By the Billions: Solving Retail Returns With Analytics

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By the Billions: Solving Retail Returns With Analytics

By John Squire, President, DynamicAction - 09/08/2015
As most shoppers have experienced, ordering clothes online can occasionally be a shot in the dark – not every item fits the way they'd hoped, nor does every color match the description exactly. This not only annoys consumers, but also retailers  when those disgruntled customers send their unwanted items back.  In 2014 these returns accounted for $642.6 billion that retailers are losing worldwide, according to research from IHL Group and OrderDynamics. And the most frustrating part? About $453.4 billion of those returns can simply be solved with proper technology in place.

The largest factor leading to unnecessary returns is poor quality or defective items, equaling $162 billion in lost revenue - $62.7 billion in North America alone. We've all been there – we bought the perfect shirt only to have the shoulder seam bust open the first time we put it on. While sometimes the root of this problem is human error (aka ordering a smaller size thinking you'll lose 10 pounds in a week), the majority of the time this issue can be resolved proactively on the brand or retailer's end through having the appropriate quality control measures prior to the shirt arriving to inventory, thus ensuring their customers receive the highest quality items.

And then there's pricing: another returns factor that leads to $83.4 billion in losses for retailers worldwide. This one has the unfortunate opportunity to hurt retailers in multiple ways. If a customer purchases an item and finds the same item at a lower price from another retailer, it can negatively affect the relationship the customer has with that store. When customers know they can find a better price elsewhere, the retailer loses margin, is required to sell returned items at a markdown and loses straight profits when refunding the difference. No retailer wants to damage a relationship with a consumer because of a pricing issue, so avoid this sticky situation by employing a price comparison tool to dynamically price inventory and keep track of competitors' prices.

Sizing can be one of the most frustrating issues that consumers deal with when shopping, and trying to navigate that sensitive subject online can often be perplexing. Improper or difficult sizing can add up to about $68.5 billion in losses but can be avoided before a customer even logs onto the website. Accurately describing each item and developing detailed sizing charts can help alleviate this problem, saving retailers billions and keeping customers happy knowing they will receive exactly what they ordered – thereby creating a strong, positive relationship with that customer.

A fourth factor that figures to roughly $28 billion is return fraud. While we want to believe the best in people, not everyone has the purest of intentions. Return fraud can include returning an item to a different store than from which it was purchased. There are ways to ease the impact of return fraud with strict and proactive return policies. One online retailer started using larger tags on their items to combat this issue. Others have utilized a national system or registry, like Fraud.org, NRMA Retail Theft Database and others, that track consumers who consistently defraud retailers, thus reducing the frequency and impact it has on their bottom line.

While there are many factors that affect retail returns, they can be managed by implementing proper policies and technology. Retailers need to accurately track the returns they do receive to prevent them in the future and ensure a better understanding of how unnecessary returns are impacting them. Retailers have all the tools to meet customer expectations and give them the best experience possible, all while improving their bottom line.


John Squire is president of DynamicAction, a data-driven retail solutions company.

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