Frictionless Returns: Retail Strategies for Returns Management

The exponential growth in eCommerce over the last 15 months has brought with it an avalanche of returned goods harming sales, the environment and, if eCommerce retailers aren’t careful and eCommerce predictions fit true, their reputation. Here are strategies on how to implement a financially stable returns management process.

Returns: The Extent of the Problem

Customers returned an estimated $428 billion in merchandise in 2020 according to the National Retail Federation (NRF). Further, 5.9% of returns to US retailers were fraudulent totaling $25.3 billion¹.

Although consumer return rates normally hover between 25–30%, Narvar reports that they skyrocketed to 70% in 2020². As Kate Reidel, Parcel Pending’s SVP of Business Development, explains: “Pandemic consumers who went online to shop for clothes often resorted to bracketing, buying multiple sizes, since they didn’t know exactly what they’d need. That exacerbated the expense of managing returns.”

Apparel leads the pack for the number one category of returned goods coming in at an estimated 46.5%³. Footwear trots in second with one expert estimating that for every pair of shoes kept, two to three are returned⁴.

Customers Demand Free Shipping & Returns

To customers, a free shipping and/or “no questions asked” returns policy are irresistible – and ultimately play a significant role in maintaining customer loyalty. 70% of consumers in a 2020 survey requested free shipping as their number one online feature and about 50% wanted free returns⁵. Retailers recognize the exorbitant costs of returns management. However, they’re fearful of being the first mover to change their liberal returns policy which might harm their reputations and sales. After all, 92% of consumers surveyed said that they will buy again if the product return process is easy. 

Customers Unaware of the Connection Between Returns & the Environment

Most shoppers believe that their returned item ends up back on their shelf. The actual returns logistics are far more complicated. “The cost of inspecting that good, repackaging it, getting it back on the shelf, the reverse logistics — all of that often outweighs the value of the good from being sold the second time,” said Joel Rampoldt, a managing director in the retail practice at AlixPartners. Plus, during the pandemic, many retailers enacted policies that enforced spoilage, meaning the product could not be re-sold upon being returned.

Customers who are environmental activists and vote with their wallets are mostly unaware that their return might actually end up in a landfill. Approximately 5 billion pounds of returned products end up there annually.

Technology to Tackle Returns Management

The NRF reports that “spending on global reverse logistics technologies will spike in 2021 — forecast last year to hit $604 billion by 2025 — as retailers seek to alleviate a major pain point in the shopping journey and minimize the costs of returns”^6,7. Investing in technology costs now but saves later.

One of the killer technology battlegrounds in the returns management system is the virtual fitting room. Walmart announced this very week that it is acquiring Zeekit, a startup that allows shoppers to upload a picture of themselves to see how the product will really look. The relationship between the technology and returns is clear: Shopify reported that customers who virtually tried on clothes were 40% less likely to return the product^8,9.

Companies are also forging alliances to deal with the return management issue. Affirm recently acquired Returnly to help retailers remove friction from returns. Returnly, founded in 2014, issues instant credit to consumers upon return approval versus return delivery. And in May of this year, PayPal announced it acquired Happy Returns. Happy Returns not only helps with returns management, but also works to reduce waste because it aggregates returns by retailer and uses reusable containers. Its cardboard-free program is estimated to significantly help the environment. As a point of comparison, 40% of consumers buy new packaging (i.e., cardboard box) when shipping a returned product back to a retailer.

Smart Lockers Provide Safe & Efficient Returns

A return to the store is the lowest hit on margins for retailers. Using smart pickup and drop off lockers for BOPIS and returns is fast (less than 30 seconds) and efficient too.

Here’s how the system works:

• A customer initiates the return online or via a mobile app
• When the customer approaches the lockers, they select “Drop Off” and scan or enter their return barcode
• The customer then chooses a locker size, place the return in the locker, and confirm the return
• A team member then collects the return from the locker

Note that lockers can be configured so that only certain doors can be used for returns, allowing stores to balance capacity between pick-ups and returns.

If you’re interested in learning more about smart lockers and how they work, check out our “What Are Smart Lockers?” blog post.

6 Solutions for Lowering Returns

As costs for returns management climb, here are 6 strategies for lowering the customer return rate.

1. Understand the Customer Experience – E-tailers must understand not only who is returning, but why. Reading product reviews, listening to social media, and asking the customer questions at point of return are paramount: what’s the reason for the return? Is the product description incomplete? Is the description inaccurate? This is especially important for the retail customer experience, and can even help to improve the customer service experience as well.
2. Create Consistent Sizing – Bracket buying is expensive and wasteful. Saying goodbye to vanity sizing and instituting consistent sizing allows for customers to buy the right product in the right size.
3. Educate Consumers – Clearly, there’s a disconnect between consumers’ desire to help the environment and their desire for free returns. An outreach campaign by the retail industry or a key player could significantly reduce returns.
4. Create New Metrics – Wall Street is obsessed with year-to-date sales and sales versus a year ago. However, reporting returns as a percentage of sales is also a key metric.
5. Rethink the Liquidation Processes – eBay has partnered with Optoro, a leading returns management technology company, to sell returned products online. More innovative thinking is needed to find other ways to manage the returns process.
6. Create an Executive Position for Returns Management Solution – Returns management is in “no man’s land” sometimes belonging to supply chain, operations, or even marketing. Similar to how a Chief Information Officer emerged as technology became more relevant, the need is now for a new Chief Returns Officer.

Managing returns and the supply chain is critical. Now is the perfect time to invest in solutions that allow for frictionless returns and a seamless customer experience. Ready to speak to a representative about how Parcel Pending smart lockers lower costs while boosting the customer experience? Contact us today.

Sources:

1. The National Retail Federation. (2021). Customer Returns in the Retail Industry 2020 [Report]. Retrieved from: https://nrf.com/research/customer-returns-retail-industry
2. Hickey, Alex. Morning Brew. E-Commerce Returns Rose 70% in 2020. (2021, January 10). https://www.morningbrew.com/daily/stories/2021/01/10/ecommerce-returns-rose-70-2020.
3. Vembar, Kaaren. Retail Dive. Don’t make it free, don’t make it easy: How retailers can support sustainable returns. (2021, April 19). https://www.retaildive.com/news/dont-make-it-free-dont-make-it-easy-how-retailers-can-make-returns-more/598337/.
4. Unglesbee, Ben. Retail Dive. The omnichannel age is here – and it’s expensive. (2021, April 5). https://www.retaildive.com/news/the-omnichannel-age-is-here-and-its-expensive/597653/.
5. Saleh, Khalid. Invesp. E-commerce Product Return Rate – Statistics and Trends [Infographic]. (2021, April 11). https://www.invespcro.com/blog/ecommerce-product-return-rate-statistics/.
6. Reda, Susan. National Retail Federation. Retail in 2021: What will endure and what’s going to change?. (2020, December 2). https://nrf.com/blog/retail-2021-what-will-endure-and-whats-going-change.
7. Allied Market Research. (2019, May 6). Global Reverse Logistics Market to Reach $603.9 Billion by 2025 at 4.6% CAGR, Says AMR [Press Release]. Retrieved from: https://finance.yahoo.com/news/global-reverse-logistics-market-reach-122347917.html
8. Waters, Michael. ModernRetail. How virtual fitting rooms became the next retail battleground. (2021, May 17). https://www.modernretail.co/retailers/how-virtual-fitting-rooms-became-the-next-retail-battleground/.
9. Parisi, Danny. Glossy. Virtual try-on is the antidote to the pandemic-fueled rise in returns. (2021, April 14). https://www.glossy.co/fashion/virtual-try-on-is-the-antidote-to-the-pandemic-fueled-rise-in-returns/.