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Blog Series
04/16/2021

Retail's worst kept secret - its growing returns problem

In 2020, U.S. retail returns totaled $428 billion. That's 10.6% of total retail trade.

Let that sink in. 

And, it's only going to get worse. As e-commerce adoption grows, so will returns. Fueled by COVID-19, U.S. e-commerce sales grew 32% in 2020 compared to the year prior. 

Even if relative growth slows in 2021 and beyond, e-commerce as a percentage of retail trade will continue to grow rapidly. eCommerce average return rates are two to three times greater than store-bought purchases within the same retail category.

Most current conversations on returns are focused on how to improve shoppers' return experience. We wanted to explore a few fundamental questions: Why do returns occur, and can retailers reduce the incidence (and cost) of returns?

To help gain a better understanding, Newmine commissioned Incisiv to conduct a hybrid survey of U.S. shoppers and retailers, exploring themes such as shoppers' reasons for return and retailers' returns management business practices.

Retailers see a large improvement opportunity in return rates
Retailers in our survey reported an average annual return rate of 11%. Only 3% responded that current return rates were optimal. The remaining believe there is an opportunity to reduce return rates by an average 31%. For an omnichannel retailer with a blended return rate of 10%, that amounts to 3% of annual revenue, or $30 million per $1 billion of sales.

Even a small change can have a big impact
Average return rates vary by retail format, channel, category and merchandise price point. Retailers must avoid thinking of the returns reduction opportunity simply in terms of return rates. For instance, a retailer with $10 billion in annual revenue and a "low" average return rate of 5%, can save $75 million by reducing returns by just 10%.

The total business impact of returns is even greater
Beyond the direct financial cost, the total business impact of returns is even greater once you consider the impact on customer, brand and environmental factors. More than four in 10 (42%) customers will stop shopping at a retailer upon multiple retailer-induced returns.

Retailers do not understand the total cost of returns
However, less than half of retailers track the financial impact of returns. Barely any - less than 4% - track the impact of returns on customer, brand or environmental factors. It is near impossible to have a meaningful leadership conversation about returns without a true and complete understanding of its impact on the business. 

Old habits die hard
Further, returns are baked into retailers' inventory and financial planning. Merchants factor average return rates into the merchandise planning process. Retail CFOs line-item baseline return rates into P&L projections. 

Returns may indeed be "the cost of doing business," but they need not be an unmanaged cost.

Everyone's problem is no one's problem
Returns are everyone's concern in general, but no one's priority in particular. There is no identified executive owner responsible for returns. Almost eight in 10 (78%) say reducing returns is not a strategic priority for their C-suite.

The oft-repeated narrative of the ‘miscreant shopper’ is a myth
Few shoppers purchase with the intent of returning the product. The idea of returns as a consumer habit spoilt by choice is only partly true. The reality is shoppers would rather keep their purchase than have to return it. Four in five shoppers are dissatisfied with the number of times they have to return products to a retailer.

Not all returns are shopper driven
Shoppers in Incisiv's survey reported more than 6,200 returns transactions across multiple non-food retail categories. Incisiv analyzed shoppers' reasons for return, and found that 73% of returns occur due to a retailer-controlled action (or inaction). 

For instance - a shopper returning a purchase due to an inaccurate product description, a wrong item or SKU sent due to a fulfillment error by the retailer, or an issue with product fit.

Retailers must actively prioritize returns reduction
Retailers current strategic focus seems to be on improving processes after a return occurs, i.e. improving the returns experience for their shoppers. Retailers must add a similar focus on improving processes before a return occurs, i.e., minimizing the incidence of returns.

A great returns experience must achieve both: minimize the returns a shopper has to make, and provide an amazing experience when she does.

Incisiv’s “2021 State of the Industry Report: Retail Returns” offers detailed analysis of survey findings, along with a framework for retailers to get started on their returns reduction journey. 

Navjit Bhasi is founder & CEO, Newmine and Giri Agarwal is chief strategy officer, Incisiv.

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