3PL Returns Processing: How It Works To Help Your Business

ECommerce sales are growing, reaching roughly $768 billion in 2021, but that means eCommerce returns are also on the rise. Returns processing is an integral part of your eCommerce business. It’s essential to understand the process so you can manage it well.

Every third-party logistics returns processing center will have its own policies and practices, and these can vary based on client needs. This article will give you a basic idea of what to expect, plus some examples from Red Stag Fulfillment’s returns processing center.

This post was originally published in July 2020, and has been updated and republished on January 12, 2021 with new information, best practices, and coverage of 3PL returns processing.

Step-by-step guide to returns processing

When a customer initiates a return, the 3PL returns process begins. Here are the basic steps you can expect in your return processing supply chain.

Create a return merchandise authorization

Red Stag Fulfillment uses a Return Merchandise Authorization (RMA) form. Some returns processing centers call it a return goods authorization (RGA) or simply a return authorization (RA). 

Just as your customer can use the returns section of your online shop to create a return shipping label, you can use an online portal to create an RMA. The form tells the warehouse what to expect. It includes information such as the customer’s name, the date the return was authorized, the order number, and the carrier tracking number.

When a returned item arrives at the warehouse, we compare it to the RMA to ensure it matches. Then, we notify our client that we have received the return.

Discard returned food

The next step in returns processing is to evaluate the returned item’s condition. However, if the return is a food product, the returns processing center doesn’t need to examine it. You must discard food items because you can’t sell returned food.

Check the packaging for damage

If the customer returns your product in its original box, the next step is to check the packaging for damage. It’s not uncommon for product packaging to get dented, torn, or otherwise damaged during roundtrip shipping. This is particularly true if the product was shipped in its packaging with no over-box. Damaged packaging can include rips in plastic wrapping around the box as well.

Part of the purchase experience that customers expect when they buy something new is the “unboxing” from a pristine package. Therefore, even if the product is in perfect condition, companies usually sell items with damaged boxes at a discount.

Check items for damage

The next step is to check the actual item for damage. This could be cosmetic or functional. For example, a returned desk lamp could have chipped paint or a faulty cord. Either way, the returns process would mark this as damaged. However, there is an essential distinction between these two types of damage. Defective or broken products can’t be resold, even at a discount. However, many online retailers can sell items that have minor imperfections at a discount. 

Place products in ‘new’ condition back into inventory

Once the returns processing center examines the product, items that can be resold as “new” should go back into inventory quickly. This is the ideal outcome for your business and returns processing center.

Your 3PL services provider can help you return some products to their new condition. For example, your third-party logistics warehouse can refold and re-bag unworn clothing items. That will make them neat and crisp and ready for the next buyer.

Returns processing is generally slower than order fulfillment. Returned products need to be inspected and processed individually. In addition, during the coronavirus pandemic, returns may move a bit more slowly. Although it’s unlikely anyone will catch the virus from touching a box, eCommerce fulfillment warehouses have had to implement new sanitation measures that can slow returns processing.

Create new SKUs for items selling at a discount

You can resell a product returned in a damaged box with an open-box discount. You can sell an item with a small nick or discoloration as a factory second. If you have multiple open-box returns of the same item, you might want to open a new SKU and offer it as a sale item on your website. Otherwise, you might want to consider selling your damaged returns on eBay or another eCommerce site. 

The number of returns you need to receive before adding a new SKU to your website will depend on your returns processing center. If you only have a dozen or two of the same open-box item, it can be hard to track exactly how many you have in stock. Red Stag Fulfillment has extremely accurate inventory tracking. This allows us to communicate the exact number of an SKU left in stock, so you don’t make sales you can’t fulfill.

It’s important not to give up on your returned items. Selling discounted items probably won’t undercut your sales of new products. Plus, an open-box discount can be a good way to earn new loyal customers. Someone who admires your products but hesitates at the price point can get a chance to try them by buying at a steep discount. Once that buyer experiences the quality of your merchandise, they may be willing to pay full price in the future.

3PL returns process examples

The returns process looks different for each business and each product. At Red Stag Fulfillment, we have many partners who sell heavy and bulky products, so we ship a lot of them. These often have lower return rates, but they are more likely to come back with damaged packaging. That means we must be creative about returns processing to protect our partners.

We’re experts in all kinds of product and order fulfillment, so it’s best to contact us and ask when you’ve got any questions. Our team is here to help.

In one case, we opened damaged packages and put any undamaged products and components into a container. When we had enough undamaged units, we created a new SKU for discounted bulk packages of the item. Team members then bagged the bulk product and sold it in a plain box rather than the original packaging. That was a way for our client to recover lost revenue and sell product that was in excellent condition, just missing its packaging.

When returns come in, we follow the specifications set out by our clients. If we don’t have clear instructions for a return, we check with the client before we process the return. In one case, a client asked our warehouse employees to smell a returned clothing item to determine if it was worn (our answer: a polite no and a chuckle).

Returns processing should fit the needs of your business. A successful reverse supply chain will place as much returned merchandise as possible for sale again online.

Returns processing FAQs

Here are answers to some common returns processing questions. If you’ve got questions that aren’t below, reach out to us directly.

What is the eCommerce return rate?

The average eCommerce return rate is 30%. This is much higher than the returns rate for products bought in stores (5-10%). However, there is a big variation in online return rates. Apparel items such as clothing or shoes have higher return rates (around 40%). Some products have much lower return rates (around 15%).

What order return rate can I expect for my business?

It’s hard to predict eCommerce return rates. However, like online sales, there is a seasonality to returns. Expect more returns after the holidays, as people send back unwanted gifts. In addition, if you sell a fitted item (such as clothing), you’ll have to factor a higher return rate into your supply chain.

How can I reduce my returns rate?

The best way to reduce eCommerce returns is good communication in your online store. This includes well-lit photos that show the product from multiple angles. Make sure your product descriptions are clear. Detail product specifications, including dimensions and materials. Use tools such as a sizing questionnaire to help buyers determine their size before buying.

One of the best ways to prevent returns is to include customer reviews on your sales pages. Customer reviews, both negative and positive, help shoppers decide if your product will work for them. After all, the goal isn’t just to sell a lot; it’s to sell a lot while creating happy customers.

What is the best eCommerce return policy?

The best eCommerce return policy is one that meets your customers’ expectations and doesn’t bite too deeply into your profits. A good practice is to make your returns policy clear and easily accessible during the purchase process. Online shoppers feel more comfortable buying when they know that returns will be easy.

Do I need to offer free shipping on returns?

Online shoppers never like to pay for shipping, but they particularly don’t like to pay for shipping on returns. If you can afford to offer free return shipping, you should. If you charge for return shipping, consider capping the amount and splitting the cost with your customers.

How much does returns processing cost?

Returns processing generally costs more than other aspects of the fulfillment process. That’s because processing returns is more labor-intensive than receiving new products.

Your costs will depend on your eCommerce fulfillment center, what is involved in processing your returns, and your sales and returns volume. Work with your fulfillment warehouse and shipping carrier to get the best reverse logistics and return shipping pricing.

How to improve 3PL returns processing

Returns processing is the least fun part of running an eCommerce business. Instead of revenue coming in, you’re sending refunds back to the consumer. However, a well-run reverse logistics operation is a crucial element of your supply chain.

You can improve returns processing by working with your 3PL to ensure that your processes mesh with theirs. Create an RMA for every return to speed the process. Develop a secondary market for products you can’t sell as new. Keep an eye on your bottom line and adjust your pricing as needed to cover returns processing costs.