Customer Footfall Analysis
February 12, 2025
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Most of the players in the online as well as offline retail industry have a clearly defined retail policy. It is considered to be an important part of business for most players in the retail industry.
A lot of retailers don’t give much thought while creating this policy and such policies are often created based on what the competition is offering. However, research conducted in this matter in the recent past has shown that the return policies offered by retailers are not inconsequential. Instead, they can have a significant financial impact on the bottom line of the retailers. In fact, some of the impact can even be non-financial in nature.
This article makes an attempt to explain the financial impact of the return policy offered by retailers.
The return policies which are offered by retailers can be quite important in driving their overall sales. This has been the case particularly with online retail. This is because when retailers offer a liberal returns policy, it creates a situation in which the risk is reduced for the end customer. As a result, retailers which offer a more liberal return policy are able to increase their sales as well as their brand loyalty.
Customers tend to make repeat purchases from these stores since they are convinced that even if they end up buying the wrong product, they will be able to return or exchange the same. It is for this reason that retailers have been creating liberal return policies in the past.
However, in the past few years, retailers have realized that the return policies do make a huge impact on their profitability. Categories such as online apparel, where the percentage of goods returned is high tend to have a lower profitability as compared to other categories. Retailers have also realized that certain customers have started deliberately misusing the return policies. Some examples of misuse have been mentioned below:
There are multiple ways in which returns impact the profitability of the retailer. Some of the important financial impacts have been explained below:
The lost additional sales can add up significantly over time and can impact the overall profitability of the firm. This is particularly problematic in case of fast fashion wherein by the time the returns are processed, a significant portion of the season is lost and new stock is introduced into the system. The loss associated with lost sales is the highest in periods such as Christmas which are traditionally associated with higher sales.
From the above points, it is clear that frequent returns of products have a huge financial impact on retailer. However, it is also important to understand that the costs may not always be purely financial. There are huge environmental costs associated with returns as well.
When retailers process returns, they need to utilize a lot of resources such as fuel and electricity which leave a massive carbon footprint. Also, a lot of these products ultimately end up in landfills which again causes significant environmental damage.
It is important to note that retailers have to ensure that they get their returns policy just right. If the policy is too restrictive, it is likely to cost the business in the form of lost sales. However, if the policy is too liberal, it is likely to cost the business in the various ways mentioned in the article above.
Retailers which are able to discover and implement a balanced returns policy are likely to experience financial gain.
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