The importance of logistics – How online can go offline so easily.

May 9, 2014

The focus of every brand owner is how to drive sales.  In turn this means increasing the prominence of the brand in its chosen market and determining the best channels to market.

Brand owners will invest varying amounts in brand protection.  This can range from a decision only to use an unregistered trade mark through to seeking registration of the brand as a trade mark and of key features used in the conjunction with the brand throughout the world.

In essence, these and other issues are all part and parcel of the decisions taken by brand owners to ensure the integrity of their brands.  However, brand owners are less inclined to think about preserving brand integrity when it comes to dealing with online channel returns.  It is often regarded by the industry as the equivalent of the back end of the pantomime horse and, as such, not of great value.  But whether or not the brand itself handles returns or outsources the function to a third party facilitator, the way in which returns are handled can impact on the brand.

What then should a brand which uses a third party returns facilitator be looking to include in its agreement?

First and foremost is the need to liaise with customers in connection with the physical delivery of returns to the facilitator’s warehouses.  This is also likely to necessitate liaising with delivery, postal and courier companies in connection with returns.  But customers may also have queries not relating to the physical delivery of returns.  These needed to be forwarded promptly to the brand owner. 

The facilitator should be required by its agreement with the brand owner to keep accurate and up to date books and records of all returns received, the location of each return when stored in the facilitator’s warehouses, and the destination of each return when it leaves the facilitator’s warehouses.  Indeed, the margin for returns becoming “lost” or misplaced should be very low.

The brand owner will also need to consider how often it wants to receive a report from the facilitator as to the returns received by the facilitator since the previous report.  Having decided upon frequency, the report should itemise:

•          the reason for return, if know;

•          whether or not the returned product is defective and the defect category; and

•          (where appropriate) the landed cost price of the product including duty. 

Whilst information can be a wonderful thing, it is only of value if the brand owner is prepared to review, consider, and act upon the contents of the report.  As such, requiring in the agreement that the facilitator also provide such other information relating to the services being performed by the facilitator as may be requested from time to time will only be of value to the proactive brand owner. 

Contractual obligations are often expressed at a “top level” without regard to the mechanics which are really needed.  It is therefore important that the reports are expressly required to be machine-readable and in a form and format which is compatible with the information technology systems of the brand owner and otherwise as may reasonably be specified by the brand owner. 

In respect of the returns themselves, it is important that the agreement with the third party facilitator requires a physical separation of returns where the product is defective from those which are perfect.  It is important that the latter find their way back into the brand owner’s stock system as rapidly as possible in order that they can become cash. 

It is also important that the agreement allows representatives of the brand owner periodically to visit the facilitator’s warehouses for the purpose of auditing returns as well as defective returns. 

Having identified certain of the contractual functions to be performed or permitted by the agreement with the facilitator, the brand owner should also consider the service levels which it requires the facilitator to achieve.  Whilst it is important that these are reasonable, it is also important that they are clearly stated in order to minimise the opportunity for disagreement between the parties. 

Whilst no brand owner likes returns and the cost of dealing with them is an overhead which many businesses could do without, returns are often a valuable source of data.  But this in turn raises the need for the facilitator to be required to comply with data protection law.  For there to be an infringement of data protection law in respect of the handling of returns would simply amount to adding insult to injury. 

Handling returns is a cost.  But getting it wrong is likely to be more costly and result in financial cost to the brand when online goes offline.


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