GUEST COMMENT Return to profit

With consumer spending under pressure and online return rates of between 20 – 30%, fashion retailers are facing a hit to margin that could ultimately undermine profitability. Darcy de Thierry, managing director of Ferag UK, sets out how to protect margin and maximise re-sales using innovative returns processing.

As UK interest rates rise to levels not seen for 15 years, consumer discretionary spending is being squeezed, and for fashion retailers that means keener pricing will become a competitive necessity.

According to a recent forecast published by VoucherCodes, ‘2023 Spending and Saving Report’, 50% of UK consumers are planning to cut back their spending on clothing over 2023. 

But that’s not the worst of it.

Omni-channel businesses face an even greater challenge. The combined effect of reduced sales margins and persistently high returns rates, commonly between 20-30% in the online fashion sector, could see profits at some fashion brands significantly impacted. Adding to this, new data from returns specialists, ReBound, suggest that UK retail returns in 2022 were 26% higher than 2021, despite online retail purchases falling by 11.5%.

Clearly, fashion retailers need to act quickly to address the corrosive effects of mounting returns on overall profitability. 

The dilemma facing businesses is whether to charge the customer for returns or continue with the widely accepted practice of a free returns policy. Some large brands have started charging returns fees, but consumers have become accustomed to slick returns processing, with fast repayment, at no extra cost. In fact, research from Appinio finds that 71% of UK consumers would avoid shopping online if they were required to pay to return items.

Given that returns are an inevitable consequence of online fashion retail, businesses need to look to their returns processes for savings, and importantly, find new ways of increasing the resale rate of returned items. Speed and efficiency in processing returns can take out cost and pay big dividends in capturing more sales when a fashion item is on-trend. 

A return is very often a fast mover and is highly likely to be sold within three days, so why put it back into deep storage? Dynamic buffers could provide the agility needed to turn returns around faster.

Overhead pouch sortation systems offer a flexible and highly scalable, conveying, sorting and dynamic buffering solution appropriate for both fulfilling ecommerce orders, assembling store friendly sequenced replenishment and, importantly, buffering fast-moving returned items ready for a quick call-off for resale. 

One pouch system is capable of sorting and processing many thousands of orders an hour, with each pouch able to carry both hanging garments and flat items, such as shoes and flat pack goods, enabling fast order fulfilment from a single pool of inventory that serves both retail stores and online orders. Efficiencies in accessing available stock, greater flexibility in allocating stock to maximise sales and faster processing times for preparing orders, are just some of the key advantages.

Critically, pouch technology lends itself to efficient returns processing. Overhead dynamic buffers can offer a cutting-edge solution to removing the time, cost and effort of placing returned items back into stock. Manually sorting and placing items back into deep storage is a very time consuming and costly process, which in large organisations can involve thousands of items across numerous skus. But all that effort and extra handling costs can be avoided. And at the same time, the business can be more responsive, with increased availability and faster fulfilment of re-sale items.

For high-demand fashion products, keeping returned items in a buffer close to the packing area enables a quick and efficient re-despatch of the item. In fact, some clever retailers anticipate and predict levels of returns, allowing them to re-sell items even before they are returned to the warehouse. Such techniques help boost sales in a tight, finite window of opportunity.

Large dynamic buffers may be used for holding ‘predictive picking’ items too, so instead of picking one item for one order, several items can be picked and held against known or predicted sales. Using buffers in this way helps improve pick rates and smooths the flow of orders, creating greater efficiency across the fulfilment cycle – particularly useful at peak. 

The same technology can help push back cut-off, giving ecommerce brands an extra edge. A number of leading fashion brands are taking advantage of pouch sorter technology to increase capacity and boost performance of their fulfilment operations.

Fashion businesses looking to protect their bottom line should consider the full range of options that overhead pouch technology can deliver. Returns processing is just one important aspect of this highly flexible, multi-functional technology.

Darcy de Thierry, managing director of Ferag UK

Read more about returns in the ecommerce sector in the DeliveryX Returns 2023 report. Download in full to discover:

• How some retailers are deploying loyalty schemes to deal with the returns problem
• How Zara has set the precedent by charging for returns
• What are the two return trends “Bracketing” and “Wardrobing”?