Bracing for the Returns Avalanche

The retail industry is on the tipping point of a catastrophic returns tsunami following this holiday season. With the fast-growing e-commerce market and steady consumer migration to digital shopping platforms over the last few years, returns have been quite unsurprisingly on the rise.

In 2019, retailers were overwhelmed with a staggering $41 billion value of returns. In 2020, the COVID-induced mass exodus from brick-and-mortar stores to online shopping has exploded the already strained supply chain. With digital purchases forecasted to increase by 35.8 percent in 2020, reaching $190 billion for November and December combined, the value of returns is estimated to touch $57 billion.

Furthermore, with 70 percent of consumers making purchase decisions based on retailers' returns policies, and 60 percent expecting returns to be handled within seven days, the pressure is on for retailers to get returns right. In the current climate, this can be a herculean task. 

The COVID Conundrum

Online purchases have always had a higher return rate than in-store purchases due to the obvious limitation on the ability to view, touch or try on products. Retailers are already feeling significant pressure on their business margins, with revenue growth negatively impacted due to COVID-19 and diversified competition.

The massive volumes of returns will significantly exacerbate this by increasing supply chain costs (e.g., handling the free shipping of returns) and markdown costs (e.g., getting return merchandise that will no longer be in-season and able to be sold at full price).

If not handled properly, this could be the tipping point for many retailers that causes them to go under.

Returning an item is a costly and complex process, and the ongoing pandemic has compounded matters. Retailers must now factor in the quarantine of inventory (usually 24 hours), disinfection of it, and the additional burden of tracking and managing various touchpoints in the stock journey.

The COVID ramifications have massively complicated an already intricate procedure. 

Creating Order in Chaos

The pandemic has intensified the pressure on retailers to optimize their returns process and smooth out the wrinkles in their supply chain and logistics strategies. The same shipping networks that were struggling to keep up with the volume of home deliveries will be challenged to handle return volumes as well.

Customer experience will be key to get right. Providing safe, easy ways to return merchandise will lead to trust. Given that we see online shopping continuing to grow even post-COVID with people having become accustomed to the convenience, it's important that retailers maintain trust and confidence in their online shopping experience.

For too long the issue of returns management has been grossly underserved. The prospect of a massive returns wipeout this season is the perfect time for retailers to introspect and solve the returns puzzle — for good.

So, what are the quick fixes and long-term solutions that retailers can embrace to better manage the situation and mitigate the aftermath and increasing cost of returns? Here are five strategies that retailers should consider:

• Creating the same return policy for every product no matter how it's returned. An overtly confusing and cumbersome returns procedure is a fail-proof trigger for customer attrition.
• Leverage the same mechanism used for order online/pick up curbside or in-store to have returns started online and dropped curbside or in-store with a simple QR code scan.
• Taking a page out of Amazon.com's book, retailers should consider rolling out liberal returns policies and free shipping for most products.
• Retailers must communicate a transparent returns policy for every online purchase that's easy to understand for customers and not hidden in small print or buried deep inside their website. Making the process as pain free for customers will yield long-term dividends for retailers.
• If not handled properly, all the return merchandise can get stranded for months in warehouses, backrooms or in the supply chain. Retailers must streamline their internal processes and find a way to match the items being returned with new online orders for the same item, thus avoiding a markdown and meeting consumer needs faster.

The Way Forward

Online purchases are here to stay, with or without the pandemic, and 2021 will only see a boost in e-commerce sales. Shopify predicts significant growth of online purchases, led by clothing and accessories, electronics, and health and beauty items. Besides focusing on returns management, the best long-term solution for retailers to attract and retain customers, while enhancing customer loyalty in 2021 and beyond, would be to resolve the need for returns altogether.

This can be achieved by ensuring a better fit at the start of the purchase process. Consider leveraging crowdsourced (genuine) product reviews to aid consumers in making the right purchase decisions and minimize shopping regrets.

Retailers should also invest in new technology to provide next-gen shopping tools to customers, such as augmented reality-based virtual tools and apps that can provide uber-personalization and customization of products. Allowing a customer to “see” a product in their home environment using AR will provide consumers with a better feel for how that item fits within their needs.

Improved camera and imaging technology is being leveraged to make sure the online image more accurately reflects the actual item, color, texture, etc. Providing more detailed and understandable fit and sizing characteristics will mean consumers can get the right size the first time, preventing the need for purchasing multiple sizes and returning the ones that don’t fit.

Taking an innovative approach to solve the returns problem for both customers and retailers will alleviate the pain points in the shopping journey for all stakeholders, enhancing profitability and sustainability for retailers. With 2021 upon us, it's time for retailers to hit the refresh button on their returns page.

Andrew Hogenson is global head of consumer goods, retail, logistics (CRL) at Infosys Consulting, a business and technology consultancy.