Retailers – How to Win the War Against Returns

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Don’t count that sale yet. You successfully navigated order management, warehousing, shipping, transport, and potentially even customs clearance to get your product into the hands of your customer, safe and sound. Great job – now brace yourself to do it again in reverse. It’s the bane of all retailers – RETURNS. Returns complicate logistics processes, disrupt inventory management, make revenue forecasting difficult and eat into profit margins. The issue of returns is nothing new, but what is new is the impact of omni-channel retail. Multiple buying channels and drop shipping (or direct dispatch) practices have added greater complexity, and online purchasing is pushing returns rates higher. Add geography, culture and industry variables into the mix, and you see how quickly the cost of returns can grow.

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25-50%of all goods purchased online are returned

3xhigher returns levels in Germany vs. other European countries

10-40%retail apparel e-commerce returns rate

Source: BBC News, Jan 2013

Channel+Culture+ Industry=Global Returns Challenge

Source: Retail Technology, Sept 2013

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Lowering returns is worth the effort. While the challenge may seem insurmountable, tackling it is a competitive necessity. Retailers bear the fixed fees of the reverse logistics – of warehousing, restocking, and shipping fees if free returns are offered. In addition, you must also factor in the cost of the diminished value of returned items. !Minimizing returns has numerous benefits to the business. !1.

!2.

!3.

!!!For omni-channel retailers, addressing the returns challenge head on should be a key priority.

Customer satisfaction – Customers frequently cite ease-of-returns as a key criteria for doing business with a retailer. Operational efficiency – Returns can be labor intensive, tying up costly resources across multiple functions of the company – from customer service to warehousing to accounting. Profitability – Returns represent a huge expense to the business, consuming working capital, depreciated product value and compromising customer loyalty. Reducing returns by even a fraction can result in significant improvements in profit margins.

4 Source: Retail Technology, September 2013

1%increases net profits

by ~

Reducing returns by

1%

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Where do you start?Minimizing the cost of returns boils down to two primary focus areas: !!!!Customers are fickle creatures when it comes to buying habits and they have high expectations when it comes to customer service. So to be successful in either of these two efforts, you need to consider a combination of processes, data and technology when implementing business improvements.

Taking steps to prevent a return early in the buying cycle Making the returns process as streamlined and easy as possible.

processes data technology

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Why do buyers return?

lower price

bad experiencebuyer remorse

wrong fitpoor quality

wrong product

changed mind

preference

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Evaluate your processesEvaluating workflows in the online buying cycle can help you identify opportunities to guide the customer to the right purchase, and reduce the likelihood of a return. Are you presenting them with enough detail about the product? Details on sizing, dimensions, colors and fit are all critical. Reviews, product videos and posting of Q&As can also be incorporated into online buying processes to help customers make the most educated decision possible. !No matter how many prevention techniques you implement, there will always

be returns. But clearly defining the returns process, ensuring consistency across channels and making the returns process and documentation as easy as possible for both the customer and your employees can reduce the financial and administrative burden of returns. Some leading retailers now promote easy returns as part of their customer value proposition. Because returns are “risk-free,” customers feel comfortable ordering more and often keep more than originally planned, thus boosting sales. !Returns processes are becoming a key differentiator, and if promoting free returns continues to deliver more value than cost, the cost of returns could even become part of the marketing budget.

Key Stat: Returns are second only to free shipping options in customer priorities

Source: comScore, May 2012

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Conquer your big dataRetailers have no lack of data, and that can be used to your advantage. Online retail in particular generates a vast amount of data on customer shopping habits. Applying effective analytics to this data can help you predict when and where returns will happen. In addition, this data can be leveraged to implement online guided selling processes and present product recommendations – both of which could prevent a return by steering a customer to the right choice. Visibility into your own inventory and shipping processes is also critical. Rather than viewing a stockout as a potential lost sale, use it as an opportunity to present alternatives to the customer. You save face by alerting them to an out-of-stock situation up front and gain a cross-sell opportunity. To do this effectively, you must ensure you have accurate, real-time product availability that factors in all data sources, including data streams from drop ship suppliers. Benefits are increased customer satisfaction and fewer returns, as well as reduced costs. In addition, you gain valuable insight that will help you better meet future demand.

Happier Customers !Fewer Returns !Reduced Costs !Valuable Insight

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Invest in the right technologyIn today’s world, you cannot simplify processes or leverage big data without technology. So it stands to reason that technology investments are a key component of successfully reducing product returns. You can benefit from implementing a mix of platform-based technology that is industry agnostic as well as emerging niche technologies that are specific to your industry. Here are just a few examples: !Technology that gives you greater visibility across your supply chain – from inventory, to product tracking, to multi-modal shipping options, to customs status – will increase your efficiency, lower your operational costs and ensure you give customers accurate, up-to-date information. !Analytics technology can help you uncover trends in your returns data. Knowing what types of customers are most likely to return items, what products are returned most often and what reasons are most cited for returns can help you implement stronger returns prevention strategies.

Key Stat: Returned products cost global ecommerce retailers $200 billion in cash and lost profits in 2012.

Source: BBC News 2013

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Guided shopping and customer profiling technologies can help you better understand buying patterns and preferences so you can steer customers toward items that best fit their needs. Industry-specific technologies such as online fitting rooms for apparel or configuration wizards for technical goods can further enhance the customer buying experience and help them better assess product fit. !Shipping and logistics technologies are critical to both the buying experience and the returns experience. Determining the right multi-model transportation mix, the best carrier rates and the most effective path for getting products into stores (physical and virtual) and getting products into the hands of customers is complex. Reversing the logistics process in the event of a return can be equally complex. The right technology can minimize complexity and lower overall logistics costs while at the same time enhancing agility and improving customer service. !Technology can give you a strategic advantage in both generating sales and minimizing returns, so invest wisely.

Supply Chain Visibility

Analytics

Shipping & Logistics

Guided Shopping

Customer Profiling

Top technologies for battling returns…

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Looking ForwardSuccess in omni-channel retail depends on delivering a seamless, consistent experience across channels for the full life-cycle of a customer engagement, including returns. As online sales increase so does the likelihood of returns. Ensuring you have streamlined processes, comprehensive visibility across supply chain data, and technology to support both the prevention of returns as well as the processing of returns can help minimize the negative impact that returns have on your business. !The world is moving toward a more fluid customer experience, and the emergence of technologies such as Google Wallet, Square Cash and Google Glass are opening up new opportunities to grow retail sales. !Your challenge – keep as much of those sales revenues as you can by minimizing returns. You’ll be rewarded with higher profits and happier customers.

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