Editor's note: The following is a guest post from Michael Simoncic, managing director, and Alfredo Lozano, director at Alvarez & Marsal's Consumer and Retail Group, a global professional services firm. They can be reached respectively at [email protected] and [email protected]. Views are the authors' own.
The holiday shopping frenzy is typically followed by a tidal wave of returned merchandise, a long-time source of lost sleep (and lost revenue) for retailers. But by making the return process painless, transparent, and visible, retailers can remove 'return anxiety' from the customer's shopping experience — and from their own. To do this successfully, companies can take proactive steps to prevent and reduce the need for returns by strategizing around creating frictionless, convenient, easy returns.
As we all know, the COVID pandemic has accelerated the consumer shift to making purchases online, resulting in 44% e-commerce growth in 2020 — this represents 21.3% of total retail sales, compared to 15.8% in 2019. This volume shift to online is here to stay; 2021 e-commerce sales are expected to grow by an additional 13.7% by the end of the year.
The dangerous news for retailers is that around 20% to 30% of products ordered online are returned, as compared to only 9% in brick-and-mortar stores. If retailers don't approach this problem head-on, this accelerated shift to e-commerce can have a significant negative impact on their sales and profitability, as higher returns add up to increased costs, reduced margins, and lower revenue. On the other hand, if optimally managed, returns can actually become part of a retailer's growth strategy — easy return policies can grow sales, and smart preventative tactics can reduce overall returns, helping retailers to both grow and retain sales.
Retailers can design returns to be a strategy for growth
A former head of customer experience at Amazon said, "Customers who had a great seamless return experience would drive more sales than a customer who never had to return a product." To simplify that statement, returns can boost sales.
In order to enable growth, returns processes need to achieve three "wins": enhanced customer experience, cost optimization, and revenue preservation. Here, we'd like to offer five best practices to help retailers achieve these goals.
1. Take 'return anxiety' out of the shopping experience by making a painless return process transparent and visible
Creating a transparent, upfront, and risk-free shopping experience will relieve customers' worries. Communicating the simplicity of returns as part of the shopping experience will help them shop more confidently. For example, offer free returns and complimentary remake guarantees on every product page.
2. Preventing returns loss: take proactive steps to reduce the need for returns using predictive return analysis
Minimizing the customer's need to return products can contribute to better customer experience and cost optimization. Historically, the top two reasons for online returns are an item arriving damaged or broken, and a poor or misleading item description. To prevent this, retailers must have dedicated process owners continuously performing return analytics, identifying top reasons for returns, monitoring customer reviews, and proactively identifying and fixing the root causes driving returns.
Some ways to prevent returns for most common issues include the use of augmented reality and "fit true to size" reviews; evaluating and improving packaging to reduce returns due to damages; and establishing clear guidelines for accurate product descriptions and imagery.
3. Create frictionless, convenient, easy returns
By now it's considered table stakes to give customers various return options (mail back, in-store, drop off, pick up, etc.) and to take as many steps out of a return as possible (no label, no packaging, etc.) to create an easy return process. Be sure to include no box and no label drop-off at multiple locations — the more the merrier. Give customers a long time-window to make their returns — retailers that increased the length of their return window from 30 to 90 days have seen a reduction in return rate. Make simple digital return instructions easily accessible. The icing on the cake for customer satisfaction is to include a prepaid label and free return policy; also offering fast reimbursement or instant credit will score big.
4. Optimize reverse logistics and speed to make product available for sale faster
Shipping returns and processing at distribution centers can be costly. Optimizing reverse logistics and making products quickly available for sale once again are key ways to optimize costs and preserve margin. Retailers can use a mix of solutions to enable lower cost and faster return processing. Examples include facilitating the return directly to a store — Nordstrom incentivizes return-to-store by adding contactless curbside return and conveniently located return kiosks, reducing the "first mile" cost.
Another way of making returns more convenient is by consolidating or bulking up returns in locations near customers — companies like Happy Return and Narvar help retailers to save on reverse logistics by providing thousands of drop-off locations nationwide. Facilitating the quick return of resalable inventory to stores by enabling the speedy reconditioning of sellable inventory to put back to stock helps reduce margin loss.
Some retailers will have a dedicated returns store, along with distribution center processes and flows — using a return consolidation center and establishing clear guidelines can help make the correct determination and execution of the return and help make the product available to sell or discard. Finally, some retailers will use return cost analytics to determine if the cost of return is higher than the liquidation/resale value — in these cases, they would consider letting the customer keep a lower cost or non-resellable item.
5. Save the Sale!
Revenue preservation is the key to leveraging returns as a growth strategy. Using some of these innovative approaches, retailers can preserve a sale and prompt repurchase in the future. Some examples of best practice approaches to triggering a repurchase include: encouraging in-store returns — 71% of in-store returns result in an immediate purchase; personalizing the returns with tailored offers of replacement or other items to buy as part of the return process; and offering instant credit, bonus credits, or discounts for same-day purchases, which has been shown to incentivize exchanges and purchases along with returns.
Not all retailers are created equal
While all companies need to embrace new technologies and solutions in a digital-first environment, different retailers require a different mix of solutions for leveraging returns as a growth strategy. Retailers with large footprints are often well-positioned for convenience, cost optimization and revenue growth by encouraging more returns in-store — a pre-pandemic study showed that 87% of consumers preferred to make their returns in the store, while 71% purchased other items while returning in-store.
Retailers with smaller footprints, however, may need to leverage other solutions for a cost-effective and revenue-generating return strategy. Employing a network of return drop-off locations for no-label/no-packaging returns and adopting predictive analytic technologies for prevention are just a couple of examples of how they too can succeed. With the pandemic-accelerated use of digital selling channels, all retailers are poised to take advantage of this shift as a catalyst for growth by deploying a new set of returns practices, technologies and solutions in a digital-first environment.