Many Happy Returns?
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First of all, excuse the pun in the title. Returns aren’t a happy thing for retailers – in fact, returns are a major challenge in this omnichannel world. According to logistics provider Narvar, the number of returned packages in the U.S. alone jumped 70% in 2020 over 2019, representing over $100B in inventory. Ecommerce platform Shopify tracks return rates, and recently reported that while brick & mortar sales generate an 8-10% return rate, 20% of Ecommerce orders result in returns, and “holiday commerce” results in a 30% return rate. Worst of all, sales of merchandise via all selling channels that Shopify classifies as “expensive items” result in a 50% return rate.
Bottom Line: we’ve got a problem.
I’ve been doing some prep work for a panel discussion I will be moderating at the Ecommerce Operations Technology Summit (April 12-13, Orlando FL), and in the course of doing so I found some work that RSR had done for a client back in 2014 (before “omnichannel” retailing was such a universally accepted concept and – of course – before a global pandemic vastly accelerated its adoption by consumers). As part of that project, we interviewed several retailers that we perceived to be ahead of the curve when it comes to omnichannel customer returns. Here’s some of what we observed:
2014 Case Study #1: A UK-based department store
Handling stock returned by customer (retail or online orders), and “shop damages”
1) Click and collect creates more customer orders returned to store than through other means.
2) Return goods are triaged at point of return, and:
- Depending on the product it will be marked imperfect and sold in store at a markdown (if it is a store return) or
- For larger item listed for local store “clearance” customer order (not visible online).
- Custom “mainframe” systems, which have supported these processes for many years, are not a priority for replacement
3) Customer orders which arrive back at a central depot via 3PLs:
- Good items are recycled back into stock,
- The rest are “scrapped” off the systems and then auctioned off in mixed lots (with limited system processing) although higher value items may be allocated to a store for handling.
4) If the store does not stock the item, it must determine whether to stock it as a clearance “imperfect” or send it back up the supply chain.
5) The retailer wants to improve the decision-making tools at point of first return to improve handling consistency (scan item, answer a few questions and then the system tells the staff how to treat the stock)
2014 Case Study #2: An EU-based Big Box Retailer
Returns handling for General Merchandise and Apparel (instore purchases & online order returns)
1) “Odds and ends” (customer returns, last few items) are clearance-priced at the store (central price change or local reduction barcode), or are put on eBay or Amazon by the specialist “returns” 3PL that the retailer contracts with
2) Larger stocks are put on clearance on a website that is separate from the company’s “main” retail website
3) Apparel is less of an issue because it is mostly a “fast fashion” model where stock is intended to be gone in 6-8 weeks and slow sellers are marked down until they are sold
Fast Forward To Today
The first thing to keep in mind when looking at the case studies above is that they were conducted 8 years ago, in 2014. The volume of consumer returns was low compared to now – in the context of today’s avalanche of returns, those were “the good old days”. The next thing to observe is how much manual handling was required (retailer #1 at the time wasn’t even considering modernizing the systems that supported returns handling).
How things have changed! Retailers have learned that as Ecommerce grows, returns grow at an equal or faster rate. Shopper expectations are higher than ever before, and the retailer’s returns policy has an influence on consumers’ attitudes towards the brand. What that means is that retailers’ promise to consumers about how returns will be handled has become an essential part of the brand promise before the buy button!
So, what can retailers do now?
#1, Consumers want returns to be easy. “Free returns” may not be a sustainable policy for all retailers, but there must be a tradeoff (e.g., using the returns policies as an incentive, by offering rewards that reinforce desired behaviors).
#2, Retailers need to focus more on sustainability in their returns handling. Cost analyses are needed to determine if certain items are worth returning at all, vs. allowing consumers to keep unwanted products.
#3, Automation can help control returns handling. Automated returns portals, automated voice assistants, automated returns authorizations and “printerless returns”, instant refunds at first scan – all these capabilities and more can help.
#4, BORIS (“buy online return instore”) creates the opportunity to engage with customers, replace the returned item for something of greater value, and upsell!
#5, Retailers need to think more about returns prevention. For example, are garment sizes correct? Does the Ecommerce website offer guidance about whether sizes tend to run big or small or “just right”? What do other customers have to say? “Fit finder” tools are useful. A customer’s data from the CRM system can be used to pre-filter items offered on the website (for example, does a customer return an excessive number of items made by a certain manufacturer? Don’t feature them on the product category page on the website!).
New technology-driven ideas are coming. Although it seems like an age ago, while the RSR team attended the 2019 NRF “Big Show” in NYC, we met with companies like TruFit, that use data supplied by consumers to make it possible to shop fashions with more confidence across participating brands. This is just one of many new and innovative ideas designed to help retailers proactively address returns by preventing them in the first place.
#6, Selling “blemished” inventory is better than auctioning it off. Some retailers report a 3X better margin on selling blems via the Ecommerce site than via liquidation.
#7, use returns data when making assortment decisions. Retailers need to be thinking about how to predict and prevent returns. In a sense, returns are the voice of the customer; they are often an early and important sign that something is wrong with the products being sold.
See You In Orlando
These are just some of the ideas that the panel in Orlando will be discussing on April 13th. Given the scope and size of the challenge, retailers cannot afford to be merely reactive. Retailers need to think strategically about how returns fit into the brand’s overall value proposition to consumers.
I hope to see you there!