A spate of post-holiday returns can make a real dent in your profits. There are ways for even small businesses to minimize returns without offending customers used to generous policies from retail giants
In a December 2013 survey by the National Retail Federation, retailers estimated they would lose $3.4 billion in return fraud this holiday season, up from $2.9 billion during the same period in 2012. Respondents at 62 companies estimated 5.8 percent of holiday returns for 2013 will be fraudulent, up from 4.6 percent last year. Scammers are known to pull tricks such as returning stolen merchandise for a refund or using counterfeit online receipts to take back merchandise to an e-tailer’s brick-and-mortar store.
Even when returns are not fraudulent, they can cost you. According to Chargebacks911, a service that helps merchants in disputes with customers, stores typically pay processing fines of $15 to $100 if a customer is unhappy with an online purchase and asks their credit card company for a refund.
So how do you minimize the cost of holiday returns at a small business without offending customers accustomed to the generous return policies of giant retailers such as Zappos? It takes a deft touch.
Experts have some tips on how to strike a balance between achieving customer satisfaction and reducing returns and chargebacks.
See related: Savvy ways to finance holiday inventory, New business financing sources to try when the bank says no
1. Automate the checkout process more.
At a brick-and-mortar store, it’s easy for a rushed cashier to make a typo by entering information on a transaction manually. If the cashier enters incorrect information that shows up on a customer’s credit card bill, that can lead to returns and charge-backs. “The most common error that occurs is probably because of manual mistyping,” says Bobby Koritala, chief products officer at Infogix Controls, a Naperville, Ill.-based company that helps retailers maintain data accuracy for purposes such as inventory management.
To avoid this, make sure you have used your inventory control system to the fullest, so that when cashiers scan items, the correct price shows up — and they don’t have to manually enter the UPC code because items are coming up blank, he says. If you are not sure whether you have properly connected your point-of-sale system to your inventory control system, it may be worthwhile to bring in a consultant to avoid manual entries, he advises.
2. Set a smart return policy.
While no retailer wants to actively encourage customers to return things, setting an overly restrictive policy can backfire. “If you penalize the customer for being a customer, you lose the customer, 100 percent of the time,” says Jim Hendrickson, vice president and general manager, logistics solutions for Pitney Bowes, which, among other things, provides tools to help retailers track packages.
Small businesses that decide to limit returns to a brief period after the holidays should make sure they give customers an incentive to buy from them at that time, says Jennifer Martin, who coaches retailers and other business owners at Zest Business Coach in San Francisco. “Mention, ‘We’ve got these really deep discounts, but all sales are final,'” she says. Err on the side of overcommunicating your policy, so you don’t surprise customers, she says. That means printing your return policy on a receipt that you hand to the customer and having your cashiers say, “Thank you so much. As a reminder, all sales are final.”
Sometimes, a very generous return policy may result in lower returns than a very strict one. QCI Direct, a Rochester, N.Y., catalog company that has two catalogs and a retail outlet. It also has a lifetime guarantee policy — meaning there’s no time limit for returning merchandise — but sees a lower rates of return than the industry average. It sells home goods, such as household organizers, and does a brisk business during the holidays. “While it sounds counterintuitive, this policy reduces the rate of returns,” says Kyra Mancine, public relations and social media manager. “Our customers correctly perceive that items are of good quality and know that even if the product is not to their liking, they do have the option to send it back.”
3. Know your customers.
If you’re worried that a too-generous return policy for all customers may open the door to fraud, consider using an approach similar to the one airlines do to reward frequent customers you know well. You might, for instance, send them a letter thanking them for being one of your “Holiday Diamond Customers” — or whatever you call your frequent clients — and advise them to come to a particular part of the store with their gift receipts if they need to bring something back after the holidays, Hendrickson suggests. “You can afford to be more liberal with your liberal customers — even to the point that if they have a problem, they should ask for Mildred,” says Hendrickson.
However, he adds, you still need to have a clear return process and you need to let customers know what it entails. Since policies aren’t law, you can always make an on-the-spot decision to break the rules — or empower your employees to do so — if you think that being lenient with a shopper will win you a customer for life. “If you surprise them, not only do you increase loyalty, but you might find new customers,” says Hendrickson.