Critical reasons why retailers need a seamless product return process
By Brandon Rael, Andrew Billings and Simon Piesse
Retail product returns (or reverse logistics), while at the surface appear to be a minor part of the customer experience, are in all actuality a crucial component of the overall relationship between the consumer and retailer. In the not so distant past, returns were perceived as a "bad thing," however, the process needs to be at the top of the priority list for retailers to improve the long term relationship with their customers.
With the unlimited ways consumers can shop today, there is significantly more complexity in the digital world we live in, and the reverse logistics process is often overlooked. Returns are indeed a critical component of the overall consumer relationship, but water flows downhill, and consumers will go where there is a more frictionless experience.
The significant increase in digital shopping has resulted in a recent spike in return rates and driven additional supply chain complexities and cost. However, the consumer expectations are a little bit ahead of the large retailer's ability to change, especially those with legacy processes, and aging infrastructure challenges.
In a recent Harvard Business Review webinar, "Omnichanel Retailing: Reverse Logistics and Customer Loyalty," Dale Rogers, professor, logistics and supply chain management at Arizona State University, shared that only 33 percent of retailers offer a truly omnichannel reverse logistics return process and policy. Yet today's customer expects a full returns policy transparency, as 88 percent of consumers take the time to review the retailer's return policy before making an online purchase. Return rates are increasing at an alarming rate, and there is no signal of change with digital channels increasing their percent contribution to the overall business model.
It's become clear retailers need to treat consumers with respect and establish a solid, transparent returns and reverse logistics process to build a great overall and lasting customer experience. People will be hesitant to buy from a retailer, especially when the returns policy is unclear or confusing. Consumers are now socially connected and more informed than ever before, raising their expectations to new heights. The challenge for the retailer is to provide a frictionless experience while mitigating consumer risk by ensuring consumers are not penalized for in-store returns of online purchases. We've seen consumers are willing to pay a premium (i.e. Amazon Prime) in order to mitigate the consumer risk proposition and have a better overall experience.
In retail, reverse logistics and returns used to be viewed as a "waste," however they are all part of the value a retailer provides to consumers. Here are several steps retailers can take to leverage the opportunity returns present:
- Analyze data to identify products with high return rates.
- Proactively work to reduce return rates by making necessary adjustments (e.g. improve online product information pages).
- Improve forecasting of return volumes and ready the supply chain.
- Build up customer profiles to understand true customer profitability.
There is a clear call to action for retailers: returns processing must be optimized (both proactively and reactively) to head-off margin erosion and negative customer experiences. Retailers need to determine a strategy for their inventory drains — meaning products that have either been returned or, are last year's products. Outlets, ecommerce and secondary markets are on the rise with the increase of inventory drains.
Retailers need a holistic approach around the potential ways to sell their products, localize their strategies, and personalize the consumer experience, with an extremely clear and transparent returns policy.
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. He has led global delivery teams to help clients achieve operational efficiencies and sustainable profitability improvements, and defined transformational strategies to leverage technology solutions that address complex omnichannel business challenges.
Simon Piesse, principal at North Highland, is the U.K. operational strategy lead. He has over 10 years consulting experience and has a proven track record of delivering complex transformational projects and programs. He specializes in business process improvement, business analysis, business change, program delivery and sourcing.
Andrew Billings, senior manager at North Highland, is an Atlanta-based strategy and operations consultant focusing in the retail industry. He has led engagements spanning the product value chain, helping leading retailers, wholesalers and global brands drive profitable growth.