The Returns Race: Increasing Returns Efficiency to Remain Profitable and Competitive

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The Returns Race: Increasing Returns Efficiency to Remain Profitable and Competitive

By Kim Baudry - 03/23/2020
While retailers may have cracked the code on fulfilling online orders, managing returns in a way that maintains and even drives customer loyalty remains a challenge.

Today, one-third of all online purchases are returned, and this growing volume of returns is pressure-testing the retail supply chain. To keep up with consumer expectations, retailers will need to look at modernizing the returns side of their operations. 

Consumers are far less loyal to specific retailers, making choices based on convenience and where they anticipate a seamless shopping experience. An increasingly important part of that experience is the speed and ease of accepting and processing returns.

While retailers may have cracked the code on fulfilling online orders, managing returns in a way that maintains and even drives customer loyalty remains a challenge.

The Increasing Complexity and Cost of Returns

Returns can be difficult and costly to process, which has forced some retailers into money-losing decisions — reimbursing some customers, allowing others to simply keep returned items — because it’s more cost-effective than actually processing the returns. This approach is not sustainable now and will continue to get worse as the e-commerce market grows. 

In fact, e-commerce is growing at nearly four times the rate of retail overall, a trajectory that could push its volume past brick-and-mortar stores in the next couple decades. On Cyber Monday 2019 alone, shoppers spent a record $9.4 billion on digital channels in the U.S, growing 19% year over year, according to data from Adobe Analytics.

As e-commerce sales grow, the returns challenge becomes more costly and complex. Total merchandise returns accounted for nearly $369 billion in lost sales for U.S. retailers in 2018, according to Appris. Consumers return even more after the holidays and one report by Oracle found that 80% of consumers expected to return gifts after Christmas 2019. 

Add to this the fact that return policies can impact customer loyalty and brand perception, and an effective returns process becomes even more critical. Nearly 70% of shoppers said they are deterred from buying online if they have to pay for return shipping or restocking fees, according to a report by Navar

Furthermore, more than half of respondents from the same report said they exchanged or replaced the last item they returned, while 96% said they would shop with a retailer again based on an “easy” return experience. 

Many retailers are trying to answer the call by increasing warehouse space, establishing separate departments to handle reverse logistics and implementing new solutions to get merchandise back in inventory. Despite these efforts, many can’t keep up as the growing volume, and e-commerce returns continue to reduce profit margins.

A Challenge and Opportunity for Retailers

As the retail market becomes commoditized, it’s increasingly difficult for retailers to compete solely on price. Many are now competing on convenience and fulfillment, but also on policies that enable generous and convenient returns. 

  • Consumers often praise Amazon for its efficient return process and a 30-day, no-fee return policy on most items. 
  • Clothing retailer Nordstrom is said to have one of the best return policies that takes items back at any time on a “case by case basis.” 
  • Shoe retailer Zappo’s encourages consumers to buy multiple sizes and return what doesn’t fit, including a 365-day return policy with a full refund to those who are not 100% satisfied. 

Expediting returns doesn’t just make for a better customer experience, it can boost the bottom line. Returns can no longer be an afterthought for retailers — instead, they should be embraced as part of the new normal and a critical component retailers must have to meet modern consumer shopping expectations. 

An Automated Solution for a Broken Online Returns Model

While a generous returns policy can help, retailers ultimately need to back these policies with an efficient returns process. Speed is critical when it comes to return processing. If returns can be processed and made “rack-ready” within 24 hours of receipt at a distribution center, there’s a much greater chance to get products back into sellable inventory.

To act quickly, retailers need an automated reverse logistics system in their distribution center that can accelerate and streamline all the steps required to enter the change order, provide credit to the customer and make returned items available for sale. These solutions can increase sales by promptly processing and repacking products to be resold within a single day. In addition, an automated reverse logistics system gives customers credit for returned items immediately upon receipt.

With the right automated warehouse solutions in place, retailers can handle their returns much more effectively. Workstations along a conveyor network can be set up to inspect products, perform repairs or special services, issue credit and re-pack items to make them readily available for order. 

Automated sorters can divert items to the right workstation or functional areas for automated picking. Warehouse execution software can communicate through a host interface to a warehouse management system or enterprise resource planning solution to manage the workflow.

A True Competitive Advantage

It’s time for retailers to stop simply accepting returns as a cost of doing business that drains productivity and eats away profits. Reverse logistics automation not only helps streamline returns during peak returns times (such as post-holiday gift-giving), but also increases the amount of inventory that can be resold over the long term. Minimizing the processing cycle time from receiving to getting returned products sales-ready enables retailers to turn an unprofitable customer perk into a true competitive advantage.

Kim Baudry is a market development director at Dematic, an intralogistics company that designs, builds and supports intelligent, automated solutions for manufacturing, warehouse and distribution environments.