Managing product returns remains a big issue for retailers. Once seen as an unavoidable cost to the business, now they are viewed as an expense to be managed like any other.
In the U.S. alone, retailers lost an estimated $816 billion in revenue as a result of consumers returning 16.5% of merchandise purchases, according to the National Retail Federation (NRF).
It makes the high cost of returns impossible to ignore, not just for retailers but for the environment too, as many unwanted items can end up in landfill, not to mention the impact of transporting and moving stock from place-to-place.
Retailers Feeling The Impact Of Free Returns
In recent years, the retail industry focused on making returns as hassle-free as possible with many offering “free” returns. This, however, triggered costly consumer behavior, for instance, buying the same garment in multiple sizes and keeping only the one that fits.
Consider fast-fashion retailers who contend with short windows of seasonal shopping periods. By the time returns are processed and make their way back into the retail marketplace, the season has changed and the selling opportunity, gone. These retailers are then faced with the added challenge of offloading surplus products, which often include deep discounting other forms of disposition.
Then there’s the ‘just keep it’ strategy, where retailers are telling shoppers to ‘just keep it’, and we’ll refund you anyway. This is because they know how costly processing, repackaging, and trying to resell merchandise can be. Indeed, for businesses, the expenses associated with accepting the return of a product can sometimes exceed an item’s resale value.
According to goTRG, 59% of retailers said they offer “keep it” services for returns that aren’t worth collecting. Of those retailers, 27% deemed items priced up to $20 as eligible for their keep-it policy.
In response, the retail industry has started to re-think its approach. We have seen examples of retailers making it harder for customers to make returns either through introducing charges or placing limits on regular returns. This could, however, lead to consumers taking their business elsewhere.
The Holidays Bring Further Challenges
With holiday shopping well underway, retailers now more than ever, will be looking for ways to combat the rate of returns in the new year. This comes as two-thirds of U.S. retail executives surveyed by Accenture
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The rate of returns retailers see come January, can significantly impact profits. Beyond the cost of processing returns, there’s the added challenge of managing returned items that cannot be resold at their original price due to damage or wear.
Yet retailers aren’t necessarily passing the costs onto the customer. In fact, Accenture’s omni-channel analysis of 147 U.S. retailers across 11 categories found that in the run-up to the holidays, just 37% of retailers are charging for returns this year, down from 42% in 2022.
With the costs of processing returns more expensive than ever, these figures highlight the careful balance retailers are trying to strike between reducing the cost of returns and safeguarding profit margins, all while trying to improve the shopping experience to generate higher sales and loyal customers that keep coming back.
However, transferring the cost of processing returns from the retailer to the consumer simply won’t cut it. Instead, retailers need to take a holistic view of the process and invest in creating systems that help attract customers who know exactly they want before making a purchase.
Tapping Into Technology
For many retailers, the answer lies in technology. For example, using software to help manage and redirect excess and unsold merchandise. By using data analytics, AI-powered sizing recommendations, and immersive VR try-on experiences, retailers can significantly reduce return rates and bring an end to wasteful multiple parcel deliveries.
Then there’s generative AI. There’s been a huge amount of interest in retail potential recently and we’re already seeing some retailers experiment with this emerging technology. For instance, French DIY retailer Bricorama recently launched ‘pAInt’, a conversational shopping assistant that uses generative AI to help customers with each stage of their DIY project. This includes helping them buy the precise quantities of paint needed which, in turn, will help mitigate returns from customers buying too many tins. Longer term there’s an opportunity to link to Bricorama’s loyalty program as well as upsell other products and services.
A Rethink Is Required
Retailers get that they need a smarter approach to managing returns and that a rethink of processes is required.
The December holiday season will put the tools that retailers adopt to the test, determining whether charging for returns is a deterrent and if the alternative solutions can keep people shopping. Ultimately, the way brands and retailers navigate this period of increased activity can lay the foundation for years to come.
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