THE REAL COST OF RETURNS
The most misunderstood, misused, and mismanaged luxury of retail optical
BY COLLEEN HANNEGAN
There is no business in retail, other than optical, that offers the luxury of exchanging older product for newer product, and usually at the same rate.
Though restocking fees may apply, that cost is nothing when compared to the larger retail world where the general rule is: you buy, you keep. In that world, mistakes in buying decisions end up on the clearance rack or sent to jobbers.
The privilege of being allowed to buy more in exchange for returned product is costing both suppliers and ECPs a lot in lost revenue and efficiency. How can that be, you wonder? From your perspective, it’s a great way to clean up inventory and put in new product—exchanging instead of buying more.
On the surface it seems like a great idea for the optical shop. And to some extent, it’s an opportunity to correct some buying mistakes. You’ve heard frame reps say, “You can always send it back if it doesn’t sell.” So frame buyers sometimes respond by choosing eight more frames, knowing they can return them as eight current duds.
Think about it another way: If you were offered new frame purchases for 30% less than you pay now, but there would be no returns except for defective product, would you agree to the up-front savings? Perhaps you’d more carefully consider which frames you choose and how many to buy.
RATE OF RETURNS
What’s the 30% number? According to Michael Block, CEO of Block Business Group, Practice Management and Purchasing Services for Independent Eye Care Professionals, frame returns tend to be in excess of 30% nationwide. “BBG processes a half-million invoices monthly, and my customer service staff devotes 80% of their time attending to clients checking on their return credit status.”
The biggest problem is sales reps that cave in too easily to make a sale, says Block. “Anyone can be successful by promising to allow unlimited returns. This offer amounts to selling on consignment.”
As a young optician and optical shop owner, Block recalls realizing the importance of being selective and concentrating on a balanced selection from a limited number of suppliers. “No need to buy similar styles from many vendors,” he comments. “I usually try to point out to buyers I work with not to be repetitive in frames they are buying. I suggest a more balanced selection in both shapes and colors.
“The buyer needs to be aware of the suppliers that suit their demographics and client wants and needs,” he continues. “Create your standard product list; then choose one or two frame lines outside of your comfort zone. Maybe it’s a funky line or a high-end line you want to try. Designate an area of your office to show them off.”
Diana Downs, key accounts and business development manager for Silhouette Optical, explains product markdown and the company’s tools to encourage improving frame sales in lieu of costly returns.
“You don’t make any money on something you return…only on something you sell,” says Downs. Silhouette’s markdown support tools are designed to assist dispensaries in promoting discounted quality product. Colorful red marketing pieces are affixed to the Silhouette frame, clearly showing the models on sale at 30% to 50% off. The frames designated for discounting allow for a credit toward a new frame order.
QUESTIONS TO ASK
Be sure the frame company you do business with is very clear about its return policy before you buy.
AGE. Some frame companies will not allow for frame exchanges or returns after six months, or may not extend your full credit on some exchanges/returns.
CASES. Is it necessary to return cases with frames? Some frame companies will deduct for missing cases.
RA#. Most vendors won’t accept frames returned without an RA# clearly marked on the mailing label. Re-sending is another added cost.
WRITTEN COPY. Be sure you have the policy in writing and a clear understanding with the sales rep. Make sure the rep leaves a copy of the order with you before he leaves the office.
CLARIFY. You want to be clear about the number of frames you ordered, number of frame returns, and net dollars of the order while he/she is present.
VERIFY. Have your order copy available when the new order arrives to verify the correct number of frames and styles. Be sure to manage any discrepancies on the order promptly.
“It reinforces to the consumer you can have more than one pair of glasses,” she says.
“The markdown policy is a great way to bring in something new without paying full price, as the markdown credit is applied directly to the new order,” adds Gayle Krufal, Silhouette account executive in Southern California.
There are legitimate reasons to return or exchange frames you purchased. That sleek styled, carbon fiber temple, men’s semi-rimless that looked so great at first glance is not well accepted by every man you try it on. “Too heavy,” is what you keep hearing. Instead of putting it back in the case, exchange it for another frame that sells easily, ASAP. This is where exchanges are a good business decision.
Michael Block, CEO of Block Business Group, advises following the example of successful department stores that always have name-brand markdowns intermingled with sale items: “Markdown frames are a great idea for selling second pairs. Cover your cost on the frame and make a profit on the lenses. Follow the lead of the big stores and have a frame sale in the middle of summer and December, when sales are generally lower. The finest stores in the world have sales!”
The cash flow focus is best played out in the front office—assisting patients and clients with solving their optical needs—not in the back office where frame returns may lay unattended.
BUY LESS, RETURN LESS?
Buy five fewer frames when ordering and eliminate returns. That’s what Mia Domingot, Southern California sales rep for Etnia of Barcelona, would like to see. “When the customer is happy, the client is happy, the rep is happy, the company is happy. That’s the bottom line,” she says. “If I could encourage accounts to allow me to help them choose product wisely, we can reduce their returns from 30% down to 20%...and ultimately less than that.”
How are returns handled in Europe? They’re not…because companies there don’t allow returns. “The U.S. is the only country that allows return product that is not defective exchange. In Canada it’s more of a four-to-one return,” explains Domingot.
THE REAL COST
If you think returns are saving you money, think again. And, add in:
The high costs of shipping, packaging, and employee hours taken away from productive duties.
The hours, days, sometimes weeks that product taken off the shelf sits in trays in the back office, waiting for return authorizations and actually getting boxed and returned.
The fact that if the returned frames are not current product, your credit is much less than the original amount you paid for it.
SECOND PAIR SAVVY
Most labs offer 20% to 50% off the second pair of lenses for the same patient. You can choose to pass this savings on to your patient or factor it into the second pair offer. Even if you decided to compete at times with the buy one frame, get one free philosophy, the lens savings from the lab can assist with your profit.
She adds that when Etnia began selling their product in the U.S., they were shocked to find how many returns were being handled.
She agrees it would be better to have accounts calling her to send more frames as they sell them rather than buying overstock to begin with and feeling overspent.
Simply reducing your bill is not managing frame inventory properly. Buying smart and buying more conservatively are better ways to manage your money. Buying what you know clients need and want, not what the buyer likes, is the most effective buying plan.
If you could earn just $100 more in profit every day of what is likely a six-day work week, you’d be improving your yearly earnings by $31,200.
Be creative. Encouraging an affordable opportunity for your patients to buy the second pair you know they need will go a long way in building happy client relations and referrals.
I was the frame buyer for my own optical dispensary for 22 years. In the beginning of my frame buying days, I was easily swept away with the thrill of choosing and buying. The time I spent $8,000 on a frame order that was supposed to be $3,000 had me completely stressed out when the frames and the bill arrived. After that, I made strict buying plans.
Consider creating a frame buying/returns company policy. Let the entire staff in on your best efforts to control frame costs. Teamwork!
Keeping your frame inventory filled with the best quality and best product lines will keep your staff excited about the selection and your patients pleased with their purchases.
An office that has few returns deserves (and usually gets) special attention and benefits from their frame vendors. Watch your profits grow when you reduce returns.
Why change the way you’re doing business? Because under the current system, frame manufacturers figure the cost of returns into their wholesale prices. The industry is paying extra for the privilege of high returns.
In the October issue of Eyecare Business, author Colleen Hannegan provides of checklist of what to do to build buying savvy and decrease frame returns.