Customer returns is a hot topic. Just recently, Supply & Chain Demand Executive reported returns in the UK alone cost fashion retailers around £6.6 billion last year. Elsewhere, Statista estimates return deliveries will cost U.S. companies around £550 billion by 2020.
Along with these eye-watering figures comes a degree of hysteria. Growth in returns has been described as a disease or plague attacking profit margins, but an effective returns strategy can provide a competitive advantage.
In trying to realize this advantage, many strategic conversations about returns will prioritize cost in order to inform changes to returns policies with the aim of minimizing reverse logistics. Although on the surface this can seem like a logical move, it can quickly prove a false economy and end-up costing businesses more in the long-term, rather than protecting margins against mounting costs.
Reverse logistics operations tend to be viewed as being purely built around ‘phantom sales’, where revenue doesn’t impact the bottom line. Instead, direct costs tend to increase, while profitability decreases. To address this, many companies are now starting to make cost-based decisions to tighten-up returns policies. The principle is to try and reduce the volume of returns by more robustly managing the sales process. Policies and sales decisions are being actively made to limit customer purchasing where there’s a higher possibility of items being returned.
Although this approach appears to make sense, the most astute companies are making customer-focused decisions that embrace returns, rather than trying to manage them out of the business. They are starting to view reverse logistics as a valuable part of their sales process, recognizing it’s not an area for cost-cutting, but one for investment.
This is because social commerce is likely to lead to an increase in genuine returns. Social commerce is really starting to take-off and has as much potential to change retail in the same way e-commerce started to 25 years ago. Streamlining customer purchasing through the popularity of social media will trigger more impulse purchasing online.
Consumers will be more likely to make genuine purchases of several items, many of which they will be inclined to return. It’s the modern-day equivalent of high street window shopping. Whereas consumers would once see an appealing outfit in a shop window, they’re now seeing it in their Facebook and Instagram feeds. Rather than pop into the shop to try before they buy, they’ll now click on the product, wait for it to arrive and then try it on at home. People’s bedrooms and bathrooms have become virtual changing rooms.
Returns policies need to evolve to embrace this consumer behavior. Savvy retailers are doing this by extending the typical 28-day period for returning an item. They are providing shoppers with more of a cooling-off period to determine if they like what they’ve clicked-on and ordered.
This customer-focused move is only made possible by understanding that the speed and streamlining of what generated the impulse purchase in the first place, is exactly what is required to inform the development of reverse logistics operations. Increasing levels of impulse purchasing mean returned items need to be processed at faster speeds, so they are readily available for resale. This speed needs to be balanced with high levels of quality control, ensuring items return to sale in pristine condition, as well as complete visibility of stock movement.
Visibility is important for both consumers and businesses. Customers want to know where their return is up to as it affects their other purchasing decisions, while for companies, visibility ensures stock is in the right place, at the right time and in the right condition. These are all crucial factors to ensuring consumer satisfaction in a world of immediate buying and delivery.
There’s no denying that the reverse supply chain can be challenging, but there are better solutions, aided by technology and the capabilities it now offers. Smarter use of technology is essential to handle reverse logistics efficiently and profitably, achieving that careful balance between reducing costs while keeping customers happy, and preventing unnecessary waste while maximizing profit.
Approaching returns with a customer-first view and accepting that, for consumers, trying and returning items is an increasing part of their shopping experience, can yield a significant competitive advantage. Data rich systems offer retailers the opportunity to mine highly valuable business intelligence and data analysis to make informed - and ultimately more effective - commercial decisions to maximize residual value from their returns. For example, analyzing the flow of goods in and out of the business will identify the buying habits of consumers, equipping retailers with information to allow them to better plan for future seasons and trends.
The volume of returns is only likely to increase in the foreseeable future. Returns polices and reverse logistics must embrace this, rather than trying to cost returns out of the business.