Women on Boards: how one CEO is challenging retail returns

| Oct 09, 2016

Vicky Brock is the CEO of Clear Returns, a software firm that aims to reduce retail ecommerce return rates and grows customer lifetime value. Ahead of speaking at the next Women on Boards, Board Room Conversations event, taking place at PwC’s Edinburgh offices she spoke about how customers have the upper hand in retail at the moment, where the company is going next and what advice she gives others who want to set up businesses.

Are returns expensive for companies? Is this a big issue?

“Yes and it is increasing. They can be incredibly expensive. It’s not just the operational cost of free delivery sending items out and free returns when sending something back, there’s also all the warehouse handling, packaging and cleaning, costs. This can be close to £6 for a fashion item or as much as £70 for an item of furniture or larger item that needs special delivery/return. In addition to that, there’s the opportunity cost because if something is out with a customer who will return it, it is not available for someone else to buy.

“Returns lead to considerable stock inefficiency because a company has two options when faced with high returns: order more to ensure they always have supply or go out of stock. The vast majority of companies will order in more stock instead of running out. That can mean ordering approximately 25% more stock than is actually required.

“You also have to consider that a lot of this stock will end up discounted because by the time it is returned and has gone through the returns process, it may be time for the discount cycle. This can be especially true for fashion, which has very fast stock turn cycles, also in electronics which cannot be sold at full price once they’ve been opened."

How do you convince retailers that you can help reduce return rates and improve customer experience?

“Let’s be honest, returns are a huge issue and companies are waking up to this, so they aren’t sceptical about what we offer - they are seeing it as an opportunity to work with someone who wants to help them and their bottom line.

“Having said that, we are turning their thinking on their head. Typically performance has been measured in gross sales but, in the modern era it’s not a sale until the customer keeps it – that’s counter to traditional retail philosophy and we are actively encouraging senior execs to think differently.

“Success is a keep not a sale and the decision to keep happens once the goods have arrived - so the real point of sale has shifted from store and website to the home, where the retailer has very little influence.

"Customers have all the power - 10% drive 40% of returns"

“The power has completely shifted from retailer to customer and it’s customers who have all the control at this stage. We see about 10% of customers driving 40% of returns in some cases. Many customers have been incentivised and educated into different behaviour so there is nothing to risk from shopping first and choosing what to keep later. You order on your credit card, you get free delivery and returns, what is there to lose? A costly group of customers buy first and choose later.

"Some shoppers manage to make a profit from returns"

“A small proportion of customers are negative value who will return literally everything they buy, meaning once costs are factored in the retailer loses money every time they buy.  In fact some shoppers even return more than they buy, which takes some getting your head around, to understand how people can be refunded more than they spent – but they do.

For example: customers may be refunded at full price for an item purchased in the sale or with staff discount.  They may buy an original and return a fake. They may literally steal the item and get a refund. But it can also occur when duplicate items are delivered in error.

There are also valuable customers who hate to return - so much so that if they have to return something due to an error on the part of the retailer or a problematic product, they will never shop with that retailer again.

Clear Returns helps retailers understand these different types of customer habits by scoring and segmenting with big data and artificial intelligence, meaning they can engage with customers in ways that will increase the likelihood of an item being kept and a customer’s lifetime value being maximised."

Should we incentivise customers not to return items?

“Incentivising isn’t the way to go. That becomes expensive, fast, because those who return the most will play that to their advantage. What retailers should be trying to do is get the right products into the hands of people who will keep them.

"It is important to understand there will and should always be returns – for some people that will be a good thing and for others a bad thing, it depends on the customer - the point is that returns at the current levels are not sustainable in any sense. We aim to help predict and prevent returns."

Is there an environmental impact to this?

“There’s a huge environmental cost to all these returns. Think about the road miles, packaging and wastage. It’s quite contradictory in some ways. EU directives on distant selling have in some ways made it easier and easier to return but the flip side is that this is increasingly economically and environmentally unsustainable. There are huge amounts of wastage in the system.”

How can companies avoid – or minimise their returns?

“Clear Returns' proprietary returns intelligence technology looks at three ways to predict and prevent returns:

  1. customer behaviour
  2. identifying problem products and brands fast (some returns have nothing to do with the shopper, the product itself is at fault
  3. looking at the marketing campaigns, images and messaging that are driving up the likelihood of returns, for example by over-selling a poor item, or not accurately describing an item.

"Because we have a market wide view of data, we are more accurate that the retailer themselves can ever be. By using the retailers' data and pooling it into our existing data lake, we can significantly reduce the bottom line impact of returns."

How can firms minimise losses at Black Friday and festive sales?

“Black Friday and January sales are not the highest returning periods in percentage terms, but they are by far the highest in terms of items refunded and revenue refunded, so retailers do need to start thinking about it now.

“The thing is, events like Black Friday and Cyber Monday are almost designed to increase the number of returns for businesses. You have a time sensitive offer placed alongside a sense of scarcity and panic, which appeals to over-buyers who buy lots and then decide what to keep afterwards.

“In addition to this, you have panic buyers who get caught up in the emotion of the frenzy and will likely later return the products they did not mean to buy in the first place.

“What’s worse for businesses is that due to the time of year, a lot of these returns have to end up discounted in January sales. It’s a lose-lose proposition in many cases and it cost businesses around £180million in the UK last year.

“Our main piece of advice for companies thinking of being involved in Black Friday and Cyber Monday type sales is to choose your promotional items very carefully as they will be snapped up in a frenzy and be very susceptible to buyer’s remorse.  Any problem products and excessively high returning brands should be avoided at all costs.”

What advice would you give to anyone thinking of setting up a business?

“Be prepared for the sheer unrelenting energy and commitment that it all takes. Everyone tells you things will take twice as long and twice as much money and you think yeah I’ve factored that in - but it still seems to take twice as much time and money as you ever imagined.

“The other thing is: just do it. Get on with it. Don’t wait for perfect information or the right time, just get on with it. It will never be the right time, you’ll never have enough money or the perfect information. Do it, make mistakes, learn fast, and don’t wait for approval.

“I operate mainly on seeking forgiveness not permission which isn’t for everyone but I find it works well for me.

“What is essential though is to have a good team around you. It is more important for other people to believe in you than for you to believe in yourself – fake it until you make it, or have convinced yourself you will – everyone has self-doubt, everybody has a little mini them on their shoulder telling them they aren’t good enough and in that context, what you need are people around you telling you that you can. And to believe in yourself.

“You may not think you are the crazed coffee-fuelled business starting type but don’t let that stop you going for it.

Have a team but only one entrepreneur

“A team can achieve so much more than an individual and it wasn’t until I brought together a complementary group that I could see how well a team works.

“Also, have only one entrepreneur in the team. That’s all you need. Too many and it’s dangerous. Having said that, the founder of the firm doesn’t need to be the entrepreneur. There are other people in the mix – product managers, CTOs, CFOs, those people can found extraordinary firms together."

Is there enough support for people setting up businesses or those who fail?

“This is one reason why a good team is important because that team has your back. But as a business community and society, we have to go easier on people who fail and look at that as preparation for next time. In the US it’s a lot better, it’s seen as a step on the journey. I don’t think we should be shooting the people who put their heads above the parapet and take the risk.

“I believe that you have to be able to handle the setbacks when things don’t go well or when you fail. The challenge is not to take that one failure or defeat and let it define you. Look at it from the angle of probability – for example, I’ve failed 75 times, statistically I only need to fail another ten times before I succeed.

“The other thing to consider is ‘OK, so this didn’t work. What have I learned and what would I do differently next time?’ It’s like free training.

“This is one area where studying at MIT was excellent. It’s amazing for scaling tech companies or tech product based companies. All the material is around getting your head in the right place. They prepare you very well and help you achieve the proper mind-set.”

Do you have a work/life balance?

“I don’t have a work/life balance because to me they are the same thing. I’m compelled to keep going on this. Even when it’s crazy and stressful it doesn’t feel like a chore, it’s a privilege.

“That’s not to say I don’t have other things in my life. I respect that other people are different and my team have other, differing priorities to me. Context and headspace are important but I don’t think there’s a metric as such for work/life balance.”

US and B2B expansion for Clear Returns

“We’re very focused on retail for now. Looking ahead, expansion into the US is on the cards, though potentially in time we may also look at other sectors like insurance and parts of the B2B market. Any market where there is churn, where people consume the value of the product disproportionately to their payment of it – we can be in there and making a difference to the bottom line.”

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