5 Things Retailers Must Understand About Product Returns

Retail product returns (i.e., reverse logistics) are a crucial component of the overall relationship between customer and retailer. According to the National Retail Federation (NRF), Americans returned $260 billion in merchandise last year, a 66 percent increase from five years ago, and a quarter of that was during the holiday season. The significant increase in online shopping has driven this spike in return rates, resulting in additional supply chain complexities and costs.

During the holidays, this spike was especially noticeable as more people transitioned to online shopping. According to recent research by the North Highland Consulting Company, today’s customers expect every interaction they have with a company to revolve around their needs, including a seamless and frictionless returns experience.

Transforming Returns Into a Strategic Advantage
In the not so distant past, returns were perceived as a “bad thing.” This process must now be a top priority for retailers in order to improve the long-term relationships with their customers. Today’s consumer demands a seamless returns process, and this has proven to be a unique differentiator for retailers if executed properly.

In the highly competitive world of fashion apparel, for example, seamless and transparent return policies are becoming the norm. For example, Gap gives customers 45 days to return or exchange their purchases, and Wal-Mart goes as far as providing 90 days to make a final decision. However, the leader in seamless return policies is Zappos, which has a 365-day return policy, as long as the products are unopened and still have their original tags.

Data From Returns is Invaluable
The more predictive analytics retailers can collect from their customer interactions, the better they can determine the root causes for product returns. Retailers now perform returns analysis on every product that comes back in, increasing their investment in optimizing pricing, managing quality and fit, and enhancing materials to mitigate the overall return rates. For example, Target uses predictive, nearly real-time analysis to plan productivity around the returns demand and make necessary adjustments.

High return items from the digital channel can highlight products that aren't accurately represented or displayed. Having the appropriate amount of digital content — e.g., adding more pictures to your website for certain products — has a significant impact on returns and can help lessen incremental costs. Holistic predictive analytics also enable retailers to optimize their inventory forecasting, replenishment forecasting, pricing, product damages and more.

Return Policies Should Be Clear and Concise
Today's empowered consumer expects full returns policy transparency, as 88 percent of consumers take the time to review a retailer's return policy before making an online purchase. Return rates are increasing at an alarming rate, and there's no sign of change with digital channels increasing their percent contribution to the overall business model. It's become clear that retailers need to treat consumers with respect and establish a solid, transparent returns and reverse logistics process to build a greater overall and lasting customer experience.

People are hesitant to buy from retailers with returns policy that are unclear or confusing. The challenge is to provide a frictionless experience while mitigating consumer risk by ensuring customers aren't penalized for in-store returns of online purchases. Consumers are willing to pay a premium (i.e., Amazon Prime) in order to avoid risk proposition and have a better overall experience.

Consumers Don’t Care About Inventory Management Boundaries
In the ever-changing and dynamic retail industry, consumer expectations are slightly ahead of retailers’ ability to change, especially those with legacy processes and aging infrastructure challenges. In a recent Harvard Business Review webinar, Omnichannel Retailing: Reverse Logistics and Customer Loyalty, Dale Rogers shared that only 33 percent of retailers offer a truly omnichannel reverse logistics return process and policy.

With that said, by this point “omnichannel” has simply become the consumer’s default mode of operation, as it’s essentially considered “commerce” from their perspective. Customers aren't concerned with a retailer’s inventory management boundaries. To improve their customers’ shopping experiences, several fashion apparel retailers, including Saks Fifth Avenue, J.Crew and many others, are turning to a “BORIS" model (buy online, return in-store). Not only does BORIS mitigate the obstacles that stand in the way of checkout, but customers who make in-store returns often go on to exchange items or even buy more than they did originally, thus offsetting and sometimes exceeding the operational cost of returns.

Removing Friction From Returns Creates Loyal Customers
While brands understand their return policies can impact the customer experience, the challenge for retailers is to provide a frictionless experience with minimal customer penalties. Retailers must ensure the shopping experience is as quick and easy as possible. Amazon.com has mastered this process, with one-click shopping and Prime accounts that ensure deliveries are made to customers’ doors in two days and absolutely free. Amazon has effectively removed roadblocks and established solid customer loyalty and retention levels, supported by its very transparent and seamless returns policy. Returns are indeed a critical component of the overall customer relationship, and customers follow the most frictionless experience. A difficult returns experience is a violation of trust and can negatively impact this relationship forever.

It’s evident that retailers need to focus on improving their multichannel fulfillment processes, and one of the most crucial aspects of a frictionless customer experience is the returns process. Today’s consumer wants and expects a seamless shopping experience, and retailers that provide a transparent and efficient returns process will be ahead of the competition. Retailers can additionally employ advanced predictive analytics to gain valuable consumer and product insights. Through these insights, retailers are then able to improve their quality standards and operations and fulfillment processes, focusing on ensuring long-term relationships with their customers. By focusing on all aspects of the customer experience, retailers can go a long way to ensure long-term profitability, brand awareness, and their standing in a dynamic and competitive retail industry.

Brandon Rael, principal at North Highland, is a New York-based retail strategy and operations principal with deep experience as an industry leader for retail and global consulting firms. 

Andrew Billings, senior manager at North Highland, is an Atlanta-based strategy and operations consultant focusing in the retail industry.