Retail Returns are the Elephant in the Room

The rise in retail returns is a complex problem with multiple drivers of success and failure, including policy, store procedures, vendor management, partnerships, reverse logistics solutions, merchandising and consumer communications.

The National Retail Federation reported that the recent holiday season in the United States reached $886 billion in sales, a 14.1% increase from the prior year. Looking back, there were several risks facing retailers, such as higher prices, lack of labor in stores and supply chain issues – we saw a great deal of uncertainty going into the 2021 holiday season. Considering all the obstacles facing retailers, the industry performed very well. Consumers bought early to ensure coveted key gifts would be in stock.

by Brian Cluster

Retail sales are at historic peaks. Retailers are managing a host of complexities and unique challenges, but there is still the elephant in the room – returns. While sales grew, the return rate also grew from 10.6% to 16.6% of all merchandise sold annually.

Will higher rates of return reduce bottom line performance?

With the shift of share of retail moving to increasingly digital channels, retail returns have been higher.  Return rates for online sales are typically two to three times that of brick-and-mortar retail. While retail has been getting better at representing products online with pictures and even 360-degree views, there are elements in the physical space, such as fit, size and texture that sometimes create gaps in understanding for consumers.

Besides the information gap, there are other contributing factors to the increase in return rate online. E-commerce is very competitive – to stay in the game with the larger marketplaces, retailers have adopted consumer-friendly return policies. Consumers recognize that they have limited responsibility in ordering the right product and incredible flexibility in returning the products after use months after the original purchase.

Consumers have taken on new digital shopping strategies to take advantage of these flexible return policies. Bracketing tactics involve buying multiple styles and colors and sizes, knowing at the point of purchase that you will certainly not keep all items in your basket. Bracketing is a strategy that occurs more predominantly in apparel and footwear, when the consumer is uncertain about the sizing of the product and buys several sizes of the same item.

Online return rates vary by retail category

As you can see from the chart above, retail returns vary dramatically by category and is an acute problem in footwear and clothing. Reverse logistics programs have been an answer to returns for years – decades, even – but is clearly not slowing the increase of return. Consumer behavior has changed dramatically in the past two years, and online shoppers have learned new digital skills and taken advantage of increased convenience and a minority have adopted some very harmful shopping practices.

Time for a fresh data-driven solution

73% of returns are due to a retailer-controlled action or inaction.

 – Incisiv study of 6,200 returns in non-food categories.

The rise in retail returns is a complex problem with multiple drivers of success and failure, including policy, store procedures, vendor management, partnerships, reverse logistics solutions, merchandising and consumer communications.

While returns can be problematic, they are also opportunities to bring online shoppers into brick-and-mortar stores as well as to upsell customers. Reverse logistics solutions help streamline returns by improving speed of refunds to consumers, enable more reselling and can help build processes to understand reasons for returns. Reverse logistics is complex and costly, however, and retailers try to promote returns being redirected to stores. With the increase scale of returns in current environment, more needs to be done in conjunction with reverse logistics solutions in both preventing returns and improving partnerships to reduce long-term returns.

Prevention

1. Use data across the organization to gain a complete view of returns. It is key to know what items and categories are contributing to the most in returns overall and how categories are trending. Another important performance perspective is the brand level, which is needed to determine which brands and items are higher than the category average. Lastly, establishing an accurate measurement of the cost of the returns financially and from a sustainability perspective can put this problem in the right context to solve.
2. Create a single source of truth and automation to reduce errors. Having single source of truth in a Product Master Data Catalog for all products ensures accuracy and consistency across digital and traditional channels. Establish minimal data completeness standards for all categories and be flexible to have specific rules for different categories that require more images, deeper descriptions, material information and even brochures to provide complete information that is sought by consumers. Automate the product onboarding process with a product syndication tool that includes validation and human approval to prevent errors and/or inconsistencies.
3. Focus on improving product display page information and resources. More consumers are taking the hybrid approach to shopping with research starting on your product display page (PDP) on your website and then visiting the physical store later, making the PDP the original source of understanding for the product. Accurately reflect sizing information in relevant categories so consumers can make an educated purchase decision can reduce retail returns. If consumers are unsure or confused online, a real-time chatbot may also aid in reducing costly returns and annoying shopping mistakes.

Partnership

1. Tackling returns requires collaboration with internal departments. Working with all relevant parties is key to understanding the data and identifying gaps in the process. Long, complicated processes typically involve multiple departments and handoffs that can be labor intensive and cause delay. Getting all parties on the same page by mapping and adhering to processes for supplier data acquisition, item enrichment and validation and lastly product sharing may foster faster improvement and better understanding.
2. Make return reduction part of continuous business discussions with suppliers. Proactively addressing returns is more than a box to check in the annual planning process. It is a key business outcome that should be score carded and discussed as regularly as ongoing sales performance, promotion al planning and new product introduction meetings. Annual collaborative goals may also be in scope to reduce returns.
3. Clarify data expectations and reduce poor quality data with an effective supplier portal. Brands work across many retail data formats. Having clear expectations and ways to receive the data efficiently can help ensure the highest quality data possible. A data governance policy for suppliers will lead to understanding of compliance issues and accountability, ultimately ensuring co-ownership of the goal of high quality, complete and compliant data. Make it easy for brands to work with you and provide good data.

While online sales may be at the highest level we’ve seen, many retailers are facing historically high returns impacting profit and productivity of their teams. Now is the perfect time to identify new ways and tools to reduce returns going forward. Multidomain master data management can help retailers deliver on the need to optimize data across all sales channels and proactively work with suppliers to continuously improve source data to reduce retail returns – all while improving the customer experience.

Photo by Kaffeebart on Unsplash.