Returning to Normal: How Retail Can Beat the Returns Challenge

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The ecommerce market was growing pre-pandemic but Digital Commerce 360 estimates that the pandemic pushed even more U.S. consumers online, contributing an additional $105 billion in U.S. online revenue in 2020 and accelerating ecommerce by two years. Online retailing has continued to increase and see big benefits due to COVID-19. According to the Commerce Department, online sales hit $792 billion in 2020, up 32.4 percent from $598 billion in the prior year.


While traditional retailers and brands have been strategizing and upgrading to gain more online sales, back in the shipping and logistics department an avalanche of returns has been piling up.


American consumers returned $428 billion of goods in 2020, a return rate of 10.6 percent, with e-commerce returns accounting for nearly a quarter of the volume. A McKinsey Returns Management Survey conducted just prior to the COVID-19 pandemic noted a 25 percent return rate for apparel on e-commerce channels, compared to 20 percent overall. And with the sector’s e-commerce growing about 35 percent in 2020, its returns are at an all-time high.


For many retailers and brands online was the only lifeline to stay afloat during COVID-19. Now, online has become an essential part of most retailers’ operations. But with increased online sales come challenges that many companies were unprepared for. Consumers have developed high expectations for free online returns and exchanges but returned goods often cannot be returned to stock.


By some estimates, retailers have been seeing return rates as high as 40 percent. A 2015 study by The Retail Equation, a consulting firm, found that clients had been underestimating return rates by an average of 80 percent. Now that free returns are the norm, retailers are looking for ways to stop the hemorrhaging. Some have begun rating shoppers based on their return rates, a response in part to the rate of fraud, estimated by ECR Retail Loss Group to be about 14 percent of returns.


But managing returns has become a large industry challenge. A report from Narvar found that 33 percent of repeat consumers would choose to abandon a retailer if they had a “difficult” returns experience. Retailers were unprepared for the pandemic and even less prepared for the explosion of returns volume. Many retailers and brands consider returns as collateral damage, a necessary evil to continue to grow customer acquisition and wallet share. In reality, the return process has become a foundational part of the customer experience.


“Data has the power to transform retail returns and modernize a process that for many retailers remains a pen-and-paper business,” stated Tobin Moore, CEO of Optoro. “With the right information combined with the use of predictive analytics and machine learning, retailers can quickly find the most profitable disposition channel for a return, avoid unnecessary shipping and redundant touches by optimizing the best path from the initiation of the return. The right analytical approach to returns from the outset helps to fend off depreciation, reduces the number of items that end up in landfills, and even boosts revenue by driving repurchases of goods.”


With the increased amount of online and omnichannel shopping there’s a growing risk that returns will become unsustainable. First Insight can help minimize this risk in two important ways. Through the use of VoC tools, retailers and brands can test new products before they go to market to understand what the consumer values and select winning products that are less likely to be returned. Retailers can also use the First Insight platform to test return policies and processes with consumers to understand their expectations and preferences. Armed with actionable Voice of the Customer data, retailers can turn the “moment of truth” of a return into an interaction that builds customer loyalty instead of destroying it.

predictive analytics  retail  voice of the customer  omnichannel experiences  return policy  Next-Gen Experience Management