How to Prevent Chargebacks in Retail Fulfillment

Most ecommerce brands want to get their products into retail stores. What many companies don’t know is that retail fulfillment is much more complex than direct-to-consumer, or B2B fulfillment—but the payoffs are worth the challenges.  

Retail fulfillment is more nuanced and more difficult to execute because each retailer has a different set of rules (called routing guides) to follow when sending products to their stores. When these rules aren’t followed, the merchant may be penalized, often in the form of a monetary fine called a chargeback.  

Here is everything you need to know about chargebacks (in regard to retail fulfillment) and how to prevent them.  

What is a Chargeback in Retail? 

A chargeback is a monetary demerit issued by a retailer when a merchant fails to follow the retailer’s routing guide instructions. For example, if your fulfillment team delivers your product the wrong day, or they don’t label your packages (or products) with the correct information, you will get charged a fee for that.   

Why Are Chargebacks Issued?  

Because retailers manage thousands of products from hundreds of merchants daily, they require products to be processed in a very specific manner. This allows them to receive products at scale efficiently, accurately, and cost effectively. When products come mislabeled or are shipped incorrectly, two things usually happen: the retailer will refuse the order (leaving the merchant or fulfillment team to pay for the shipment to return to the warehouse), and the retailer will penalize the merchant with a chargeback.  

Chargebacks are issued for a wide variety of reasons. They can be for shipping errors, labeling mistakes, incorrect day/time of drop-off, improper loading or unloading, miscounted units per carton or pallet, plus many more.  

Insider Insight:

Once you’ve established a few key retail accounts, start growing your retail fulfillment team. You want to ensure you are available to each of your account relationships so you can meet their needs. Hiring dedicated staff to communicate with the buyers and retail store team will help you nurture those relationships for long term growth and prevent errors that lead to chargebacks.  

How Much Does a Chargeback Cost?   

The actual cost of a chargeback truly depends on the retailer, and the relationship between the retailer and merchant.  

Chargebacks can be issued in many different ways:  

  • A flat fee in a lump sum 
  • A flat fee incurred per order 
  • A percentage of the cost of each order 
  • A percentage of the merchant’s overall bill 

Chargebacks really depend on the retailer and the issue that incurred the chargeback. Some penalties can be for small things, and result in a small cost. Others can be a per-unit penalty, which if you’re shipping thousands of units at a time, can add up to tens of thousands of dollars very quickly.   

As an example, if you are a merchant and you send products with incorrect labels, if each label is counted as an issuable chargeback, your bill might be $10,000 or more.    

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How Do You Get Chargebacks Waived?  

There is no guarantee that if you incur a chargeback, you’ll be able to get it waived. This is solely dependent on the relationship between the merchant and the retailer.  

Smaller boutiques and independent retailers will often wave the fees if it’s an issue that only happens once. If you have a good relationship with the buyer on that account, they might waive a chargeback with the understanding that mistakes happen sometimes.  

Larger, more corporate retailers are known to be stricter. Big box stores are notorious for issuing chargebacks, no matter what it costs the merchant. 

How do you Prevent Chargebacks?  

The higher your rate of order accuracy, the less likely you are to incur any chargebacks.  

It takes constant vigilance to meet a retailer’s routing guides. Especially if you are shipping new products, or the retailer changes their orders seasonally.  

After initially looking over a retailer’s routing guides, your fulfillment team should create a routing guide summary specific to that account. Use this routing guide summary as your internal reference for getting every order perfect.  

How a 3PL can Help Support Retail Fulfillment 

Whether you ship to a boutique, a big box chain, an independent shop, or an online retail marketplace, one of the biggest hurdles with retail fulfillment is accurately following each retailer’s routing guide requirements.  

Outsourcing your fulfillment to a capable 3PL, experienced in retail fulfillment is one of the best ways to ensure your products will get fulfilled accurately.   

A 3PL can become even more helpful as you grow your retail accounts. The more retailers you add the more routing guides you will have to keep track of and follow. It becomes exponentially harder to fulfill accurately.  

If you have outsourced your fulfillment to a 3PL it will be almost entirely up to the 3PL to execute these routing guide instructions perfectly for each order. Yet, if they make a mistake, it’s your responsibility to pay the chargebacks. Finding a 3PL experienced in retail fulfillment is key to preventing chargebacks.  

 

If you’re looking for a 3PL with fulfillment centers in cities across the US, we own and operate facilities in the Bay Area, Los Angeles, Kentucky and the East Coast. Use DCL’s national footprint of warehouses to distribute your inventory across the country to reduce transit times and save on shipping costs. If you need fulfillment or shipping support and want to partner with DCL Logistics, we’d love to hear from you.