The retail industry is in the midst of a catastrophic returns tsunami post the holidays. According to Ware2Go, a staggering 92% of U.S. consumers planned to do their shopping post the festive season. With January sales on in several countries and many businesses, including Amazon, allowing their customers to return items bought over the holiday period until at least the 31st of January, 2021, retailers are feeling the heat of this merchandise boomerang.
With the fast-growing e-commerce market and steady consumer migration to digital shopping platforms over the last few years, returns have been quite unsurprisingly on the rise. In 2019, retailers were overwhelmed with a staggering $41 billion value of returns. In 2020, the COVID-induced mass exodus from brick-and-mortar stores to online shopping exploded the already straining supply chain. The value of returns early on this year is estimated to cross $57 billion.
With 70% of customers today believed to make a purchase decision based on the returns policy of a retailer and 60% expecting returns to be handled within 7 days, the pressure is on for retailers to get the returns issue right in 2021. In the current climate, this can be a herculean task.
The COVID Conundrum
Online purchases have always had a higher return rate than purchases done in physical shops for the obvious limitation on the ability to view, touch or try on the products. Retailers are already suffering significant pressure on their business margins with their revenue growth negatively impacted due to COVID-19 and diversified competition.
The massive volumes of returns will significantly exacerbate this by increasing supply chain costs (handling the free shipping of returns) and markdown costs (getting return merchandise that will no longer be in-season and able to be sold at full price).
If not handled properly, this could be the tipping point for many retailers that causes them to go under.
Returning an item is a costly and complex affair and the ongoing pandemic has compounded the concerns around returns for retailers with the new challenges around quarantine of inventory (usually 24 hours), disinfection, and the additional burden of tracking and managing various touchpoints in the stock journey.
The Covid ramifications have massively complicated an already intricate procedure.
Creating Order in Chaos
The pandemic has intensified the pressure on retailers to optimize their returns process and smooth out the wrinkles in their supply chain and logistics strategies. The same shipping networks that were struggling to keep up with the volume of home deliveries, will be challenged to handle the return volumes as well.
Customer experience will be key to get right. Providing safe, easy ways to return merchandise will lead to trust. Given that we see online shopping continuing to grow even past the holidays and COVID with people having become accustomed to the convenience, it is important that retailers maintain trust and confidence in their online shopping experience.
For too long the issue of returns management has been grossly under-served. The prospect of a massive returns wipeout is the perfect time for retailers to introspect and solve the returns puzzle — for good.
So, what are the quick fixes and long-term solutions that retailers can embrace to mitigate the aftermath and increasing cost of returns this year and prepare ahead for the next season? In my view, here are 5 strategies that retailers should consider:
- Creating the same return policy for every product no matter how it is returned, is the first issue retailers must address to simplify the returns process and retain customers. An overtly confusing and cumbersome returns procedure is a fail-proof trigger for customer attrition.
- An answer to providing a safe and easy way to return products for customers would be to leverage the same mechanism used for order online/pickup curbside or in-store to have returns started online and dropped curbside or at a store with a simple QR code scan.
- Taking a leaf out of Amazon’s book, retailers should consider rolling out liberal returns policies and free shipping for most products.
- Retailers must communicate a transparent returns policy for every online purchase that is easy to understand for customers and not hidden in small print or buried deep inside their website. Making the process pain-free for customers will yield long-term dividends for retailers.
- If not handled properly, all the return merchandise can get stranded for months in warehouses, backrooms or in the supply chain. Retailers must streamline their internal processes and find a way to match the items being returned with new online orders for the same item, thus avoiding a markdown and meeting consumer needs faster.
The Way Forward
Online purchases are here to stay with or without the pandemic and 2021 will only see a boost in e-commerce sales. Shopify predicts significant growth of online purchases led by clothing and accessories, electronics, and health and beauty items. Besides focusing on returns management, the best long-term solution for retailers to attract and retain customers, whilst enhancing customer loyalty in 2021 and beyond would be to resolve the need for returns altogether.
This can be achieved by ensuring a better fit at the start of the buying process and leveraging crowd-sourced (genuine) product reviews to aid the customers in making the right purchase decisions and minimize shopping regrets.
Retailers should also invest in new technology to provide next-gen shopping tools to customers such as augmented reality-based virtual tools and apps that can provide uber personalization and customization of products. Allowing a customer to “see” the product in their home environment using AR will provide consumers with a better feel for how that item fits their needs.
Improved camera and imaging technology is being leveraged to make sure the online image more accurately reflects the actual item, color, texture, etc
Providing more detailed and understandable fit and sizing characteristics will mean consumers can get the right size the first time, preventing the need for purchasing multiple sizes and returning the ones that don’t work.
Taking an innovative approach to solving the returns problem for both customers and retailers will alleviate the pain points in the shopping journey for all stakeholders, enhancing profitability and sustainability for retailers. With 2021 in motion, it is the right time for retailers to hit the refresh button on their returns page.
Andrew Hogenson
Partner, Infosys Consulting
Andrew joined Infosys Consulting in 2020 and heads our Consumer Goods, Retail, Logistics (CRL) practice globally. He is a lifelong consultant with over 30 years of experience driving large transformation programs and high-value consulting work. Andrew has a stellar track record in the turnaround and monetization of practices, holding senior leadership roles previously in EY, Accenture, and Manugistics. A regular speaker at the University of Stanford, Berkeley, and University of Washington, Andrew is often featured in publications like the Wall Street Journal, Logistics Journals, and various industry analyst reports. He is been featured on the NBC Nightly News as an industry expert quite a few times. He is also a regular speaker at retail and supply chain events such as Oracle Retail Executive Forum, SAP Retail Executive Forum and USC Global Supply Chain Conference. Andrew is an alum of Seattle University, where he completed his mechanical engineering degree, and the University of North Carolina, where he received his MBA.
I appreciate the insights you bring to this topic. Return operations have rarely received the attention it deserves, mostly because, understandably, executives are focused on the core mandate to sell products to their customers, period. Returns can be chaotic, in some cases indecipherable, and intuitively we know that they don’t increase revenues, but they do increase costs. I am particularly interested in the prospect of leveraging AI in returns, to detect patterns and market shifts, and /or even redirect returns to alternate customers or inventories.