Will 2022 be the Year of Sustainable Returns? A Look at Trends and Outlooks

In the wake of the holiday season as the pandemic continues to surge, the complexity of purchases and returns have created an environment of uncertainty, particularly as supply chain issues persist. Of the trends we saw in 2020 and 2021, which will continue on in the year ahead, and what new innovations and strategies will take over as the industry pivots and adapts? A panel of leading retail experts look back on the previous two years, gauging the accuracy of past predictions and how they measure up to what the retail space might expect in the next year. On our latest RIS News webinar — “Holiday Hangover 2021: Are You Ready for the Next-Gen Consumer?” — industry experts shed light on the last year within the retail space, providing an outlook on returns, alternative sources of demand and top trends to look for in the year ahead. Read the transcript below. Albert Guffanti: Hello, everyone. Welcome to today’s webinar, “Holiday Hangover 2021: Are You Ready for the Next-Gen Consumer?” My name is Albert Guffanti. I am the group publisher of RIS News. On this webinar, we're going to dive into predictions for 2022 and talk about predictions we thought were going to happen in 2021. You, as a retailer, are probably struggling with keeping ahead of all the changes and shifting landscapes that are happening around you. We're here to help make sense of it all. As I mentioned, we are going to attempt to predict what key trends are going to happen in 2022 and revisit some predictions that we made in 2021. Why is that such a challenge and such a tall order? Well, over the last two years, the world changed by the day. You would wake up and significant events would happen that would cause you to reassess, readjust, and reinvent yourselves, essentially. That has not changed. While hopefully the pandemic is being mediated with the vaccine and other preventative measures, we're not necessarily in the red-alert situation we were in a couple of years ago when it first hit us. However, we are still having to deal with the sobering reality of what business looks like going forward. There is no less level of change happening for our industry. We see it on the news, in our prime time broadcast — the supply chain issue continues to be a challenge. I'm sure when doing your holiday shopping, you're looking for items online and in stores, and finding light inventory. On top of that, there's worker shortages. That's having an effect on our industry. Inflationary concerns. These are all related to everything that's happening as a result of the pandemic. On the flip side — and maybe the positive side — the economy is strong. People want to buy. People show that they have the desire and are in the mood to buy gifts for family and loved ones. They're just not doing it in the same way and during the same time. For example, Black Friday had some less-than-stellar results, but looking at the overall consumer spending for the holidays, it's actually up. People are buying earlier, buying in different ways, and in different channels. That's what we're going to cover on this call. Our expert panelists are going to help us make sense of this all. They're very brave people because they're sticking their necks out, and are going to put down some bold predictions. They're also going to fess up to some of the predictions they made back in June that may or may not have come to fruition. Let's start off by introducing Matt Laukaitis, the EVP and Global General Manager of Consumer Industries at SAP. Matt, why don't you give us a little background on yourself, your role, and what you're focused on? Matt Laukaitis: Thank you so much for having us today. I'm looking forward to the conversation. At SAP, consumer industries include retail, wholesale, consumer products, life sciences, healthcare, and agribusiness. We put those together for a logical reason because you talked about alternate channels, and there's a lot of business processes that are melding across those previously distinct industries. My role is to lead a group of talented people that are focused by industry on our consumer industries globally, to ensure customers are successful in adopting solutions to deliver a business outcome. Also, making sure that we have the right solution composition going forward to try to follow these trends and make sure we're helping be part of retailer strategies to anticipate consumer demands, and then deliver them profitably and efficiently to take advantage of those opportunities. We primarily work with partners and customers to make sure they're successful going forward, but we're super happy to be here. Guffanti: Helping your customers anticipate consumer demand… so you are in the business of predicting what's going to happen and putting things in place to leverage those opportunities. That's very interesting. Also joining our expert panel is Kara Reed, solution manager of Retail at SAP. Kara, so great to have you on. Why don't you give us a little perspective on what your role is, what you've done, what you're focused on now, etc. Kara Reed: Sure, I'm Kara Reed, part of our SAP Retail Solution Management Team. In my role, I work as a trusted advisor with current customers, as well as prospective customers to help drive their innovative agendas, but also to tell them what our retail strategy is, what our retail roadmap is, and help them see where we think the industry is going, and how we can help them get there. I also work specifically from a solution standpoint on the demand forecasting and demand planning solution. As people are trying to forecast what's going to happen, things are changing rapidly, and it's an interesting space to be in. I've been in retail technology for the past 10 years and focus my time on data and analytics, so I love working with data and trying to use it to help see where the future's going. Guffanti: Alright, so you're our industry fortune teller. Well, welcome. I'm excited for this conversation. There is so much uncertainty happening in our industry, and there's a premium on understanding those micro-trends that are happening and placing bets on how to get in front of those and what to focus on. Personally, and maybe this is my over-optimistic nature, when everything was happening with the pandemic, we saw a level of innovation flourish that we've never seen before in the industry. Other things that the industry surprised me with, in terms of quick innovation, was the ability to see how many people are in the store, for example in grocery stores. You can assess whether or not it was a good time for you to go or not because you wanted to maintain distance and things like that. There were so many innovations that came out of necessity from the pandemic that I said to myself, "Wow, this is going to be a new renaissance — a new spirit of innovation that's going to keep happening and happening." We’ve slowed that down a bit as an industry, and we're all shoppers. A lot of it feels normal again, in terms of going to the store, interacting at the store-level or even online, and the disappointment of maybe not seeing the inventory items that we've expected to see there. As an industry, we have the opportunity to put the consumer first. Maybe we might have taken our pedal off the gas a little bit — of course, I'm speaking very generally — but that's a surprise that I have. Rewind six months ago, I would have placed my bet on more innovation, and looking back and seeing our industry is totally changed forever. Kara and Matt, you had put out some predictions back in June on the industry, and we're going to touch on what actually happened, what surprised you, what didn't happen. Kara, do you want to start and provide a little framework for the discussion? Reed: Matt, I'm so glad we're getting back together to rate ourselves on what we thought. My prediction back when we spoke in June was around the stores, how they're going to be back better than ever, but they're going to be back in a different way. I was about half on the money. People are coming back to stores. The numbers came out from in-store shopping on Black Friday, and in-store shopping was up about 48% from 2020, although still down from 2019. As Albert alluded to earlier, how people are going to be shopping overall for the holidays going forward is going to be different. It's not so much about the day or the weekend anymore, but it's about the entire season. Predictions say that in-store shopping is only going to be about 10-15% down from 2019, which is pretty good considering where we are. The part of my prediction that didn’t come true — it seems like people have sort of taken their foot off the gas like you said, Albert — stores looked pretty similar to 2019 these days. There wasn't a lot of experience over going in to get your goods. Pop-up shops, shops-in-shops weren't happening as much as I expected back in the summer. This can also go back to, were people going to come back in the store with the new variant? Given all of the labor shortages that we're having, retailers are having to do so much on a short staff, they're trying to keep the products on the shelves, so that when the customers come in, there's a product to buy. Matt, what would you say based on your predictions this June? What were the things that surprised you about the holiday season? Laukaitis: I'm going to defer to you as the forecasting expert, as well, I'm putting a little extra burden on you, Kara, with your expertise. I’d give myself about the same grade as you, halfway. Certainly, the customers' expectations continue to go up and each experience they have, regardless of how they thought they got it — whether they thought they got it from a traditional retailer or from someone who was a non-traditional retailer, maybe it's a brand that was going direct-to-consumer for the first time through an alternate channel — each of those customer expectations builds up to raise the bar higher and higher to those future interactions. That's certainly a trend that we've seen continue. Curbside pickup is a great example of what I call latent innovation. There was always an idea that we should do this, but it always got further down the list from a prioritization perspective. There were always reasons why people didn't do it, or retailers didn't do that. But now they've unleashed the creativity to do that. That's one good example. We've seen an even greater focus on a positive returns experience, and returns as a strategy for retailers and brands, than we anticipated even six months ago. That's an area that we're going to get into a bit more, but that has a huge impact on customer loyalty. All of these are functions. Of the tremendous amounts of disruption that we continue to see, who would have thought that a single ship could block the Suez Canal for so long and have that profound impact? Living on the West Coast, flying in and out of Long Beach, you can see the ships stacked up in the bay, and you can see some retailers now are focused on going even deeper in vertical integration from a transportation and logistics perspective. Obviously, not every retailer can afford to do that. There have to be opportunities for customers to understand what's going on, and take advantage of those opportunities. At the beginning of the pandemic, almost two years ago now, we talked to customers a lot about before the pandemic, the ability to predict was paramount, and that's still very important. However, equally important is the ability to respond to what's happening. We're seeing a lot of investments in agility around those responses, which is manifesting itself in some of the innovations we're seeing within the retail base. Reed: When we spoke in June, it was a few months after the Suez Canal, and we all thought, "Oh, that was bad." We had no idea what was coming. It's interesting how it seems the supply chain issues have shifted what retailers had been planning to do for the holiday season, and how they were trying to innovate going forward because they've had to buckle down and try to fix this. I want to go back to something you mentioned about how the returns process has become a part of the overall customer experience. Returns have been part of retail forever, but I don't remember a time where it was affecting the consumer decision, it seems, as much as it is now. Especially when we talk about how people are buying earlier, you might go and stock up because you think it might be gone. Then come Jan. 1, you no longer need these items or decided to get them a different gift, so you go and return it. Do you believe, when you talk to retailers, they also truly believe that the returns process is now going to impact the consumers' buying decisions. Laukaitis: It also impacts the long-term loyalty that they can expect from those consumers. There's a lot of different data on this point, but two pieces I would emphasize. The first is that 72% of shoppers said that a positive returns experience will have a dramatic impact on their ability to buy again from that same retailer or same brand, regardless of how they bought it. They want to make sure that they can understand that it's a seamless process. Equally important is the stat that when choosing whether to do business with a brand, 90% say having a free, seamless, and frictionless return process is of paramount importance when deciding to shop with that brand and make the actual purchase decision. It's a tremendously important and impactful area for our own customers, our own retailers that are struggling with how to implement that correctly. Previously, returns was thought of as a cost center, a cost of doing business. There's countless examples of retailers that have embraced this as a core differentiated strategy, and are using this as an opportunity to grow their install base, their customers, the loyalty, and revenues and experiences as a result. Then, it also has a dramatic impact when you take a look at what happens after a purchase, whether it's returned or not. We're seeing a lot of continued interest in sustainability and things like re-commerce. Again, we're making incredible investments to help customers, but that has an incredible part of it because a return isn’t a single return within 30 days, or whatever the policy is, for a retailer. There's also this comprehensive view on a return over the lifespan of a consumer's experience with a particular product, regardless of what the segment is in most cases. Returns are definitely front and center for a lot of customers, not just in the store area or IT area, but truly at the executive suite as well. Reed: That’s interesting because with such a big emphasis on sustainability and reuse these days, re-commerce, a lot of people are starting to realize that when something is returned, it doesn't necessarily go back on the floor for someone else to buy. There's a lot of waste in that area. That's also bringing a big spotlight on the returns process as well. Thinking of a retailer who does returns well, who lives and breathes it, Zappos always comes to mind. They've been doing returns well since they opened. So, what lessons can other retailers learn? Zappos is online only, so they don't necessarily have that store aspect, but what are some of the best practices that can be learned from them about this type of service they provide, and the frictionless return experience? Laukaitis: Zappos is a wonderful example of a company that has done so much to impact the industry and change expectations from a consumer perspective. We're seeing a lot of retailers get addicted to this ability to deliver fast-cycle innovations, and in fact, most of our solutions now are geared towards that fast-cycle innovation and consumption model. But Zappos goes far beyond returns. Returns were part of their differentiation. From the very beginning, they started conditioning customers to order two or three pairs of the same shoe, knowing they were going to get many of them back. That drove efficiency and decisions around how they set up the process and empowered their people to handle those things efficiently, so that they could do it profitably and grow. It also goes to another great example, which is the concept of adaptive fashion. Zappos launched a division called Zappos Adaptive based upon customer feedback, an employee's idea, and this concept of empowering their employees to take action where it made sense. For those that aren't familiar with adaptive fashion, it's taking mainstream fashion and making it available and usable for customers with some form of disability, whatever it may be, because it's a large population with a billion people globally. Zappos went a step further and got an initiative called the single or different shoe size initiative, where you can buy a mismatched pair of shoes. Before they launched that, they weren't sure if they could do it profitably — if it was a good idea to take a pair of shoes and split them out, creating this mismatched inventory everywhere. But again, because they have that culture of listening to their people and innovating, they found a way to make it work. It's a great example of other customers having that institutional courage and creativity to be able to try things and make them work for them and their customers. Reed: That's really important. You mentioned rapid innovation. When you want to listen and provide services to them, it's great when you can do it fast and quickly to figure out what works for both the customer, but also for the retailer as well. Talking about rapid innovation, we recently launched a Pulse Check to retailers through SAP to see where priorities had shifted based on how consumer demand had shifted. One of the interesting things was that priorities hadn't shifted, they'd grown. Instead of taking focus away from the physical stores and moving them to digital, retailers recognized the need to do both of them, do them together, and make it frictionless. The ability to do that quickly and do it right is hard. As we talk about this blending of physical and digital, and having to do it all together, we noted curbside being a big thing, buy online, pick up in-store happening, and how it was rapid innovation at the beginning, but now it's just business as usual. For the store associates and these retailers, that's a lot of complexity and additional tasks that these people have to manage on top of everything that they were already doing. How have you seen retailers leverage — whether it's new technology, new processes — to help associates drive more automation and be more efficient in what they do? Laukaitis: That's a great question. What we're seeing is what I call a lot of hidden innovation. It might not be as visible as BOPUS or curbside pickup might be to customers, but there's a lot of innovation in the supply chain area around prediction, response, being able to understand what's happening, redirecting supply, focusing on alternative sources of demand, alternate channels. We're also seeing, importantly, the recognition from retailers that people are even more important. Retail has always benefited from the fact that it's generally been a people business. There's so many heroes and heroines in retail around delivering safe food, safe experiences for customers over the last 18 months, throughout the pandemic and beyond. We're seeing a lot of innovation and investment from customers around putting people at the center of everything they do, so there are human experience management solutions for retailers as well. We're seeing a tremendous interest in making sure associates understand the opportunity and how to fulfill the brand promise, however they touch a consumer wherever they interact with those consumers. As we saw, BOPUS and curbside pickup, again as two examples, had some impact on footprints of physical stores. They changed the footprints, made the process a little bit different, and people are at the heart of all that. The ability to reinforce training and focus on that. Then, returns is another great example of this, bridging towards delivering on these returns expectations for consumers helps understand that that's a people-centered problem as well, and a great opportunity. It starts with the consumer as a person, understanding how to route the return, how to route the consumer to the most efficient way for her to return the product. Then the associate, whether in-store, in a call center, in a warehouse or DC, how do you make their job most efficient and effective in delivering that and understanding how to inspect this product, to do the dispositioning, if it’s something we can put back in-stock, or something we're going to put to an alternate channel? There's a tremendous amount of people-centered development around those areas, which we've been pleased to be partnering with so many brands around innovating in that area. The other aspect is giving people the tools to understand what's happening. In the returns case, it's about focusing on driving an understanding of why there's a return: did somebody order four pairs or four sizes of the same product because they weren't sure what the fit was going to be? Is it something that points to there's a problem with this color match based upon what we thought the batch was going to be? Is it something else related to the actual quality of that product versus another product? How do we suspect return rates are going to pan out compared to 2020? It's only going to get more returns. You're going to see an avalanche of returns coming post-holiday season. Many people bought early, many households have a lot of presents under the tree already. There's going to be some pressure on customers to push their processes. People might want to return at post the timeline, and the sheer volume of returns is going to continue to increase. We have a lot of customers coming to us for help in understanding what to expect from returns, and then how to manage and dispose of them more effectively to deliver on brand promise with the consumer at the center of the strategy. Reed: Compared to 2020, do you think this is going to be a permanent change, and one of those COVID behaviors that's going to live on in retail forever? Or do you think once we eventually get out of this global pandemic, there will be some leveling off and maybe dipping? Laukaitis: It's only going to increase. The trend is that the younger generations are more predisposed to returning than prior generations, and they're not typically thought of as as loyal as the prior generation. In some respects, that's a little bit of a misnomer. Reed: I agree with the younger generation's loyalty. They're harder to get because their expectations are high, but once you get them, they'll be brand advocates for you all over social media and beyond. Guffanti: Fantastic conversation, so many insights here. Matt, I want to return back to something that you said earlier, which was very interesting. 2020 was all about innovation, and 2021, yes, it's about innovation, but also reacting to things that are happening. Can you be more specific in terms of what kinds of things retailers are reacting to at this point? Laukaitis: First and foremost, they're reacting to what the anticipated demand is, and then what their challenges are in fulfilling that demand due to the supply chain pressures that everyone's under. I don't know how much inventory is sitting offshore in American ports right now, but are there alternate routings, alternate sources of supply? We've been doing a lot of work with customers specifically around the inventory and supply chain management space to benefit and drive that home. That's first and foremost the core business of a lot of customers. Focusing on getting the best quality products to the right consumers, to fulfill that brand promise, where there's no empty shelves, no out-of-stock, so they can take advantage of the opportunity to sell through the holiday season. Guffanti: Now, I’d like to look forward a little bit, put you both on the spot. It's very difficult to predict anything. Kara, we've already dubbed you the retail fortune teller. What are some of your bold predictions for 2022, or some major themes that you see rolling out? Reed: I'm going to call mine the two Rs: return and reuse. We've talked about returns. Matt mentioned it's only going to get worse, and I completely agree. People are going to start taking advantage of these returns policies, and in the right way, of course, because it's something we've gotten used to. When I want to decorate my house, I want to be able to bring that item home, see if it fits in my space, and return it, as opposed to before, I might not have been as open to doing that. There are going to be a lot of companies that start to implement new policies or shops on how to do this. Many jeans companies have started providing the ability for people to return the jeans and the company either recycles them or resells them on the online shop. Madewell opened a pre-loved store in Brooklyn, and we're going to start seeing this more and more — brands are owning this process themselves as opposed to people going to third-party companies to resell their goods. They're seeing there's an upside in this and it's only going to grow, so they want to be a part of it and ultimately get the benefits from it. Laukaitis: It’s all about continued agility. Organizations that previously thought about some of these things as disruptions that had to be managed now see that as a constant source of innovation. The ability to bond even closer to consumers and deliver brand promise using that opportunity to separate themselves and differentiate their experience from the competition. Kara brought up a great example of the re-commerce opportunity. A brand that previously might not have been engaged in a re-commerce activity now sees this as an opportunity to re-engage with their consumer, and maybe get the opportunity to extend and build a relationship with a new consumer in the resale aspect. Across that interaction, they can reinforce their brand promise. Whether it's a luxury item, quality item, whatever that is, that's a tremendous opportunity. It might be across different previously-defined silos from an industry perspective. A lot of retailers are getting into healthcare and health delivery aspects of the business. This concept of constant innovation, innovation as an opportunity versus a pure cost exercise or spreadsheet exercise, from a prioritization perspective. A lot of customers are investing in their people and driving this culture of innovation, which we're excited to see how those match up to what we're planning for as well. There's a good correlation to what we're planning because we try to listen to our customers as equally as they listen to their own consumers. We're excited about that future together. It's constant innovation, constantly looking at new sources of opportunity and focusing on those areas. Guffanti: I want to circle back to something Kara said and Matt, you touched on it too. The idea of opening up this new market of pre-loved items, as a response to the increase in returns and things like that. How is that good business? How is that sustainable, to ship stuff out and have it constantly returned? Shouldn't that be on the brand? This is actually furthering sustainability and initiatives like giving back or charitable initiatives. SAP works with the Delivering Good organization, where that's exactly what they do, work with retailers to redistribute items that have been returned or are not suitable for resale. Can you talk a little bit about that? Do you see that as being a new development out of all this? Matt, I'll start with you. Laukaitis: I appreciate that perspective because it’s going to happen anyway. Those consumers are going to do that regardless of whether the brand is engaged or not, so it's an opportunity for brands to first understand what's happening, what the consumers are doing with their products a year or three down the line, and have an opportunity to re-engage and take control of that process to the extent they can. There's always going to be the third-party groups out there that are going to be involved in resale, but it's a great opportunity for brands to get engaged. If we turn a blind eye to it, we're not going to be in control of our own brand, brand image, or brand concept, but also what's happening from the pulse of the consumer perspective. Kara, what are your thoughts? Reed: I completely agree. People are doing it anyway. When you control it, you get to share the narrative of what the good is. It's not something someone no longer needed, it's something that they've moved on from and it's time to find it a new home. What we can see, especially in fashion, is what's old is always new again. If you can apply this too, as returns, or if you bring it back to returns as well, you can understand if this consumer is buying four items to figure out which size fits them. When I return those, I need to be able to reuse them as well. They're going to do that anyway, so make sure there are processes in place to take advantage of these products we get back, whether it's something that was returned within the 30-day window, or something that was returned four years later that's been pre-loved. Guffanti: It’s interesting how we've landed on this topic of returns management because it's going to be such an important factor as we go forward. It's not going to get any less of a thing. Organizations need to understand how to get in front of it, and it's often a differentiating factor amongst a very competitive environment. Matt, are there any retailers currently doing this that can serve as a model or are doing it really well? Laukaitis: There's great examples of brands that are doing returns very well. Obviously, we talked about Zappos earlier for all the right reasons. It's focused on brands that are focused on a few core things. First, any brand that has this focus on a real frictionless customer experience. To focus on what they’re doing to enhance the customer experience, no matter what their touchpoint is and how they react with the solution or the product. How do they focus on the experience with the brand? Many retailers not only sell a product, they sell an experience around a product, and how you use the product from a solution perspective. It's just brands that are focused on those areas. The best practices are about those three areas. It is going to be a continued avalanche of returns. We're going to see a tremendous focus on this. From an organizational perspective, it's supremely important to make sure your people are enabled and that the people are at the center of this. We all know how hard it is to recruit, retain, and hire talent in the retail industry, so we're focused on helping customers do that equally as well. Guffanti: Fantastic, very insightful discussion. Clearly we've only scratched the surface in this discussion. I’d like to point out “The Road to a New World of Retail,” which we’ve developed with SAP. This is a roadmap to reimagine what it might be to be a retailer going forward, for 2022 and beyond — things that you need to focus on. You can see some of the things: new business models, digital supply chain, customer-centricity, segment of one, and so on. Returns management and things that we discussed are embedded in some of these pillars. This is an interactive, multi-experienced site that opens up into videos, other webinars, infographics, and other data for you to digest and share with your team members to understand what you need to do internally to embrace this new world of retail that we're in. This is part of the “New World of Retail” webinar series. The next installment of the series, “Finding Talent to Represent Your Brand: How to Successfully Attract and Recruit Gen Z and Millennials,” you’re going to want to listen in on that. Thank you again, both of you, for your insight, predictions, and participating on behalf of the retailers. This is a very unpredictable and challenging time. To have a level of common sense and well thought-out insights is very much appreciated. Thank you all for joining the webinar today. We hope you found it to be a very productive webinar, and we hope you will continue to engage with future webinars that we produce. Have a great day.