As customer returns continue to remain a problem in retail, brands are coming up with different ways to make it easier not only for the customer, but also for themselves.
“Returns have consistently ranked as a top problem for retailers for many years, especially returns of merchandise purchased online,” says Tom Behnke, Sr. Advisor of Boxzooka. “E-commerce, which has shown strong growth for decades, has been a juggernaut for the returns problem. The growth of this problem has accelerated in recent years as the pandemic pushed even more consumers to shop online. And now with Covid behind us, they aren’t giving up their preference for shopping e-commerce. The result has been even more returned items.”
Returns Costing Retailers Money
Every year it’s estimated that the average retailer loses an astounding $145 million for every $1 billion in sales, according to the NRF. Online sales do see a higher return rate, with 18%, or $247 billion, of merchandise purchased online returned. That compares to 10% for brick-and-mortar returns (excluding online orders that are returned in-store), or $371 billion.
“The costs for processing returns continue to rise, with shipping both ways and the additional handling necessary to inspect and hopefully resell returned goods,” Behnke notes. “Retailers have to be prudent about their returns policies to overcome the expenses. As more people discover the convenience of e-commerce and prioritize their shopping in this way, it just adds to the problem. It’s definitely an issue that ranks in the top 5 for retail in general.”
The Cycle of a Returned Item
Part of what costs retailers so much money to have a product returned, aside from the amount of the product itself, are the logistics involved to move the item through the system.
Behnke explains that upon the customer initiating the return, the item must then be shipped back to the retailer, typically with a prepaid label. “Once the retailer receives the return, it must be inspected to verify that it is worthy of resale,” he says. “At this point, it’s determined whether the product can be restocked as new, sold as open-box or refurbished, or handed off for liquidation if it’s not worthy of resale.”
This may sound simple and straightforward, but Behnke notes that it’s anything but.
“The retailer may not just lose the sale, but with the manpower, transportation and warehousing required for returns, the item could also lose its value — a direct hit to revenue and a capital loss,” he continues. “It’s an expensive part of the business. For example, paying for returns by traditional mail leads to retailers overpaying by 21% on average.”
Consolidators a Growing Trend in Retail
Consolidators are helping e-commerce brands turn around the age-old returns problem. Companies like Happy Returns and Loop Returns are minimizing downsides for retailers, such as lost revenue and environmental impacts, with the help of technology.
Consolidators, Behnke explains, not only consolidate the physical item on the return path, but they also consolidate the entire return and reordering process into a single transaction. By bulk processing returns for a retailer:
- The related costs are reduced, meaning the negative hit on the item’s value is mitigated
- The returns procedures are more customer friendly, with easy exchanges and refunds
- Customers get everything they need to initiate and make a return in one place
- Multiple drop-off locations are provided
“Loop Returns has also developed software and processes that help retailers retain clients by providing exchanges and store credits to encourage customers to keep shopping in spite of the returned product,” mentions Behnke.
Behind-the-Scenes Technology
Technology is critical for creating an optimized returns process. According to Behnke, optimizing a retailer’s reverse logistics operations is critical, which includes route optimization and integration of inventory management systems.
“This ensures efficient handling and reduces the chance of stockouts and overstock situations,” he says.
Top-notch transportation management systems (TMS) and warehouse management systems (WMS) are also some important pieces of technology that are making a difference today. “We know this because we see the results that our own TMS and WMS helps our clients realize each day,” notes Behnke. “These tools help to manage the ever-increasing costs of shipping from end to end, and in this case, back again.”
Behnke explains that TMS software can identify the best routes for returns, taking into account distance, cost and time, to minimize the related expense. A good WMS also gives better visibility to inventory to help ensure efficient storage, retrieval and management of returned goods.
“Additionally, retailers are seeing positive results with tactics as simple as better product descriptions on the marketplace website,” states Behnke. “This means providing as much information about the item as possible to reduce the chances of a mismatch once the customer receives their order.”
The Future of Returns
Given the growth of e-commerce, which won’t change anytime soon, Behnke expects more retailers are going to be in search of better solutions to help this part of business.
“I think we’re going to see more retailers leveraging the available technology, whether on their own or with a partner,” he says. “With growth not showing signs of slowing, it’s not a question of it, but when. Customers have high expectations for retailers too, and I’d expect them to dig deep to identify solutions.”
Beyond this, there is an encouraging new business model in retail that is emerging, according to Behnke, that is giving a second life to more returned merchandise.
“We’re already seeing the bin store trend pick up around the country and an increasing number of e-commerce marketplaces are popping up that sell open-box returned merchandise at deep discounts,” he says. “This is creating a new pool of demand for returned goods, meaning retailers vexed by this age-old retail problem are going to see second-hand demand for these goods increase as we head into the future. This is great news as it provides a new growing business sector that can now serve as another option for preserving some of the value that would be otherwise lost in returned goods.”
