Multichannel Success Podcast series

Season 2 Episode 1 - Lowering the cost of returns - Transcript

#### David Worby

Hello, and welcome to this week's episode in season two of the Multi-Channel Success podcast. Today, we're covering a subject that's relevant and key to lots of retailers in the UK and beyond. It's all about how to lower the cost of returns. I'm delighted we have with us a guest speaker, Peter Hietala, the founder of EasyCom, which for those of you who don't know it, is a revolutionary return platform being adopted across the industry. Welcome to Peter.

#### Peter Hietala

Thank you, David. Really happy to be here.

#### David Worby

Fabulous, thanks for joining us. So I think for our listeners, we wanted to cover this week the subject of how to lower the cost of returns, not just from a kind of technical perspective, but the kinds of things that are going on in the market and the trends that we're seeing. But let's just start with how big the issue really is and how we define the issue. I remember when I was working in the UK high street, we had sectors that were returning 60, 70% in some cases, so I'm assuming for some people it's a really big problem.

#### Peter Hietala

Yeah, that's correct and I think it's depending a little bit on what sector you are in and what product you are selling and which market. So if you are selling home appliances, electronics and so forth, you will probably be in the 1% to 5% return rate. In the mid-range, you find furniture, interior design, you get 5% to 25%. I think the biggest one is the fashion industry or the shoes and clothes where as you said one might end up in specific markets in up to 70% returns.

#### David Worby

Yes, I remember on some product categories and on some colours, because I think I always remember black was a terrible return rate relative to lighter colours. If you took black dresses that had any sense of body form about them, they could be over 70% return rate, which makes the product pretty much uncommercial, I would have thought. Absolutely. Okay, so I think you've mentioned that it can be brand specific, it's certainly product specific, I suppose it can also be customer specific, can't it?

#### Peter Hietala

Absolutely, absolutely. So, there are different type of customers, of course. There are good customers and there are bad customers, so to say. And in some cases, the bad customers doesn't really know why they are bad. But good customers, of course, they buy products, they return product because they want the right sizes and fit, because they ordered in the first place. But the bad ones is you can divide them into two. You have the unaware that buys a lot, returns a lot, that doesn't know the impact of cost and sustainability. And then you have the abusers that really is like misusing, buying, using, shipping back, or just buying and shipping back. So, that's the biggest challenge, I would say, from a customer point of view.

#### David Worby

I remember anecdotally a member of my family, mentioning no names, used to regularly tell a story about buying a suit on a Friday, wearing it on Saturday and returning it on Monday. That was before the days of digital, but the philosophy was that he could do that, so he did. So I'm sure abusers is recognised by everyone. But I suppose therefore we tended to think about it as being an evil, returns. It's a necessary consequence of what we do. Is that the way you see it? Well, there are good and bad returns of course.

#### Peter Hietala

Well, there are good and bad returns, of course. I would say that the good return is that the customer wants a specific product and getting the right size or right color, then you need a return to exchange that product. But also, it's a bit of a, as the dressing room has moved into the living room, It's a bit of a, that's the dressing room, customer's premises or homes, meaning that you sometimes need to try products before really knowing that if it fits and looks well on you. or not. That's similar to what you do in a local store or a brick and mortar store, but you don't have the same type of returns.

#### David Worby

I guess we're kind of in the world of a bit of a trade-off, aren't we? People expect to be able to return things and indeed it's the right thing to do because not everything is perfect for everybody and with our kind of environmental hat on, our sustainable hat on, we don't want people keeping stuff that they're just going to throw into landfill. So we want things to be right for people and trying to find that balance. I would imagine that offering a return service is not necessarily a reason to shop or not shop with someone, it's the types of return services that determine whether it's suitable for you. Are you finding that with the retailers you're talking to?

#### Peter Hietala

Yeah, well, what we mostly see is that it's more like a one-size-fits-all service, meaning that you handle all customers the same. And the problem with analog returns and paper-based returns is that it's about surprise returns. You don't know what's in the box, what products, the condition of them, and who's returning until you open the... returning the warehouse or in the store, which means that you'll have few possibilities to do anything else than just open it and then to handle it locally.

#### David Worby

So I guess we've probably all got examples of businesses who have taken the decision to suspend returns with certain cohorts of people or indeed even certain cohorts of products. And in my experience those always seem to have failed because the consequence of a serious blockade of whole loads of people is never very good from a PR perspective at the very least. So I guess people are looking for more subtle tools to be able to make informed decisions rather than blanket decision making.

#### Peter Hietala

Yeah, I think what you mentioned first is that going for just the return rate, that's a bit dangerous because you might have two customers with 50% in return rate. And one might be really profitable, and one might be really costly and unprofitable. And that comes down to what products do they keep. Is this high margin products they're keeping or low margin products? And that's why it's a bit dangerous to go just to a high level of blocking customers.

#### David Worby

Yeah, I think we have been making analog decisions in an increasingly digital world, which does seem to be rather odd. But before we come to the kind of solutions and things, let's just talk a little bit about what retailers are doing. I mean, I remember back in the day when I was doing this, there were lots of things that we could do, some of which sometimes appeared to work and then other times didn't appear to work, to try to slow down the returns rates by informing customers prior to the decision that they could do it. So I'm thinking, for example, about better imagery, better pictures, size and fit. I mean, size and fit's a nightmare, isn't it? Because no retailer has the same size and fit as the next retailer. So how does anyone know what size they are?

#### Peter Hietala

Yeah, I think that the size and fit is probably the biggest challenge, because again, back to the comparison, you have two exact twins with the same body size and measurements, get the same product. One feels that this fits perfect, and the other one feels that... doesn't really fit me well or fall well on me. So that's just hard to like put in the system. But working with a bit more analysis and finding the worst products like coming back might be of quality reasons or similar to that. Then you can avoid upcoming returns. As I mentioned, if you have a bad picture on a product, well take a new picture or describe it better. If you have sizing issues, customer says it's too small, well put on the product description that please order size larger than normal. By that you can be more proactive and avoid upcoming returns and unsatisfied customers. I think that's some of the actions retail can take today.

#### David Worby

Yeah and I think we also went through a phase I remember in the 20s where we were talking about video and there was a kind of perception that maybe video was going to be all put everywhere to allow people to make better decisions about how a product felt being worn or how a pair of shoes would feel when you were looking down on them. But video doesn't seem to have exploded with the extent that we thought and I'm not sure I understand entirely why that is but but that is an option to try to reduce the amount of bad decisions that people make always struck me as a good one I'm not sure why that's the case.

#### Peter Hietala

I think also, same comes to the sizing tools that are coming, helping customers and comparing different sizes from different brands to help the customer to make a good decision. I can agree, I haven't seen those really fly. I think they are used and helping to reduce the return rate and getting some percentage down, but not having this revolutionary impact yet, what I can see.

#### David Worby

I guess it's also a trade-off of cost isn't it, because producing even 5 second videos is you know, models, hair, makeup, it's expensive, so it's another one of those trade-offs which retailers are probably having to make, so I'm not sure there's much mileage in that. And the other analogy I always used to consider was that fashion changes, and as a result of fashion changing, fit changes. So this year it might be all about a floaty kind of style that is easy to wear, next year it might be about styles that are more body conscious and more fitting. So things change so fast, and to call those things the same fit when you then wear them feels sometimes odd, so I'm not sure there's an easy answer to this in terms of what fashion can do.

#### Peter Hietala

I fully agree and I think also like the seasons are also shorter and the style and the fashion might differ from market to market, region to region and also to the thing. I think you're right. So I think we know it's a problem, it's not an evil, but we know that

#### David Worby

Trying to find ways in more organic markets of reducing returns can have a disproportionate impact on retail sales. And that's got to be desirable for many, as well as the sustainability angle. And I know that the sustainability angle is something that you're particularly passionate about. Absolutely.

#### Peter Hietala

Absolutely, so I think the vision of the company is to really make an impact, like a sustainability impact, helping the planet to survive. So I think that is one of the red threads to the company. The other one is profitability. And if you combine profitability and sustainability, you will have the money to drive sustainability projects and initiatives. It sounds great.

#### David Worby

It sounds great, tell me how you think the sustainability, give me some examples of where you think the company is making inroads into the sustainability story.

#### Peter Hietala

So, firstly, like, starting with the opportunity is if you digitalize the return process, you can take decisions earlier in the process, which means that you can avoid unnecessary transportation, you can also get things to new destinations with shorter lead times and shorter distances, you can get into outlets, stores and so forth. And by doing that, you will increase the profitability and the sales of those products instead of them ending up in lunches and so forth.

#### David Worby

Well, we'll maybe come to in a minute about how your business is doing that because I think that's you know if we could if we could enshrine sustainability profitability and customer satisfaction at the top of our of our decision-making tree then organizations would be in a much better place and the planet would probably be benefiting from that too I think. But the customer satisfaction perspective, talk to me a little bit about how your product improves customer satisfaction.

#### Peter Hietala

You have a lot of marketing communication, you get a lot of information about the full

full sales process and delivery process. When you come to return, if you don't have a digital return solution in place, you have not much information to give the customer. The customer has shipped back the products, they haven't got the money back, so they're actually sitting with zero and just hanging. So if you have a digital return solution in place, you can inform the customer. You can have good information, you can have also the possibilities to make changes, to get new sizes, new colors and so forth. And also important that you can speed up the process, which means that you will get your product faster, you get your refunding faster, and that increases customer satisfaction.

#### David Worby

Yeah, that sounds good. Maybe we should take a break here for a message from our sponsor. Today's episode is sponsored by Better Commerce. Ever struggled with how to get your online store started or feel like you've been left behind with old and dated technology? Well Better Commerce offers a completely composable commerce stack that allows retailers to upgrade their technology with a combination of flexibility and out-of-the-box features. When better is available good is not enough. Better Commerce your composable commerce partner. That all that all sounds like uh sounds like you're moving from a your business is moving from a one-size-fits-all solution for customers to something that that regards each and every customer as almost an individual. Is that right? Absolutely.

#### Peter Hietala

Absolutely. So again, same as we do marketing, campaigning, segmentation, you need to look at individual customer and see like, should you treat your abusers with the same services as your VIP customers, or most profitable customers? I would say no, you must have multiple customer journeys. And it's depending on what type of customer you have in the returns process, but also the reasons. So a return journey, that's like good area for reconversion. You have the exchange journey and the claims journey and a lot of things that you should handle differently in order to get the best customer satisfaction, but also then get the most optimal flows for the customers.

#### David Worby

I know at the centre of your product, which I know you're going to talk to us about in a minute, is this notion of the returns platform. We hear a lot about platforms in digital, whether it's data platforms, or whether it's CRM platforms, or CDPs. So it's not surprising that we're now talking about returns platforms, but talk to us a little bit about the components of a returns platform and the kind of capabilities that it would have. Yeah, so generally...

#### Peter Hietala

So generally you can put them into two different buckets, so say you have a return portal and return portal is mainly of capturing the return product, the reason codes, but also creating the return shipment back to warehouse or where you want it to end up and that's most focusing on the logistics part and then gaining efficiency in lowering the cost and so forth. With the platform it's more, the return is affecting like all the stakeholders in the company, it's a cross-functional process, so with the return platform it's of course focused on having these multiple customer journeys but also optimising the flow so you can redirect products that you want to warehouse or that you want to go to stores, to outlets to optimise profitability but also sustainability and returns platform is also in most cases focused on not just cost savings but also reconversion and upsales.

#### David Worby

It's not just cost saving. That sounds fascinating because I suspect most of our listeners kind of have a set of returns options and they blanket apply those returns options, whether it's return to a store or send back in the post or call a courier. They blanket apply those to all products, irregardless of which customer is being dealt with. So it feels like you're moving towards a digital kind of dynamic returns decision made, I think as you said before, very early in the process that will hopefully not only speed up but reduce the consequence of returns going to the wrong place or being mistimed or being badly handled back where they're supposed to go to. Does that work?

#### Peter Hietala

Yeah, so our thesis and I think we have proven it is like, if you can take the decision as soon as possible in the process, it will have, of course, the lower cost and a quicker resolution time.

#### David Worby

Yeah.

#### Peter Hietala

So, what we do is we take a decision on consumer level, having these multiple customer journeys and good services for the best customers.

#### David Worby

and good services for the best customer.

#### Peter Hietala

not always the best services for the lossy customers, but we apply the same principles to the products, so each product we can take a unique decision on where it should end, have the end destination based on seasonality, price, condition and a lot of parameters, to optimize of course profitability, but also sustainability, like avoiding transporting unnecessary products.

#### David Worby

And I think you were saying off-air that for some customer groups or some individual customers, you would apply potentially a very different end consequence of their requirement to return stuff to others, and that might sometimes mean that an item is treated 20 different ways by 20 different groups of customers depending upon their value to the organisation.

#### Peter Hietala

Yeah, exactly. And I think like when you start to work on that transaction level, that's when you can automate the processes, you can steer them to the best destination and also keep the lead times really tight and low or fast. And that has a huge impact on customer satisfaction, the cost and all the refunding to customers.

#### David Worby

And I guess we shouldn't be surprised so much because many sales-led capability today is driven by data, it's driven by real-time understanding of what customers are doing, whether that's on a website or in a marketing world. So I guess it's probably high time that we had something that allowed us to use that data capability in our returns, which ultimately is affecting the planet, so it makes sense.

#### Peter Hietala

Yeah, I think that's a good description. I think we're good on the sales process. And I would say like the customer order or delivery is not. fully done until the customer is satisfied, either with the product he or she gets with a new size of color or get another product like an exchange or in color size or get the money back. That's when the process ends and that's like the combined customer experiences from both the sales process and the return process and that's why we should pretty much look at it the same with the same type of automation and segmentation.

#### David Worby

One slightly technical thing we should probably just cover off for our listeners unfamiliar with maybe the protocols they have to adhere to is the CSRD for anybody who's shipping any goods into Europe now. Do you want to talk a little bit about that?

#### Peter Hietala

Yes, so there are like new legislation determined and are being implemented, so it's the Corporate Sustainability Reporting Directive and there are like I think there are four to five rules in that or new laws, but summarizing is that you would require the companies to report not only what they have been selling but what they ship to outlets, to charity or to destruction or landfills and that is like they need to report on a monthly basis and following that monthly basis and I would guess because this is the initiative where you to work on the channels of overproduction is that if companies start to ship too much to landfills or upcycling there will be probably quotas and penalties connected to that.

#### David Worby

Okay, it's probably something that some of our listeners were not aware of that they needed to do as we're in this rather vague grey area between being in Europe and not being in Europe. Yeah. But it sounds like from what you're saying that if they're shipping to Europe, they're going to have to play by these rules.

#### Peter Hietala

Probably, otherwise it will sweep up the feet of the Europeans compared to the other ones.

#### David Worby

Okay, before we just come on to some of the the kind of next steps and what your business is doing in terms of onboarding clients, because you're big in Scandinavia doing a lot of work in Scandinavia, but the move into the UK is I think 2023-24. I just want to talk about the competitors. I think we're saying off-air that there aren't very many people with returns platforms, in fact hardly anybody. Lots of people have returns portals and lots of people provide services. Maybe making the distinction between that would be good just for people.

#### Peter Hietala

Yeah, and just before that, our customers, they have warehouses, locations, stores all over the world, so we have global return and claims flows. But the distinction between a portal and a platform, I think, as I mentioned earlier, is that a portal is more common, it captures the return product and the recent codes and also creates the inbound visibility for the shipment. And that also can add to the customer experience, giving better visibility to the customer. A portal, as we mentioned, has more capabilities and focus, not just lowering cost, but creating more efficiency and up-sales and reconversion. Here in Europe, I would say, like in the Nordics, we have Reclaimit and Nshift as portals and competitors. Here in the UK, there are companies like Zigzag and Rebound Logistics. But on the portal side, as you say, there are fewer, but I would say like the things the companies I follow and really look at is Loop Returns from the US, they do a lot

#### David Worby

Okay.

#### Peter Hietala

of things that we are doing, and also Optoro and Arvar.

#### David Worby

Okay.

#### Peter Hietala

So a wider platform from all these players and better capabilities, I think what still

distinct us is the profitability calculation down on product and consumer that is unique from these competitors.

#### David Worby

Fabulous. And I think we should also just say that the EasyCom product, if you're listening to us having an outsourced 3PL provider, your warehouse is outsourced to a company that you have a commercial relationship with, that doesn't preclude you taking and getting the benefits from this product. It's an extra hurdle to jump through but this is not uniquely something that you can only use if you're managing your own logistics, if you're partnering with someone this can be used to. Just a little bit before we wrap up, the onboarding process, I know you take a very kind of step-by-step methodical approach to how you onboard clients and you've onboarded quite a few clients in the last few months. I just want to talk us through how that works.

#### Peter Hietala

Yes, so again, with the platform you have great opportunities, but again, we don't want to run two big projects, so we take a step-by-step approach, so often divided into three. So in the first step, implementing the digital returns and all the business rules to drive this automation, and most often our customers want the exchange functionality as well,

#### David Worby

The first.

#### Peter Hietala

because that wins back a lot of customers and orders. But you reap the first benefits and a good part of the cost savings and efficiency with the first step.

And then in the second step, moving into more automation. Adding these business rules that decides products going back to shelf, go to repair or washing to be sold again to full price, going to outlets and charity and so forth. So taking this stepwise approach is to actually implement the platform in a good way in the organization and then continuously drive innovation and change.

#### David Worby

Fabulous, sounds great. Well look I think we've run out of time now so we're going to wrap it up here and say thank you for that. I think that's been very interesting and for any of you out there looking to find ways to lower the cost of returns who've done all of the things that we talked about before I think exploring technology like EasyCom and doubtless others would be a good thing to do and if anyone wants help doing that either contact Peter directly at EasyCom or give us a shout and we can connect you. Well that's just about all we've got time for this week on how to lower the cost of returns podcast. Many thanks to Peter for joining us and just before we wrap up a couple of last thoughts from you.

#### Peter Hietala

Yeah, so thank you for being here. It was really nice discussion. So the two things I would leave you with is that if you don't have, well, create a shared return strategy in the company and also with the upcoming legislation from EU, sync around the sustainability requirements that comes and see it as an opportunity.

#### David Worby

Peter, that's great. Thanks again for coming, and we look forward to being with you all again soon.

Thanks to our sponsor, Better Commerce. When better is available, good is not enough. Better Commerce, your composable commerce partner.

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