As a small business owner, you’re always looking for ways to save money and streamline your operations. One way to do this is by implementing a cost-effective return to vendor process. This article will outline some tips on making this process as painless as possible for both you and your vendors. So, read on for some helpful advice!
How to Implement a Cost-Effective RTV Process
Customer Returns on the Rise!
As a result of the Covid19 pandemic, shoppers have increasingly turned online or curbside to purchase retail goods such as clothes, shoes, and other purchases. According to a survey released by the National Retail Federation and Appriss Retail, retailers expect to get back about 16.6% of the total merchandise customers purchased in 2021; that’s a jump from an average return rate of 10.6% in 2020.
What does RTV mean?
Return to Vendor (RTV) happens when a product is returned to where it was originally purchased and is eventually sent back to the supplier. This can be due to several reasons, such as a customer returning the product because they are not satisfied with it or a retailer sending products back to the supplier because they were damaged.
An Invesp survey study regarding customer returns found that:
- 30% of all products ordered online are returned
- 8.9% in brick-and-mortar stores are returned
The difference between Customer Returns and RTV
There are two types of returns: customer returns and returns to vendor returns. Customer returns happen when a person buys a product and then decides they don’t want it or it doesn’t work for them. In contrast, RTV is when a company purchases products in bulk for resale, and sometimes some of those products might be sent back to the supplier.
The Cost of the Returns Management Process
Currently, the established return process used in the retail industry is for a consumer to initiate a return by sending or delivering the product back to the retailer it was purchased from. After that, the retailer then forwards the product back to the vendor.
- In 2020, returns cost companies $550 billion, an increase of 75% more over four years.
- Consumers return 5 to 10 percent of the products they buy in brick-and-mortar stores.
- Over 60% of consumers take the time to review a return policy before making a buying decision. (ReadyCloud)
The return to vendor process, as mentioned earlier, is costly in three ways: 1) Time Expenses; 2) Financial; Expenses, and 3) Reputation damage.
The longer products spend in the supply chain between customers, merchants, and vendors, the more difficult it is to resell the goods at a profit.
Most vendors will charge a restocking fee, and in some cases, they will also charge return delivery costs.
The longer the RTV process takes, the more frustrated consumers become. In most cases, this will negatively impact the retailer as the customer is likely to blame them and choose to take their business elsewhere.
Preventing Customer Returns
Both brick-and-mortar and online retailers should be thinking about ways to prevent returns. While online purchases are returned twice as often as items bought in-store, returns in physical stores also take a big chunk out of retailers’ market share.
There are a few ways that brick-and-mortar retailers can prevent customer returns, and the most effective methods will vary from business to business. However, some general tips include:
- Offering quality products that are in line with customer expectations
- Creating a return policy that is easy to understand and easy to follow
- Create clear and well-communicated return policies
- Set a reasonable return period, i.e., 30, 60, 90 days
- Training employees on how to handle product returns
- Promptly processing customer returns
- Offer store credit, exchanges, a credit memo or product replacement
- Offer various types of payment / refund methods to customers
Here are a few ways to reduce return issues specific to E-commerce:
- Accurate and detailed product specs and descriptions are also key
- Provide authentic images and online fitting tools
- Encourage customers to post reviews and product feedback
- Combat and deter serial return customers.
- Provide return information clearly on the goods receipt / purchase order
Mitigate Unnecessary Return to Vendor Costs?
Consolidation RTV Goods
Sending items individually back to the vendor is inefficient and expensive. However, consolidating and organizing products into a larger shipment is more cost-effective. Businesses save money on freight and shipping charges, and you don’t hold on to excess inventory.
Inspection and Grade customer Returns
Track and Assign each returned item by condition, value, and status. This process will help manage what should be sent back to the vendor and avoid shipping goods that the vendor will not accept. For example, goods that cannot be repaired.
Be Aware of Return to Vendor Contract Terms
If your vendor agreement only allows a certain percentage of items to be returned, it is important to track that information and be wary of reaching the limit. This process will help prevent wasted shipments that the supplier will not accept once the limit is reached.
Taking advantage of the Secondary Market
A return to vendor process must include a method for refurbishing and selling returned goods. Consequently, a secondary market is a post-retail channel that provides a means to sell and buy returned, excess or other previously unwanted products. Further, the secondary market includes channels like factory outlets, off-price, and discount stores, dollar stores, flea markets, and online auction houses.
The secondary market has three primary objectives:
Recoup Losses from Returned Goods
One of the biggest drivers of secondary market growth is the ability to offset the loss from returned and unsold goods at lower than market value prices. Depending on what channel a retailer chooses, there is an excellent opportunity to achieve high pricing. Even liquidation – if managed correctly – is becoming a viable option.
Secondary markets divert unwanted inventors from landfills, reducing the impact of the product on the natural environment while concurrently creating economic value.
Knowing how your merchandise enters the secondary market and who is buying is essential. Retailers opt to own their secondary channel(s) to have greater oversight over their products and related brands.
As we’ve seen, several trends affect the supply chain that retailers need to consider to be more efficient and support their larger strategic goals. By improving supply chain performance, increasing brand protection, and supporting sustainability initiatives, companies can improve RTV cost efficiency and better serve their customers.