Background to the Group 12 th February 2019, 13.00 GMT The ECR - - PowerPoint PPT Presentation

12th February 2019, 13.00 GMT

Background to the Group

3

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

• perations, loss prevention,

profit protection, supply chain innovation, buying and on- shelf availability The Group promotes the role

• f collaboration

The ECR Community Shrinkage and OSA Group

Research Webinar Series

Buy Online, Return to Store

12th February 2019, 13.00 GMT

“Buy Online, Return to Store”

There’s no such thing as a free return

Prof Lisa Jack Dr Regina Frei Dr Sally-Ann Krzyzaniak

ECR Shrink & OSA Group Webinar, 12th February 2019

In store Internet Mobile Social media Phone

Presentation Outline

• Who we are
• Why it matters?
• What did we do?
• Cost of returns?
• Lean returns?
• A circular economy?
• Calls to action

Who we are

Dr Sally-Ann Krzyzaniak is a Research Fellow at Portsmouth Business

• School. Her research focuses primarily on management control

systems in the food industry. 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.

Why it matters

Global retail e-commerce sales 2014-2021

1,336 1,548 1,845 2,304 2,842 3,453 4,135 4,878

1000 2000 3000 4000 5000 6000 2014 2015 2016 2017 2018* 2019* 2020* 2021* Sales in billion U.S. dollars

Note: Worldwide; 2014 to 2017 Further information regarding this statistic can be found on page 8. Source(s): eMarketer; ID 379046

From SHOPIFY: https://cdn2.hubspot.net/hubfs/442636/BFCM%20- %20Guide%20to%20Holiday%20Returns/2018_holiday_ecommerce_returns_guide.pdf

89% of online shoppers have returned an purchase in the last three years

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). US estimates give the cost of returns to both manufacturers and retailers as $100 billion, in terms of lost sales, transportation, handling and disposal (Blanchard, 2007). Clear Returns estimates that returns cost UK retailers £60bn a year, £20bn

• f which is generated by items bought
• ver the internet. As the proportion of
• nline purchases increases, so will the

cost of returns (Ram, The FT, 27/1/16).

Based on our model: Improvement in rate

• f return by 100

basis points equals a potential 0.4% rise in net profit

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)

Qualitative Case Studies Structured interviews Community Feedback Returns Cost Calculator

What we did

Desk review of company returns policies Structured interviews Community Feedback Returns Cost Calculator

What we did

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

Desk review of company returns policies Community Feedback Returns Cost Calculator

What we did

Qualitative Case Studies

Structured interviews 17 interviews (telephone, face-to-face, email) Elaboration of issues and practicalities elicited in case studies

Desk review of company returns policies Returns Cost Calculator

What we did

Qualitative Case Studies Structured interviews

Community Feedback Presentation of interim findings at ECR Shrink & OSA and Oris Forum events Generation of further insights and applicability

• f findings across the retail sector

Desk review of company returns policies

What we did

Qualitative Case Studies Structured interviews Community Feedback

Returns Cost Calculator Further work with 2 of the case study

• rganisations

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’

Additional costs from ‘BORIS’

• Incremental IT development,

maintenance & support

• Additional costs of handheld &

desktop devices

• Security and storage of items in

store

• Wrap & packaging for goods not

sold in store

• Transportation to RDC
• Additional staff costs
• Opportunity costs for staff

engaged in returns instead of sales

• Cost of running RDC
• Cost of repair & repackaging for

damaged items Increased losses from ‘BORIS’

• Increased write offs for goods

not in re-sellable condition

• Increased internal theft
• Increased claims for refunds

where claimed not to have been received Consequential losses from ‘BORIS’

• Goods lost or damaged in transit
• Goods sent to recycling /

‘jobbers’ that could have been resold

• Goodwill payments and card

recharge for goods lost in transit and / or fraudulent claims

To calculate cost of returns for Buy Online Returns you need:

Operating margin % for online business Net margin before tax % for online business No of parcels shipped for online purchases in period No of items shipped for online purchases in period No of items bought online returned in period Average wage with on-costs Average sales price of items sold online Average cost of sales of items sold online Average Cost per item of packaging and postage paid on behalf of customer Average Cost per item of courier or 3rd party collection Average Cost per item of giving discount and/or making item good for sale Average net Income per item from supplier or jobber (both positive) or cost of waste disposal (negative) % online purchases returned via store % online purchases returned via post direct to RDC % online purchases returned via courier or 3rd party collection agency % goods returned being resellable at full cost % goods returned being resellable at reduced cost % goods returned NOT being resellable % of refunds being given and goods not received rate of returns (Refunds AND exchanges) Increase or decrease in rate of returns estimated as a result of an initiative. Transaction cost per item of handling goods in Store (additional staff cost; security etc) Transaction cost per item for administration Transaction cost per item for returns centre

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!

Max Rate of Return before item fails to produce any contribution to profit: 66%

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

SCALING UP

Scenario: 14,700,000 garments shipped per year average sales price €113 cost of sale €75. Initiative reduced rate of returns by 5% (500 BP). Lesson: scaling up puts possible gains into context of additional sales/wages

Impact on the bottom line 5% reduction in rate of return €million Average garment SP €113 Cost €75 20% 19% Sales 1661.1 1661.1 COS 1107.4 1107.4 Cost of returns 33.2 28.0 5.2 Actual GM 520.5 525.7 Net margin 282.39 287.61 Cost of returns as a percentage

• f net margin

12% 10% 2%

To deliver the same bottom line improvement requires €30,000,000 new sales (with no returns)! € 5.2 million would employ 102 people

• n average wage with on-costs!

One of our case study companies saved €19million over 4 years through low cost investments in communications and equipment. In that case, the savings represent 0.04% of net margin or the net profit from €190million sales or 372 people

• n an average wage.

COST OF RETURNS Long Term Aims - Short Term wins

Research Insight:

• Returns are a hidden cost of doing business

but also an opportunity for profit

• Data is fragmented, difficult to find and

doesn’t link up well

• Returns create conflicts between aims and
• bjectives of different teams
• Opportunities to re-align the business lie in

understanding returns better Strategic Implication:

• Have a strategic plan to treat returns as a

profit centre to maximise re-sale

• pportunities, minimise additional costs

and reduce losses.

• Manage the growing impact of returns to

the business by simplifying and integrating IT systems.

• Create cross-functional teams led by

strategic managers to provide innovative solutions to “Buy Online, Return in Store” and related issues, that reduce conflict between marketing and operational functions in the organisation;

• Control returns and increase net margins

for substantive gains that could be more effective than generating sales or losing jobs in their impact on the bottom line.

OPERATIONAL COST OF RETURNS Long Term Aims - Short Term wins

Operational tasks:

• Validate and/or adapt the cost of returns model
• Look for better communications to deliver customer satisfaction

and reduce rate of returns

• Use the cost of returns checklist to help improve information for

managing returns

• Have a closer look at buying decisions and impact of cost of

returns at the early stages of negotiation, not after most items have been returned

Think LEAN in returns

RETURNS IN AN ALMOST PERFECT LEAN ORGANISATION

Think LEAN in returns

RETURNS IN AN ALMOST PERFECT LEAN ORGANISATION RETURNS IN REALITY

This Photo by Unknown Author is licensed under CC BY-SA

Think LEAN in returns

RETURNS IN AN ALMOST PERFECT LEAN ORGANISATION RETURNS IN REALITY

Lean Thinking in brief

Less Waste Less Time Less Volume Less Risk

This Photo by Unknown Author is licensed under CC BY-SA

LEAN RETURNS Long Term Aims - Short Term wins

Research insights:

• Returns create conflicts between aims

and objectives of different teams

• Processes can be time-consuming,

wasteful and opportunities are missed to gain income

• Scope for communications to be

simplified and improved Strategic implications:

• Create cross-functional teams led by

strategic managers to provide innovative solutions to “Buy Online, Return in Store” and related issues, that reduce conflict between marketing and operational functions in the organisation;

• Develop lean management thinking in

returns to realise an efficient

• mnichannel organisation.
• Make communications with customers

and employees smarter as a low-cost initiative that reduces cost of returns and increases income from secondary sales.

OPERATIONAL LEAN RETURNS Long Term Aims - Short Term wins

• Map out the reverse logistics process and look to remove steps
• Improve communications with customers to reduce returns
• Improve communications with employees to maximise income

from returns

• Identify areas for improved data collection and information

processing

Circularity in retail

Inspired by nature Keep materials in use By-products of one process may become nutrients for another Reuse products (2nd market) Reuse parts Remanufacture products Recycle materials

Circular Economy Long Term Aims - Short Term wins

Research insights:

• Returns create conflicts between aims

and objectives of different teams

• Avoidable losses in cash and

reputation involve recycling etc.

• Opportunities exist to improve

reputation for sustainability and to be seen to be socially responsible Strategic implications:

• Create cross-functional teams led by

strategic managers to provide innovative solutions to “Buy Online, Return in Store” and related issues, that reduce conflict between marketing and operational functions in the organisation

• Participate in the circular economy to

create net benefits in terms of cash, corporate social responsibility and reputation

• Select sustainable suppliers / work

with existing ones towards achieving more sustainability and circularity

Circular Economy Long Term Aims - Short Term wins

Logistics:

• Introduce reusable packaging solutions (e.g. shipping cages with lids)
• Avoid shipping items where possible / use empty return runs

Store infrastructure:

• Reduce carbon footprint; collect and use rainwater

At the store:

• Encourage customers to reuse their bags (remind them at the car park!)
• Repair small defects (where possible in-store) and resell the product
• Sell used / imperfect / out-of-season products to a 2nd market
• 2nd hand corner in store / store for reused goods

The World’s first recycling mall is found in Eskilstuna, Sweden

https://www.retuna.se/sidor/in-english/

Facts & figures from Retuna.se

5 10 15 2015 2016 2017 2018 Turnover SEK (million)

IMPACT

50 new jobs 5000 people have made study visits Education: design for recycling courses Everyday life: café serving ecologically sound meals

11.7 mio SEK (approx. 11.1 mio €) in 2018

Circular Economy Long Term Aims - Short Term wins

With suppliers / manufacturers:

• Avoid single-use packaging materials
• Systematically collect plastics for recycling at every stage, including

production, logistics, sales and taking them back from consumers

• E.g. stop packing every garment into plastic film individually
• Eliminate / reduce pesticides and other toxins in production
• Use product returns to gather feedback on product quality & design; use to

inform decisions on product design, manufacture and sourcing

• Redesign/ encourage manufacturers to redesign their products for easier

repair, reuse, disassembly and recycling

• Refurbish / remanufacture products or partner with organisations that do

Final Thoughts

Returns from “Buy Online, Return in Store” need not be a liability to the business or a drag on operations. Treat returns as assets with the potential to generate income and contribute to net margins to realise a fully

• mnichannel shopping

environment for the future.

This Photo by Unknown Author is licensed under CC BY-SA

Thanks

This research was made possible by independent research grants from Checkpoint, RGIS, Genetec and Oliver Wyman. We thank the four organisations who participated as case studies for this research project, as well as all the other retailers who took part in interviews and who offered feedback and additional insights via events with the ECR Community’s Shrinkage and On- shelf Availability Group and the ORIS Forum’s network.

lisa.jack@port.ac.uk regina.frei@port.ac.uk sally-ann.krzyzaniak@port.ac.uk

Turning research into action

• What are your take-aways from this presentation; what would apply in your

business?

• How could you use the cost of returns model for better decision-making, cost

reduction and profit enhancement in your company?

• What steps can you take now to make the returns process leaner in your

company?

• Where can you see opportunities for your company to become more circular

in collaboration with suppliers, logistics partners and jobbers?

• How do your company’s CSR commitments look when faced with the reality
• f product returns and final destinations? How much do you know about the

jobbers you use?