At the start of the pandemic, e-commerce consisted of 11.4% of total retail sales in the U.S. One year later, by the end of March 2021, that number had risen to 13.6%. Putting that into perspective, COVID-19-fueled online shopping more than doubled e-commerce’s market share growth in a typical year. As a result, online sales volume nearly quadrupled from Q1 last year to Q1 of 2021.
COVID lockdowns and store closures were the biggest reason for this accelerated shift in online shopping. According to CoStar Group, some 12,200 retail store closures occurred, limiting access to in-store shopping and a resulting in push to buy online. Yet even now, with most stores open again, online shopping shows no signs of slowing down. According to the National Retail Federation, the entire retail market stands to make significant gains. In 2021, NRF estimates retail sales will grow by 10.5-13%, and online sales will account for up to 23% of the market, or $1.09 trillion.
Growth is an excellent problem to have, but one of the increasing concerns for big-box and online retailers has been the impact of managing the growing returns volume. According to NRF, the blended return rate between in-store and online in 2020 was 10.6% of sales, or $428 billion. With retail sales estimated to be $4.50 trillion in 2021, the projection for returns is around $503 billion.
With reverse logistics costs amounting to nearly 60% of the original sales price, retailers face significant losses unless they can reduce costs and recover profits from those items.
Over the years, retailers have done a great job streamlining forward logistics for purchases. They’ve invested in innovative methods of getting product to the consumer. Companies like Walmart Inc., Home Depot Inc. and Sam's West Inc. have spent billions of dollars on enhancing buy online, pick up in store (BOPIS) and buy online, deliver from store (BODFS) capabilities. Lowe’s recently expanded its same-day BOPIS options by installing pickup lockers at every one of its U.S. stores. Such initiatives allowed these retailers to expand fulfillment offerings while decreasing delivery timelines. On the returns side, however, the same level of effort and innovation is needed to mitigate costs and address customer pain points.
Sixty-seven percent of all consumers look at the returns policy before purchasing. Many will forgo a retailer altogether if it doesn’t provide a seamless returns experience. In a recent survey by reverse logistics software company goTRG, 78% of consumers said returns shipping costs and restocking fees could prevent them from purchasing. In addition, 50% indicated that short refund windows would make or break their decisions. Nearly a third said having to print a label or repackage an item was inconvenient enough to take their business elsewhere. Simply stated, convenience is the number-one factor that consumers consider before choosing where to shop — and especially when making online purchases.
The uncalculated cost of losing customers due to poor returns experiences, along with the $150 billion-plus net returns cost issue, means retailers must tackle their reverse logistics process and returns policies simultaneously.
Improving the Customer Experience
Consumers have spoken, and more than 70% told goTRG that they would prefer to drop off returns at convenient locations rather than shipping the items or traveling to the store. In addition, over 64% said they prefer curbside return to in-store return. That means it’s incumbent upon retailers to deliver convenience, or risk losing loyal followers.
In the returns industry, we’re seeing retailers starting to respond to this growing need. Companies like Loop Returns and Happy Returns Inc. are offering concierge services for customers. This is an innovative concept, but concierge returns only address a small percentage of the overall volume.
In addition, Amazon.com Inc. and others have partnered with Kohl’s Corp. stores to provide a physical location to process online returns. According to Forbes, this partnership has been mutually beneficial for both companies, but has its limitations. Customers cited finding a pickup location as the second biggest hassle they face when sending back returns. When nearly 80% of Americans must travel up to 15 miles from home to reach their nearest Kohl’s, this might not be a preferred option, but at least it’s a start.
The challenge for retailers is to start executing these consumer-centric ideas, while also focusing on their reverse strategies.
Improving Reverse Logistics Capabilities
More retailers will soon be looking for returns as a service (RaaS) from end to end. RaaS is a strategy that implements best practices for every part of the reverse supply chain, which ultimately inspires customer loyalty, decreases financial impact, increases recovery and reduces needless waste caused by discarding low-value returns.
Best practices to deliver a meaningful RaaS model include:
Building a full RaaS model like one above is no easy task, which is why savvy retailers are looking for a full-service solution that starts with better upstream decisions from the moment an item is returned. That means relying on artificial intelligence-driven market data to inform the best decision about how to process, ship, refurbish, or resell an item. The most effective software will factor in customer demand, dimensions and weight for transportation expenses, repair and remarketing costs, sales velocity, and ever-changing pricing trends. The sooner and smarter these decisions can be made, the fewer wasteful touchpoints required, and the better chances retailers will have in minimizing their multibillion-dollar expenses.
Returns will always be a puzzle for retailers, and an expectation for consumers. However, companies that can innovate and create full-service solutions to meet this need will see unrestricted success going forward. The key will be to find the right partner that can co-create shopper-centric returns policies, execute all aspects of reverse logistics, and ensure maximum recovery on every item.
Chuck Johnston is chief strategy officer of goTRG.
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