ‘BORIS’ Additional costs from ‘BORIS’ • Increased write offs for goods • Incremental IT development, not in re-sellable condition maintenance & support • Increased internal theft • Additional costs of handheld & • Increased claims for refunds desktop devices where claimed not to have • Security and storage of items in been received store • Wrap & packaging for goods not sold in store Consequential losses from ‘BORIS ’ • Transportation to RDC • Additional staff costs • Goods lost or damaged in transit • Opportunity costs for staff • Goods sent to recycling / engaged in returns instead of sales ‘jobbers’ that could have been • Cost of running RDC resold • Cost of repair & repackaging for • Goodwill payments and card damaged items recharge for goods lost in transit and / or fraudulent claims
To calculate cost of returns for Buy Online Returns you need: Average sales price of items sold online Transaction cost per item of handling goods in Store (additional staff cost; security etc) Average cost of sales of items sold online Average Cost per item of packaging and Transaction cost per item for administration postage paid on behalf of customer Transaction cost per item for returns centre Average Cost per item of courier or 3rd party collection % online purchases returned via store Average Cost per item of giving discount and/or making item good for sale % online purchases returned via post direct to RDC Average net Income per item from supplier or % online purchases returned via courier or 3rd jobber (both positive) or cost of waste disposal party collection agency (negative) % goods returned being resellable at full cost Operating margin % for online business % goods returned being resellable at reduced cost Net margin before tax % for online business No of parcels shipped for online purchases in % goods returned NOT being resellable period % of refunds being given and goods not received No of items shipped for online purchases in rate of returns (Refunds AND exchanges) period Increase or decrease in rate of returns estimated as No of items bought online returned in period a result of an initiative. Average wage with on-costs
The true nature of costs for ‘Buy Online, Return in Store’ ONE SKU Scenario: At what rate of return does a fashionable grey cardigan become unprofitable? Lesson 1 : there is still a cost to ZERO returns (slide 6) Lesson 2 : at 20% - the average rate of return for e-commerce (slide 4) – the item is still making a contribution to overheads. At 35% rate of return for clothing (KPMG, 2018) it is only just making that contribution. Lesson 3 : relationships between rate of return, cost of return and margins are not straight lines! The Fashionable Grey Cardigan €89 Euros Rate of return 0% 10% 15% 20% 35% 40% 70% Expected operating margin (24%) 21.36 21.36 21.36 21.36 21.36 21.36 21.36 Expected net margin (17%) 15.13 15.13 15.13 15.13 15.13 15.13 15.13 Cost of return 3.35 6.70 8.67 10.89 19.58 23.50 73.70 Gross margin after return 56.65 47.97 43.63 39.29 26.27 27.93 -4.11 Max Rate of Return before item fails to produce any contribution to profit: 66%
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