Each year, stores see an influx of returns after the holidays. In fact, in 2017, U.S. customers returned about $351 billion worth of items. This is more than the Gross Domestic Product of Israel for that year! For the most part, this is an accepted part of the retail business and is to be expected. However, with the rise of omnichannel retail and ecommerce, many online orders are being returned in store, causing a unique set of challenges for retailers.
Following is a Q&A with Amy Tennent, Director of Product Management, Manhattan Associates on the impact of cross-channel returns on retailers and what might be done to improve the process.
Q: What challenges are associated with cross-channel returns?
Tennent: When a customer wants to return items purchased online in-store, a unique set of challenges arises. One key issue is that retailers are often unable to properly process these returns because they lack an order management system that provides a full view of the customer across all channels, both physical and digital. This is because most in-store systems were created before the advent of ecommerce and were designed to simply process sales transactions and returns within the same store. Today, those same systems are expected to work across multiple channels and sales associates are left trying to investigate and resolve the product journey.
It is also exceedingly difficult to optimize inventory in this scenario. Inventory management is now all about having merchandise in the right place at the right time, so a retailer doesn’t lose any control and merchandise doesn’t wind up in a place where it will not sell. To make the returns process as profitable and seamless as possible, retailers need full network visibility and fulfillment flexibility. This allows them to make the most of returned items and avoid having a surplus of unsellable inventory piling up in stores. Without a holistic view of inventory — including what is in-store, online and in the distribution center (DC) — a retailer cannot seamlessly process returns from various channels.
For example, if a customer wants to return an item sold exclusively online in a store, a retailer must be able to process and repurpose that item efficiently. This requires having a holistic view of inventory across the entire network as well as the ability to fulfill online orders from store locations. Without the ship-from-store capability, a retailer accepting an online only item in-store is then forced to return it to a distribution center before it can be resold — not a particularly efficient or cost-effective process.
Q: How can this negatively affect the customer and sales?
Tennent: The customer experience is everything in today’s retail landscape, and one large reason why many consumers choose to return the merchandise they ordered online in physical stores is because of how convenient it is. If a retailer is not able to process these returns in-store, this negatively affects the customer experience and could damage the patron’s relationship with the brand and long-term loyalty/sales. If a customer does want to return an item, a retailer has the unique opportunity to build loyalty by not only making this a seamless and efficient process, but also by offering to assist the customer further, and ultimately make another sale. If a retailer can immediately provide a customer with the replacement item and have it shipped directly to them, the sale can be saved and the customer will be satisfied.
Q: Why is having holistic inventory visibility so important for omnichannel retailers?
Tennent: Having holistic inventory visibility provides retailers with two key advantages:
a. Better Leverage Your Entire Inventory Network - No matter how accurate a retailer’s sales forecast and inventory management are, there will inevitably be situations where inventory is located away from interested customers. A modern distributed order management solution, with holistic inventory visibility, gives retailers the ability to fulfill online orders, even when the ecommerce distribution center is out of stock. Likewise, retailers can use this technology to save the sale when a walk-in customer wants a particular item but the store is currently out of stock. For example, if a customer is returning a sweater because it was too big and would like it in a smaller size, the retailer needs to be able see its full inventory picture to resolve the situation by either shipping it to the customer from another store or from the DC.
b. Puts Inventory in the Right Place at the Right Time - Modern inventory optimization techniques allow omnichannel retailers to better align inventory supply with omni-fulfillment initiatives, such as “Buy Online Pick up in Store” or “Ship from Store.” These optimization technologies can help a retailer ensure they not only have inventory well positioned across their network locations, but are also able to operate with the least amount of physical inventory possible.
Q: Any predictions for future returns processes as the retail industry continues to evolve?
Tennent: According to the U.S. Commerce Department, ecommerce is growing at a rate of 14 percent-16 percent. Therefore, the rate of returns experienced by omnichannel retailers should also continue to grow. As we’ve already seen, this has begun to impact operations at both distribution centers as well as retail stores.
As retailers analyze return data, we expect to see them applying machine-learning techniques to attempt to better predict the expected volumes of returned inventory, as well as take steps to reduce the likelihood of a future return. They will be better able to predict which purchased items are most likely to be returned, their probable condition and the location in which the return will take place. This information can be used to forecast usable inventory and help retailers more accurately plan future inventory needs as well as labor and operational impacts.
We also expect to see retailers back off on free return shipping offers as they realize this encourages frequent returns and isn’t cost effective in the long run. To combat the inevitable backlash against this, retailers will use their data to help customers shop “smarter” by connecting them with the right product the first time they make a purchase. This may be in the form of a virtual dressing room or adapted sizing to better illustrate a product’s fit.
Amy Tennent is Director of Product Management at Manhattan Associates.