Merchandise returns are just a cost of doing business—a big cost!
According to Fox Business, for every $1 billion in sales, the average retailer incurs $106 million in merchandise returns, and the NRF states that in 2020, e-commerce accounted for $565 billion for total sales nationwide. The return rate of clothing and jewelry is typically higher than other items, but overall, approximately $102 billion of the $565 billion of online merchandise was returned.
Although this may seem like a grim situation, retail organizations are getting ahead of the returns problem by deploying different strategies, such as developing algorithms to determine whether it's actually worth receiving the returned merchandise. If the calculation is not in favor of the retailer, the customer simply gets to retain the merchandise.
Sounds counterproductive to the balance sheet, but in reality, these algorithms are proving to be quite beneficial. Amazon, Target, and Walmart are already using artificial intelligence to decide whether it makes economic sense to process a return. However, the amount of merchandise being returned is escalating at a breakneck pace. How quickly are returns growing? Narvar says that the number of e-commerce packages that were returned in 2020 jumped 70% from 2019.
For those retail organizations who do not have the expertise to develop their own return AI algorithms, there are several successful methods being deployed today that improve the return experience:
- Refund Now, Return Later / Exchange Now, Return Later - Returnly is helping retailers embrace the customer dissatisfaction of an item with open arms, by taking the role of the middleman. Returnly fronts shoppers the money from their return so it can be used to purchase other items. Once the retailer receives the original item, they refund the money to Returnly rather than the shopper. The company has also developed a similar solution for exchanging an item which allows a shopper to get the right item before returning the wrong one with zero risks to the retailer.
- Consolidated Returns Solution - Online retailers can outsource the management of their returns to companies such as Happy Returns - recently acquired by PayPal. Happy Returns helps decrease logistical costs for retailers by consolidating returns at its reverse logistics hubs.
Happy Returns accepts customer returns through its 2,600-plus Return Bars, by mail and through in-store drop-offs. The returns are then sorted and returned to individual brand fulfillment centers. Products are shipped in reusable totes, enabling a reduction in cardboard waste and carbon, furthering sustainability and closed-loop goals as items make their way back to retailers.
- Self-Serve, Contactless Returns - Regardless of the business model a retailer may use to process returns, there needs to be a platform where the physical goods can be held in a secure fashion that supports chain-of-custody. iPickup iallows shoppers box-free, label-free, and contact-free drop-off of Buy Online, Return in Store (BORIS) items by scanning a Return Merchandise Authorization (RMA) code without having to interact with anyone. It is a self-serve, smart-shelving unit that notifies the store associates when an order has been returned and ready to be processed. It provides the physical platform that supports the various flavors of the return solutions mentioned above – all in one solution.
This platform also enables quick and easy Buy Online, Exchange in Store (BOXIS) for shoppers without ever having to wait in line. Store associate makes sure an item to be exchanged is staged and ready for pick-up. This allows a shopper to drop off the original, unwanted item, and pick-up the newly exchanged item - all within 15 seconds.
Stores of the future
It’s clear that retailers need to do some sleuthing and identify return patterns to unlock valuable information that can be leveraged to execute a better return process and improve customer experiences—stores in the not-too-distant future may hold the key to unshackling merchandise return behaviors.
In stores of the future, the digital and physical worlds will all be interconnected using omnichannel strategies that are intertwined with customer behaviors. For example, if a customer wants a receipt for an in-store purchase, they will simply scan a POS-generated QR code that will take them to a webpage where they can opt to save the receipt directly into their phone’s “receipt” folder. They will also be able to select a specific item to return back to the store. This will not only simplify the customer return experience, but also provides merchants with valuable data about their likes and dislikes.
If an item needs to be thoroughly evaluated before accepted as a return, the kiosk experience could also provide the customer with coupons and special item prices to check out in the store while their return is being processed. Because the stores are using omnichannel strategies, these coupons and special-priced items will be carefully selected based on the customer’s past purchases.
All retailers must carefully analyze the impact of returns on their profit margins and forecast how much they could save by implementing some of the solutions discussed above. Then, a top-down commitment to reducing returns-related costs must be implemented. Not all solutions will be appropriate for every retailer and many are not implementing omnichannel experiences yet.
Therefore, they must test various alternative solutions and elicit feedback from on-the-ground associates, customers and measure KPIs to determine the best strategy for their brand. It is a shopper’s market and customers will gravitate towards retailers who offer the best total experience—with both purchases and returns.
Mo Cheema is the director of solutions design and implementation at Position Imaging.