Returns: Deal With It! Robert Casto 1. Introduction Software developer for 18 years Worked for Amazon from 2004 to 2006 Member of the Product Advertising

1

Returns: Deal With It!

Robert Casto

2© 2012 SellersToolbox

Introduction

• Software developer for 18 years• Worked for Amazon from 2004 to 2006• Member of the Product Advertising API team• Used to be called E-Commerce Services (ECS)• First external web service Amazon made• Developer for Frontgate.com & GrandinRoad.com• In 2009 wife started selling for extra money• Wrote software in evening to help business• In 2011 started working on SellersToolbox

fulltime


Why discuss returns?

• A problem that affects everyone• Typically disliked by retailers• Frequently ignored or put off to later• It affects your bottom line (profitability)

• Why do businesses ignore their returns?


Returns are a pain!

• Not a pleasant part of retailing• Time consuming. Got better things to do.• Processing them is complicated• More fun to look for products to sell• Easier to write off as a cost of doing

business• Too many items to deal with• Low ROI for the work involved• Too busy researching or scouting


Is it a “big” problem?• NRF says 8% is average for the retail

industry sales• Some markets are much higher than this• Zappos sees 35% returns, 50% for best

customers• Are EBay and Amazon accepting too

many?– Return any item, anytime, for any reason.– Don’t like it, doesn’t fit, 365 days & free

shipping– 180 days and to any retail store– “Guaranteed to last”. Anything, anytime, any

condition.

– No receipt and any length of time– Industry sees lenient policies improving sales

overall– So trend is to provide easier and longer policies


Are returns lower online?

• I see about 2.5% of sales get returned *• That’s much better than regular stores• Possible reasons for the lower percentage– Difficult to return items from a other sellers– Not possible to fake receipts for a purchase– Usually have to pay shipping to return item– Different type of customer / clientele

• Size of you problem depends on # of returns


How many returns?

• Using an average return rate of 2.5%• 25 out of every 1000 sales or 3 out of 100• Quick way to calculate your return count– Divide # sales by 10 and then divide by 4

• Examples …– 500 sales per month: 500 / 10 = 50, 50 / 4 = 12.5– 10 sales / day? 70 / 10 = 7, and 7/4 ≈ 2 / week– 100 sales / day? 700 / 10 = 70, and 70/4 ≈ 18 / week– 1k sales / day? 7k / 10 = 700, and 700/4 = 175 /

week


Should you care?

• If you are a larger seller, most definitely• For small sellers, could be a large hit on

profitability• These items are worth something

– Average sale is $32.62 (looking over multiple years)– If cost is 1/3rd, then that is almost $11 per item

• Doing nothing ensures that money is lost• Prices will continue to fall• Get money out of them to put towards new

inventory• Just need to know where to start!


Discussion Outline

How Returns are ProcessedHandling ReturnsReimbursement

Minimize NumberRecouping Costs

Outsourcing


The Return Process

• Returns are the opposite of sales• Items follow a different path from the

customer back to the seller• This is known in the retail industry as

Reverse Logistics• It is a $100 Billion industry

© 2012 SellersToolbox 11

Sale: Merchant Fulfilled

List Item

SHIP

ORDER

Receive Order

Deliver


Return: Merchant Fulfilled

REQUESTRETURN

Approve

Ships Item

Delivery

Receive Notice

PERMISSIONPRINT LABEL


Sale: Amazon FBA

List Item

Order

SHIP

Deliver


FBA handles the return processs


Return: Amazon FBA

Pickup

Approves

Request Return

Collects& ShipsShips


Collection Process

• Return label has a special zip code• Post office sorts these items to a special

bin• Couriers pick up items while doing

deliveries• Returns are consolidated to sorting

facilities• Items are shipped motor freight to retailer• Amazon has them sent to Lexington KY

and Las Vegas NV, their main return processing centers


Disposition: Amazon FBADelivers Collected Customer Returns

Determine

Condition

Sellable

Back intoinventor

y

UnsellableAmazon

Responsible?

Resell

Y

N

Reimbursement

Unfulfillable

Removal Order

PERCENT

FBA CENTER

41.6% LEX221.0% LAS217.1% CVG2


Amazon will refund me?

• Amazon will reimburse when it is their fault– Damaged while at a fulfillment center– Lost in a fulfillment center– Missing for 30 consecutive days– Carrier lost or damaged the item

• When shipping to the customer or as a return

• What is not their fault– Condition of product not as described– Product damaged by the customer

• Items may end up being sold by


Amount Reimbursed

• Based on their determination of unit value minus FBA and Amazon fees

• Factors in value– Sales history– Your price– Other seller prices

• Will use table at the right if there is not enough info

• Limit of $2000• Get insurance on items

above $2000


Calculating Reimbursement


• Amazon does not reimburse for customer damaged items• Amazon makes mistakes too so you need to watch them

• Example – $180 Norelco Arcitec 1050 shaver got returned– Used removal order to ask for the shaver back– Got all the parts in a zip-lock bag– Customer said the item was defective– I asked Amazon to reimburse because the item had been used

• Make sure you cite the rule and where it can be found in the case

– They asked for pictures of the item and shipping labels– They granted my request and reimbursed the sale– I paid $90 and would have been out that and fees– Instead, I received $149.85 so $30 was taken out in fees– My net profit was $59.85, just as if the item had been sold

It pays to ask!


$200 Norelco ShaverProduct Label

Shipping Label

PackingSlip

Front Back


Improving the Odds

• Take pictures to document condition– of item returned from a removal order– of shipping box to show any carrier damage

• Monitor the status of each return in Seller Central– You need to ensure Amazon doesn’t miss things– Set aside a specific time each week to review them– For lots of returns, use 3rd party software to help *– When creating a case, include details about return

• Order ID, Order Date, ASIN, Return Date, links, etc


Removal Orders

• To create a removal order– Log into Seller Central and click on

Manage FBA Inventory– Sort table by Unfulfillable– Select items you want to remove– Change dropdown and click Go

• The next screen lets you choose theaddress where items will be sent. It also lets you see what items you have thatare unfulfillable so it is easy to select them.


Removal Orders

• Takes 10-14 business days to pick, pack, & process• 30 days during peak times: Feb, March, Aug, &

Sept• Large quantities may be packed on pallets• Email is sent when all items have shipped• Any address can be used for where returns are

sent• Items will come from different fulfillment centers

and may arrive spread out over many days• Cost is $0.50 per item and $0.60 for oversized

items


Removal Settings


Avoiding Returns

• Only sell high quality products• Be conservative when assigning condition• Make sure the product description

matches what you are selling– On Amazon, these pages can change so you

will need to monitor them

• Decrease time between order and delivery• Package product carefully for shipping


ExampleShippingProblem


Collision Damage


Forklift Damage


Dropped Damage


Why are items returned?• Out of your control– Damaged during shipping– Damaged by the warehouse– Found a better price– Accidental order– No longer needed

or wanted– Defective / Does not work– Buyers Remorse– Unhappy with quality

Manageable―Different from website

description―Defective / Does not work―Missed delivery date―Different condition than

expected


Top Return Reasons

PERCENT REASON

23.7% UNWANTED_ITEM

17.5% DEFECTIVE *

10.6% NOT_AS_DESCRIBED

6.0% ORDERED_WRONG_ITEM

4.6% APPAREL_TOO_SMALL

4.0% SWITCHEROO

3.8% APPAREL_TOO_LARGE

3.0% UNDELIVERABLE_UNKNOWN

2.7% DAMAGED_BY_CARRIER

2.3% DAMAGED_BY_FC

2.0% CR-UNWANTED_ITEM

Only 15% of returns

can be fixed!

Only 5%are due to damage


Product Returned Defective?

* 6-8% of all returns are due to fraud

Some customers will try to avoid paying return shipping. They will indicate product is defective, but you will get back a new item.

Thare187: They don't price match anymore. Just say it's defective. I used to return games to Amazon that I would get free from yourfree360games.com. Never has a problem.

Some unfulfillable items will be new. No way to know until you get them.


Disposition ofReturns from Customer

PERCENT DISPOSITION

35.9% SELLABLE

28.4% DEFECTIVE

23.3%CUSTOMER_DAMAGED

9.1% DAMAGED

3.4% CARRIER_DAMAGED


Top Returns by Product Group

PERCENT PRODUCT GROUP

13.5% Toy

12.0% Baby Product

11.1% Shoes

10.4% Kitchen

6.8% Health and Beauty

6.0% Apparel

5.0% Beauty

3.7% Home

3.1% Book

2.3%Personal Care Appliances

2.2% CE

2.1% Sports

2.0% Drugstore


Top Centers for DamagePERCEN

TFBA

CENTER23.4% PHX22.5% IND15.8% ABE10.5% CHA6.7% SDF6.5% LEX4.6% TUL2.7% PHL2.5% RNO1.8% LAS1.8% CVG


Return Condition: New

• Around 40% of items returned are still new– Customers don’t want to pay return shipping

so they say it was defective– Amazon’s policy is very lenient and favors

buyers– Check that item is still factory sealed

• Include with your next FBA shipment or put them back into the regular shipping process


Return Condition: Used

• About 20% of items will have been opened and then returned– Customer didn’t like the color, fabric, something?– Amazon marks all items unfulfillable that come

back in a condition worse than how it was sold– Check that no parts are missing– Contact manufacturer to try and buy missing

parts or see if they are for sale somewhere

• If no parts are missing, sell on EBay or Craigslist


Light box damage: Like New


Light box damage: Like New


More damage: Very Good


Lots of box damage: Like New on EBay


Where to sell Like New?

• Amazon allows Like New items for most categories except these:– Clothing– Baby– Toys

• Some categories allow refurbished or collectible

• EBay if in doubt but be conservative– Better to surprise than disappoint


Return Condition: Other

• About 40% of returns will be worthless– Customer broke something– Returned without packaging– Missing parts– Scratches and / or dents– There is no way to tell how badly something is damaged before

requesting it from Amazon. Just ask for everything.

• Keep the item for its spare parts – Especially if you sell many of the same item or get multiple returns

of the same item– Document what you have and where so it is fast to find the parts

• Throw away anything that cannot be resold such as clothing, food, vitamins, and Health & Beauty items


Badly damaged item. Missing contents.


Missing packaging. Health care item so dispose.


Recoup your costs

• Get new items back to into sales process– Ship the item back to FBA with next shipment– Relist product on Ebay or other venue– Add back to inventory if running your own site

• Will supplier reimburse you in some way?– Damage allowance (2% or return for credit)– Unsold item buy back– Guaranteed sale programs


Recoup your costs - Venues

• In order of highest possible sale value– EBay is great for selling items with bad

packaging– Local flea market dealers may buy some items– Craigslist is easier to list but not as effective

nor are the prices paid as good. People want to dicker a lot.

– Local public auctions. People usually overpay.– Consignment or 2nd hand stores– Sell as salvage to other companies


Recoup Cost - Liquidation

Liquidations sites can help you sell large quantities, but they tend to have high fees


Recouping Cost - Liquidation

More places to sell large quantities of goods


Outsourcing – Benefits

• Focus on what you do best – Sourcing and selling• Cost and efficiency savings – Others do it better

and cheaper• Reduced Overhead – Fewer employees, office

space, etc• Operational Control – Change arrangement to fit

needs• Hire Top Professionals – Hire those who are the

best• Control Capital Costs – Converts fixed costs into a

variable• Reduces Risk – Can adapt to changing business

conditions• Increased Capabilities – Do far more than on your

own


Outsourcing - Business

PayrollTaxesAccounting

WritingResearchBilling

ScoutingShippingLabelingCleaningListingLegal

Virtual Assistants


Outsourcing - Technical

• Product and pricing research• Data processing and gathering• Report generation– Sales - Forecasting

– Inventory - Taxes

• Custom Integration and tools• Whatever is taking up lots of your

time


Outsourcing - Returns

• Eliminate handling them all-together• Ship to another address using

removal order• Nothing shows up at your door or

warehouse• Can get paid for the returns• Cost associated with returns …


Returns Costs - Storage

RentHeat

Electric

Lost spacein warehouse


Return Costs – Value Loss

Depreciation

Falling Prices

Obsolescence

Money Tied Up


Return Costs - Expenses

Receiving

Evaluate Condition

Sell on Other Venue

Employee Time


Robert Casto

513-442-2898 (leave message)

[email protected]


Other Slides

If there is time …


Shipping Statistics

SERVICEPERCEN

TExpedited 51%Standard 49%

* Based on1 million sales

CARRIERPERCE

NT

UPS

44.54%

SMARTPOST

25.12%

ONTRAC 7.30%USPS 6.20%FEDEX 4.79%LASERSHIP 4.53%BLUE_PKG 3.06%ENSENDA 1.65%PRESTIGE 1.24%SMARTMAIL 0.57%PARCELPOOL 0.49%


Top Ship-To States

STATEPERCEN

TCA 16.9%NY 8.1%FL 6.5%TX 6.1%IL 4.0%PA 3.7%NJ 3.6%VA 3.4%WA 3.3%MA 3.2%OH 2.5%GA 2.4%MD 2.4%

STATE

PERCENT

MD 2.4%NC 2.3%MI 2.1%AZ 1.9%CO 1.9%CT 1.6%MN 1.5%OR 1.5%TN 1.4%WI 1.4%IN 1.3%MO 1.3%UT 1.0%


FBA Settings


Automated Long-Term Storage Removal Settings


Manage Returns


Refund Order - Full


Refund Order - Partial


Automated Return Settings

Documents

Returns: Deal With It! Robert Casto 1. Introduction Software developer for 18 years Worked for Amazon from 2004 to 2006 Member of the Product Advertising