How do Returns affect Retailers

For anyone that has owned or operated a retail store, they would realize that returns are just a fact of doing business. People change their minds, find they have doubled up and dont really want a second one, or maybe the product is faulty. Maybe it it even goes as far as the customer is just demanding and a return becomes the easiest way out.

But no matter what the reason for a product return, they all cost your business money. While not always in purely financial terms of having to pay out directly for the return but in other factors. Factors that are not always showing as a direct cost, staff time, lost profit, discounts to sell the stock, etc. These costs while often costs of running the business anyway, are suddenly taken from creating profit to support loss.

For many smaller retailers the problem isn’t so bad, the less sales you make generally the less returns you would hoope to expect. However at the same time the smaller you are the more impact a single return has on your business. In fact some larger stores employ people whose sole job it is to deal with returned stock. Anyway enough about what the problem is lets take a look at where all the possible expenses may lie, see what the total cost may be, and some ways you may be able to save some of the time.

The example that i wanted to use today, is a customer has purchased a toaster from an electrical store. The price of the toaster was $60.00. One assumption that we will use for this example is that the staff are paid at $20.00 per hour for thier time, and that the toaster has cost the store $35.00.


There are some costs that are associated with a sale no matter what. When you are looking at the total cost of a return these are worth considering as well. In this example maybe it has been a quick sale taken about 10 minutes of your staff’s time, to talk to the customer and complete the sale. Additionally if the customer pays with a credit card there is a cost here as well, so at this point the sale has cost $3.20 in time and $1.20 in other costs.


Once the customer has decided that they no longer want the product, they may call and ask about the returns policy or they may just come into the store. Either way there is going to some time of maybe 10 minutes spent in finding out the customer wants a refund, why they want a refund, checking the product, and finally saying ok we can refund it. So another $3.20 to the cost of the return.


Once a return is going to be done, depending upon your store, yourself or a manager may have to come to approve the return, or another manager, either way it takes time to process through your point of sale system, plus time out for the manager or yourself to come and approve it. So there is another 10-15minutes. This adds another $3.20-$5.00 to the cost. Additionally here you may have to pay another transaction fee if refunding to a credit card.


Depending on the reason for return and the customer, now is likely a good time to attempt to sell another product that may be more suitable. If this doesn’t work it is more lost time, however if it gets a sale then all is not gone in lost profit ($25 on the original product), sales time initially, and at least all the costs are not so much lost costs.

The other area where it will cost you after the return has gone through is what to do with the product. If it is a simple did not want it, and has not been taken out of the box, it can go back on the shelve, with no extra costs. However if it is missing a part of been damaged by the customer and not really saleable, the costs here can climb, beyond the cost price of the toaster it self.

So at the end of the day your actual cost if you are lucky can start around $10.00 or can climb in this case as high as $40-$50 or more depending upon the circumstances, and the time spent on the problem.


There are however some ways that you may be able to save some of the costs of returns. One of the best ways to save at least your time and your managers is to allow your employees most likely to encounter customers with returns to authority to return the product. Another good place to start is to make the returns policy extremely clear, and visible at point of purchase as well as on your website, and anywhere else the customer may look to find out. This will save some time for your staff in answering questions or argueing about parts of the policy that are not clear.

Finally make sure that your policy works within the laws that cover product returns. While there are many reasons why you do have to accept certain ranges of returns, especially in some countries that are outlined by the law. There are also some that you don’t. So make sure that you know the law and work within it, to maximise your advantage. This is not to say there is not exceptions to every rule, but as long as you stick to the law and provide the best service to the customer you can, there is a good chance of minimizing some of your costs.

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