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03/09/2022

Tapping Into New Opportunities: How the World of Returns Is Changing

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Woman making returns via mobile device

Returns always have been, and always will be disruptive. This disruption has unfortunately been magnified in today’s accelerated marketplace. As digital shopping continues to soar, returns volume has increased in lockstep, threatening both the customer experience and retailers’ bottom line.

What steps can retailers take to lessen the impact of returns on operations? How can the innovative use of technology help ensure the customer experience is not hampered by a clunky returns experience? Can the current returns dilemma be turned from a challenge to an opportunity?

Read on to discover how leading retailers are tackling the growing returns conundrum and turning it to their advantage.

 

Below is a transcript of RIS’s latest webinar, which leverages our recent research to set the scene and uncover how retailers are turning the returns process into a competitive advantage. 

Editor's Note: This is the second in a two-part webinar series. Find part one here

Tim Denman: Welcome to the “Solving the Returns Conundrum” webinar, which is hosted by RIS and presented in partnership with SAP. I am Tim Denman, editor-in-chief of RIS, thank you for joining us today. Returns have become a major issue across the retail industry from a poor customer experience, to margin loss, to a negative impact on the environment. Rising returns volume is the 10,000-pound gorilla that must be dealt with. We explored the issue in great detail in part one of this two-part webinar series. For those of you who missed the first half, “The Evolving State of Retail Returns,” it is available on the RIS website under the “Webinars” tab.

In today's session, we'll be focusing on action. Specifically, what can retailers do to lessen the burden of returns while simultaneously improving the customer experience. With us to explore how to deal with the trade-off of customer convenience and operational efficiencies, the available technology that can enhance the returns process, and how to turn the returns process into a competitive advantage, are Oliver Stocks and Kara Reed, both with SAP. Oliver and Kara, thank you for taking some time to discuss how retailers can improve the returns experience. Let’s take a moment or two for each of you to introduce yourselves and describe your role at SAP.

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Webinar Slide: Speakers
Webinar Slide: Speakers

Oliver Stocks: Thanks for having us today. I’m Oliver Stocks with SAP. I started in Germany in 1998 as a retail consultant. At that time, I was focused on apparel, footwear, and the fashion industry. That ultimately brought me to the United States in 2001 when I helped roll out our newest co-innovation product at the time for the apparel and footwear industry, which focused on manufacturing, wholesale and retail — even back then that was a thing. E-com was not there yet, but it was certainly an exciting time to join the United States and help roll out one of the solutions we co-invented together with other customers. 

That's a paradigm that we very much cherish and make sure we collaborate with customers to define solutions for the market. At this time, I'm in business development and focused on the consumer industries at SAP, consisting of not only retail, CPG and wholesale distribution, but also life-science and healthcare.

Kara Reed: Hi, I'm Kara Reed. I'm part of the retail solution management team here at SAP, focusing solely on retail all day, every day. I've been at SAP for over 10 years now in various roles, but I've spent my entire career in retail technology with a heavy focus on data and analytics. I am a huge data nerd and love how much it can help retailers.

Denman: Thanks Kara, I'm glad you're a data nerd because we're going to talk a lot about stats today. This webinar series was inspired by a recent targeted research that RIS conducted on returns management. We benchmarked the current state of returns in the industry, some of the key challenges, and what retailers are doing now, as well as their plans for the future to improve the returns experience. You can access the full report here.

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Webinar Slide: Returns Management, RIS Research
Webinar Slide: Returns Management, RIS Research

In part one of this webinar series, we explored the current state of returns and the many challenges returns are facing. Today, we're going to dive deep into action. We asked retailers what they're currently doing to reduce returns volume and improve their returns management approach. To reduce returns, volume retailers are working to ensure customers are better informed about the products they're interested in before they make the purchase.

 

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Webinar Slide: Return Volume, RIS Research
Webinar Slide: Return Volume, RIS Research

Half of those surveyed reported they are working to improve product descriptions. Another 27% are improving sizing information on the apparel end. On the returns management side, 64% of retailers report they're working to improve how they communicate their returns policy. A little more than half (54%) are working on process improvements, others are offering discounts instead of a return, encouraging store credit or exchanges, and implementing a returns management solution. 

The returns experience has become a vital piece of the path to purchase. As e-commerce sales continue to rise, returns will naturally increase in lockstep and retailers must continue to improve the returns process to win the hearts, minds, and ultimately, the wallets of consumers. We asked retailers what part of the returns process should be fixed first, and an overwhelming 70% point to providing a better customer experience.

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Webinar Slide: Fixing the Returns Process, RIS Research
Webinar Slide: Fixing the Returns Process, RIS Research

A hassle-free return experience is a competitive advantage. Savvy retailers view the current returns situation as not just a problem that must be solved, but an opportunity to set themselves apart from the competition. One way to turn returns into an opportunity is to encourage online shoppers to return items at a local store. This approach not only saves critical shipping cost, but it also allows retailers to recapture some of that potentially lost revenue by driving impulse buys at the store, which 43% of retailers report is a critical opportunity.

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Webinar Slide: Return Management Solution Maturity, RIS Research
Webinar Slide: Return Management Solution Maturity, RIS Research

As RIS typically does with its research projects, we not only ask retailers for their current strategic approaches, but also the state of tech preparedness. Among the returns management solutions retailers are most up-to-date on are real-time inventory visibility, local devices for workers in various forms, and returns analytics. Over the next two years, retailers plan to invest in real-time inventory visibility to further that, including geolocation technology, returns management software and logistics among other solutions.

Kara, let's get things started. Can you briefly recap what we discussed in part one last week and also discuss the main areas of opportunity to improve the returns experience?

Reed: Absolutely. Pano and Robin did a great job of summarizing not just the challenges that retailers face, but also how we can turn those challenges into opportunities. At the end they mentioned four processes that all retailers need to consider as they look to turn the returns process into a differentiator. The first one was the customer experience. This is a big one because the returns process starts before the product is even purchased. 

When the consumer goes to the website or in the store, they want the fit information to be accurate, the details around the product to be accurate, and the pictures to be accurate from an online perspective. They want to have confidence in buying the product before it’s purchased. But then, once it is purchased, there's going to be people who return things for various reasons.

They want a seamless experience. They want to be able to quickly identify the return, get the shipping label or whatever it may be, and be on their way. They also want it to be transparent. When I put my package in the mail, I want to be able to follow it until I get my refund or exchange, however long that may be. 

“The old way was having a piece of paper in the box, and when a consumer gets the product, they slap on the return label and send it back, which provides no transparency and no visibility. This is no longer the way that returns can work.”
— Kara Reed, Solution Manager, Retail Industry Business Unit, SAP

The next process was dispositioning it. We can't stop returns altogether. Once we get these returns back, how can we more efficiently use these products? Who is making the decisions on how to dispose? What are the rules and guidelines that are being followed, and how can we make smarter decisions about what to do with these products to increase profit? From a sustainability standpoint, this is becoming more and more important. Then, of course, how do you track all this? 

My favorite topic is data. These processes are creating more information: Why are people returning it, how are they returning it, what's happening after they return it? This information needs to be captured and analyzed so that trends can be identified, fraud can be identified, and this information can be used to make better decisions on all processes within the returns process.

In the spirit of thinking about returns as a differentiator, there's many new business models that can lead from this. From including returns in the circular economy, to starting a trade-in program, or a rental program, there's a lot of different ways that retailers are leveraging these returns differently than they have in the past. The key is that you can't look at one of these processes without looking at all of them —it’s about seeing the full picture of the returns process end-to-end.

Stocks: One item I’d add, based on the first webinar, is around the process of co-innovating with customers to get to that level of detail, as Kara described. What can we do to gather information from customers? We co-invented the current solution that we offer with customers who run various sorts of businesses in different customer segments — apparel and footwear, do-it-yourself home improvement, different sizes, and different emphasis — to make sure that we capture this end-to-end process.

“They certainly took us on a journey. Not only from the very beginning on how to make the end-consumer happy and content with the process — and ultimately turn that customer into a fan of the brand — but also as the brand or retailer, how to ensure they address this incoming over launch of return items. How does this not turn into a big cost and expense, but also turn into a profitable opportunity for us as a business?”
— Oliver Stocks , VP of Business Development Consumer Industries, North America, SAP

We looked at this from an end-to-end perspective, collaborated with customers, and would like to share with you what we derived from this process, as well as how we look to help customers and end consumers.

Denman: Oliver, customers have come to expect an easy and seamless returns process, mostly due to companies like Amazon, but not every retailer has the means to provide that. How can retailers ensure that customers are not only satisfied, but inspired by the returns process while also ensuring they're making the right business decisions from both a margin and sustainability perspective

Stocks: The key term here is convenience. Convenience is here; it's here to stay. Some of the big retailers showed it. The early ambassadors showed how easy a return journey can be. Now, everyone expects us to be this easy. We have retailers who expect the consumers to review the returns policy in detail, but I doubt this would be the norm going forward.

“Our society's not ready to go back, they just want to go a step forward and make it even easier for the end-consumer. It's important, especially for brands, to have a consumer journey that is seamless across the different channels. Houseware products being displayed in the store on the website, consistent branch look and feel, and make sure that it is very convenient for the consumer.”
— Oliver Stocks , VP of Business Development Consumer Industries, North America, SAP

What does that do to us as a retailer, as a provider of garments? As a provider of all kinds of products that are out there, how do I make sure to deal with the ever-growing expectations of convenience? Especially in Generation Z. 

My daughter is 15. I learn every day how convenient things have to be for her to become a consumer and ultimately a fan. If she's not a fan, she probably will make sure that people know about it using social media to share her concerns with the respective brand. It's all about a holistic review. How do I make this business profitable, but how do I ensure it’s a convenient journey for all of us?

Reed: While I'm not a Gen Z, I have my fair share of experience in the returns process across all different types of items. One thing I've noticed as I become more involved in the returns management area at SAP, is that you can tell the difference between companies who are focused solely on maintaining that margin and not letting it erode their cost, and those who are more focused on the customer experience. 

For example, there's a global retailer that I shop with, who I feel has left the returns process in the 1990s. When I get my package shipped to my house, I have a printed piece of paper where I write down the material number, circle the reason code of why I’m turning it, slap the label on, bring it to UPS, and then they charge me $7 when I return it. This impacts my decision to buy something from them. What is the likelihood that the item I buy is going to fit, not just that I'll like it, but it will actually fit me. 

“I often go somewhere else to look for something similar that I know has an easier return policy. There are many direct-to-consumer brands that don't have the ability for you to try it in-store. It's important to be flexible in the returns process.”
— Kara Reed, Solution Manager, Retail Industry Business Unit, SAP

I've also seen retailers that do a great job of towing the line between the experience and the business. For example, I ordered a piece of art online last year and when it got delivered to my house, the frame was broken. It wasn't a particularly nice frame, but the piece of art was perfectly fine. 

I went to return it because it was damaged and they actually offered me a discount to keep it and get the frame replaced myself as opposed to sending it back. That was an interesting and creative way to save themselves or myself the shipping cost, as well as a more sustainable way because this large piece of art isn’t being shipped back and forth, and the retailer kept the sale. Whereas if I sent it back, I may be hesitant to order a new one because this one is damaged. 

When you look at returns — especially if the retailer sells lots of different types of items — it needs to be a dynamic process. A customer might be okay paying $15 to return a piece of art because it's large and bulky that is expensive to ship, but not a t-shirt that cost $15 and now they have to spend half of that to return it.

“The key to satisfying the customer experience and the business is being able to be flexible and dynamic, and having a way to prioritize and give options to the consumer about making a return.”
— Kara Reed, Solution Manager, Retail Industry Business Unit, SAP

Maybe prioritize them in a way that's more favorable to one over the other, depending on who the consumer is. It all goes back to the information: how much does it cost to ship back? What was the margin on the original product? Can I incentivize them with an exchange or offer some other flexible way to satisfy them, but still have them keep the product?

Denman: That was a great point and a wonderful idea about the different segments and differences — a t-shirt versus a piece of furniture. Everything's different. Have you identified any glaring opportunities and challenges specifically in apparel? Apparel is one of the segments that has experienced significantly more returns than others. In this new day and age — with e-com, virtual purchases, subscription boxes — can you share specific challenges and opportunities in the apparel segment?

Stocks: It was actually right in line with what we were thinking. First of all, the best return is no return. This is what people traditionally think, but now that it happens, what are we going to do with it? How do we prevent returns and how do we deal with returns? Especially in the apparel and footwear field, about 50% of all returns in the United States were apparel footwear items. The sizing is wrong, the color is wrong, the look and feel is wrong, all these things you do in the store, you can't necessarily do at home. 

“What if you could use artificial intelligence and machine learning to get to that next level of detail and understand what is needed to capture that item and make sure it's presented well. One way of doing this is using augmented reality and 3D.”
— Oliver Stocks , VP of Business Development Consumer Industries, North America, SAP

At SAP, we have an incubator, we call it sap.io. Within that, we help the startup companies get access to our customer base. We work together to facilitate the process of using technology, such as AI or 3D, to prevent that return from happening by providing additional features online. It works better and better. Our partners have seen very good results. We're looking to leverage this type of technology to deal with the returns that arrive at our warehouse. 

How do we derive return patterns? How do we close the loop in terms of assortment planning at the very beginning, and then actually return in the end? What happened there? It's always the same item being returned. If it’s a set — for example a golf ball, golf pants, and golf shirt – if the shirt gets returned more often than the rest of it, then what is wrong? What happened there? Is the pricing wrong, is the color wrong? We are using technology on both ends to prevent returns, but also when we need to deal with the incoming avalanche of returns at the warehouse.

Reed: With the rise of re-commerce and secondhand stores, having a strategy around that can help once products do get returned. Let's say a handbag gets returned, maybe it has a scuff on the side or the bottom, if that’s put in the store, a retailer can offer a bit of a discount so that a consumer might be willing to purchase it anyway. If they know beforehand what they're getting, as opposed to ordering it online and it showing up damaged, they’ll be upset. However, if they know it just has this tiny scuff, but no one will notice it anyway, they may be more willing to buy it.

“Having a strategy for the dispositioning based on the quality and condition of the return is extremely important. It’s a really big opportunity in retail going forward.”
— Kara Reed, Solution Manager, Retail Industry Business Unit, SAP

Denman: Kara, we talked a lot about areas of improvement today, as well as in the first webinar. Can you give a quick overview of the key areas of improvement and where the best place is to start?

Reed: The best place to start is the data. Start on the front-end making sure product descriptions and pictures are correct, start with the dispositioning, or start with the new business models. The best place to start is with the data because then you’ll find out where the biggest problem is. You may find that items are returned because the sizing guide on the site is wrong for a specific size, or maybe that design didn't manufacture as you thought.

You can figure out which area to tackle, where the biggest area of opportunity is, and the biggest challenge is. Retail analytics was ranked highly, it was the third most category consumers or retailers were ready with. It’s good to know that people are getting on board because often retailers think of returns as a necessary evil. The more we can identify trends and figure out areas of opportunity, the more we can turn it into a differentiator.

Stocks: Returns are not a good thing for the world. The circular economy is front-and-center at this point. Our company is laterally very involved on that end, trying to ensure that challenges are dealt with accordingly. We don't want any of our retailers or branded apparel footwear companies to discard any product.

“In the most recent past, there's been news around landfills getting bigger and bigger, even by throwing perfectly fine goods away sometimes. That's something we all want to stop. We want to see it stopped, but that requires better control of the returns process when the items arrive at a third-party logistics center or even the retailer’s warehouse.”
— Oliver Stocks , VP of Business Development Consumer Industries, North America, SAP

Our contribution is to ensure that there'd be less painful returns ending up in landfills. We’re on a mission to make sure that this is a profitable business and encourage consumers to ask for additional information, “What do you do, Mr. or Mrs. retailer, to address this issue?” We are here to support technology and are looking forward to an exciting year, rolling out this new solution.

Reed: I'm glad you brought that up, but you talked about your daughter as a Gen Zer. She puts out all her frustrations with brands on social media and Gen Zers are making more decisions with information, such as sustainability practices. As Gen Zers grow up, they become the people with the money, the people doing the shopping. It's going to be increasingly more important that retailers are acting sustainable because the consumers will show who they agree with and where they want to spend their money.

Denman: That's a great way to wrap this up on the sustainability point. We start looking at the bottom line, what does it cost us from dollars and cents, but you also have to think about a sustainability aspect — what's good for the world? Should we be throwing perfectly good products into the trash just because it's cheaper than sending them back? That's a whole nother conversation. It's a beautiful place to start. 

Thank you both for joining us today, thanks to SAP for sponsoring, and to everyone for listening in. Until next time, stay safe.

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