In business, as in life, problems are often opportunities in disguise. For retailers, rising return rates due to increased online sales offer both a challenge and a chance to reimagine the role of returns in the goods economy. On the consumer end, the post-purchase experience, particularly returns, can be daunting. Oftentimes, reaching customer service to return an unwanted or faulty item, and getting a prompt refund, can feel like more trouble than it’s worth. But challenges are also mounting for the retailers, distributors and others who work to get consumers what they want while keeping costs in check. It’s time to start transforming the post-purchase experience from a necessary cost of doing business into a competitive advantage.

The effects of the pandemic on consumer habits are likely here to stay, resulting in a permanent increase in e-commerce sales. E-commerce traditionally yields a 39% return rate, according to the latest industry figures. As this trend continues, reverse logistics becomes increasingly complex. A recent quarterly letter to vendors from Saks Fifth Avenue’s e-commerce division confirmed as much, citing that nearly 50% of e-commerce returns were done in physical stores, and approximately 30% of online orders were fulfilled in-store. Long gone are the days when items bought in-store were returned to the same store, and online orders went back into a separate e-commerce system. 

Embracing the New Norm

“Consumer shopping habits will never revert back to what they were pre-COVID-19,” says Ann-Marie Daugherty, general manager and senior vice president of supply chain at Inmar Intelligence, a data platform company focusing on the post-purchase ecosystem. “Look at the convenience customers now experience by having items delivered to their doorstep. Longer term, we will likely land somewhere that is not as extreme as where we are today; however, we have to simplify the process for customers and retailers to keep prices low and retailers profitable.”

The challenge is that complexity grows as business expands. Most retailers are struggling to meet new demands with legacy processes and technology that just can’t keep up. What they need are systems and software that allow them to understand and manage the customer experience with real-time analytics and insights, as well as an intelligent control tower that keeps customer satisfaction high while maximizing value recovery.

According to Daugherty, retailers are offering more to consumers than before, including fast and free deliveries, while prices remain the same. Add in the costs of implementing and maintaining the technology that makes online shopping as easy as it is, and margins shrink fast. Retailers are forced to look elsewhere to trim costs. The post-purchase product journey should be a focal point for online retailers needing to provide a seamless, end-to-end returns experience for their customers while lowering costs. These efforts will result in loyal, satisfied customers who will purchase again and again.  

The Secondary Market, Then and Now

According to Curtis Greve, vice president of remarketing at Inmar Intelligence, reverse supply chains underwent similar challenges more than a decade ago. “Back in the ’90s, there were two big drivers — about 25% of the product that came back was liquidated, and the rest went back to the manufacturer,” he says. “But when the manufacturers moved offshore, there was no place in which to send the product back. We went through a 10- to 15-year period where they said: We can’t take it; just throw it away. Then the regulators came in and said: You can’t throw all this away. You have to take alternative measures.” 

As usual, necessity was the mother of invention. As a result of the new regulations, the secondary market — discount stores, outlets and so on — flourished. Since 2005, the secondary market has seen steady growth of 10% per year. “It continues to grow,” Greve says. “It is recession-proof. In the middle of last year, our liquidation business exploded because everyone wanted more for their dollar. The people who used to shop at Macy’s were shopping at places like Walmart. Nordstrom’s biggest growth area was Nordstrom Rack, even before the pandemic.”

Despite the current rise in online sales and return rates, there remains a tendency to liquidate stock rather than figure out how to get it back into regular sales channels. Retailers are still learning from trailblazers such as L.L.Bean, which learned nothing is wrong with the majority of returned goods. Most often product returns are related to size and/or fit; therefore, these products can go back into stock with light interventions. The bulk of consumers returning online purchases buy clothes or shoes in multiple sizes to try on at home, then send back the ones that do not fit. Liquidation, in this case, needlessly prevents profit grab-back. “Some companies are getting better, but omnichannel retailers in particular are really struggling, especially those born in the brick-and-mortar world,” says Greve. “They cannot put the item back on the shelf because they don’t carry the SKU in their store assortment, or they do not have the capacity to process it centrally and put it back in stock to fill future online orders. Therefore it gets liquidated.”

Cutting Costs With Efficient Returns

Retailers need to change their thinking. “Returns used to be an afterthought. They were placed on racks on the back wall and the warehouse staff would process them when they could get to them,” says Jeff Battaglia, vice president of client development at Inmar. “Now, retailers understand the need to get returned goods back into inventory in a week or less.”

Battaglia cites three main challenges to implementing a better returns process. First, the cost of transporting the returned goods to a place they can be processed remains high. Second, once it arrives for processing, quality control inspections — deciding if an item can be put back on the shelf or should go into another channel — present their own complications. Third, putting returns back into the flow of inventory is likewise costly. Unless those costs can be brought low enough to make economic sense, returns remain a drain on the bottom line. 

To solve these problems, retailers should look to smart technology. By using a single digital data platform, companies can remove the more costly touchpoints that come with processing a return. The item can be tracked using a scannable barcode assigned at the beginning of the return process, allowing the retailer to more intelligently implement transportation and handling efficiencies. The more efficient the return process is, the less it costs the retailer and the faster the refund gets to the consumer.

“It’s no longer the case that the client is waiting up to six days for their returns to get shipped across the country and then an additional three to five days to process and inspect the return before the consumer gets a refund,” Battaglia says. Faster returns and refunds improve the likelihood of repeat purchases and long-term shopper loyalty. A more efficient process also reduces the expense and hassle of handling consumer complaints. “Without this, most returns policies won’t meet consumer expectations.”

It’s All in the Data

Equally important to the returns process is data. When a retailer can analyze returns by geographical area, origin, SKU, product line or any number of related attributes, it can identify trends and unlock solutions. “We can show our customers where they have problems,” Battaglia says. “Most retailers don’t even have this data before they come to us. Or if they have it, they aren’t doing much with it.” Having information specifically about returns is important because different divisions within companies often have misaligned priorities. “Sales, warehousing and merchandising managers have different interests,” he says. “We often find that the warehouse is not doing a good job of managing returns quickly, or that sales doesn’t care about preventing returns; they just want to maximize sales.”

Better, more timely data can also identify underlying quality control problems with merchandise. For example, in the case of one shoe retailer, Inmar saw that one SKU was being returned at a higher rate than the others. Upon investigation, it turned out that there was a flaw in the way this particular shoe was laced, causing ripping. “A change in manufacturing for that SKU resulted in significant savings and more satisfied customers,” Daugherty says. Previously, such problems would get lost in the mix or were discovered too late to make a real difference. 

Managers and executives across the enterprise must start unlocking the power of data to manage post-purchase functions more intelligently. “One of the things changing in the return space is the capacity for digital transformation,” Daugherty says. “Before, it was typical for retailers to just have someone process returns for them and give it little further thought. But the value is really in the data. If you can capture returns data and marry it with customer order data, there’s an incredible story to be told — right down to individual customers.”

As reverse logistics become a more central component of digital commerce, and retailers learn how to navigate the challenges of this environment, what was once a costly problem can become a source of unexpected opportunity.