The shift to increased digital and omnichannel shopping elicited much more than regret from retail laggards – massive volumes of returns also emerged. The NRF estimates that consumers returned $428 billion worth of merchandise in 2020, or about 10.6% of all retail sales. These surplus returns engendered a myriad of difficulties for retailers, landlords, supply chain workers, and consumers alike. Below, we’ll elaborate on the said challenges and identify areas where retailers may reframe problems as opportunities.
Pertaining to retail stakeholders, a primary challenge is establishing effective return policies. Retailers are fighting tooth and nail for market share in an ultra-competitive industry by extending return periods. Walmart, for instance, has prolonged its return period by six weeks. On the one hand, stretching the window for consumers to return items allows us all to breathe a little easier, evidenced by the fact that 95% of shoppers who are happy with the returns process purchase from the same retailer again. On the other hand, relaxed return policies can lead to shoppers returning an item after its peak season, which translates to retailers losing out on an average of 10% in sales during that season.
Surging consumer spending rates also underscores the issue of lagging supply, which can be partially attributed to limited shipping capacity and rising freight prices. Given that limited shipping capacity impacts transportation prices, and in turn, order fulfillment speed, distribution centers have been overflowing with weeks’ worth of returns that generally would have entered the supply chain through a company’s stores. At the crux of the backlogged returns conundrum is the processes through which distribution centers operate – herein lies the opportunities for retailers.
Retailers can add 5% to their bottom line by optimizing the management and resale of their returns. The faster an item can be inspected and restored for sale, the more money retailers will save. Regarding the A-Z process behind returning an item to stock, returns are typically received in small quantities – making the physical handling difficult and expensive. According to SHD logistics, an alternative process may be to keep returns in multi-SKU locations given that returned items are historically fast-moving stock and will consequently be selected for resale.
Regardless of how distribution centers plan to refine their restock systems, one notion remains certain: retailers who invest in implementing a seamless consumer return process will reap rewards in the form of reduced cost, increased customer satisfaction, and repeat business. We’re interested in uncovering the winning strategy for the ultimate game in retail…the game of returns.