Omnichannel

Why the retail return strategy requires a big focus

Retail winners in 2023 will be those who place the customer first.

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February 14, 2023 | Spencer Kieboom, founder and CEO, Pollen Returns

Each post-holiday shopping season, retailers see a flurry of activity with shoppers purchasing, only for retailers to be faced with an avalanche of returns once it is all over.

Returns are a big problem for retailers, with a safe average hovering around 20% of e-commerce purchases returned. E-commerce U.S. sales in Q3 of 2022 was $251.7 billion, using that 20% average return, that value of returns comes out to about $50 billion dollars.

At this point in time it's too late for retailers to get ahead of the post-holiday season returns from a recovery standpoint. But with an economic downturn looming, retailers must evaluate and prepare for 2023.

In 2023, expect to see a focus on with loyalty programs, transparency, and return solutions. .

The loyalty program

Loyalty programs to retain lifetime customers are proving to be more important now in a looming, economic turndown. Retailers are looking at returns from a loyalty perspective, the more loyal the consumer, the more lenient the policy, thereby tiering for returns. Companies like DSW, Best Buy and Saks are beginning to segment returns into tiers and rewarding their best consumers. For example, the best customers — based on how much they spend with the retailer annually and how often they return — get perks like free shipping and unlimited returns. Measuring customer acquisition costs will be on the top of the list for those entering these waters.

Sustainability

Remember all of those promises over the last three years? Transparency to consumers regarding sustainability. Customers want to know the brand they are shopping with is playing their part to improve the environment. And rightfully so knowing that an overwhelming number of products — 5 billion pounds worth — end up in landfills!

Delivery

Transparency to customers regarding delivery. We are in an instantaneous time where customers crave data and want to know when a product is going to arrive and have expectations of no more than a couple of days.

Right return solution

What is the solution for this growing issue (2021 holiday returns cost retailers, 59% more than in 2020) that retailers face annually? First, let's remove the idea of mitigating returns as a whole. It's not realistic, and even with best efforts, the rate of returns has managed to only increase over time. Retailers typically place the focus on returns in two strategic buckets: ease and hurdles. In reality there should be one bucket: the consumer.

Returns effect 20% of a retailer's inventory, but they influence 100% of the consumers buying decision. Capturing the consumer making a return via a direct purchase or as the byproduct via gift makes it a part of the shopping experience. The returns interaction is an extension of how a brand treats its customers.

The returns process is a reflection of the shopping experience itself, a shadow of the brand or retailer. An efficient and transparent returns policy can strengthen a brand's reputation promoting loyal patronage, as 92% of consumers who have a positive return experience revisit brands for another purchase.

A simple example with rhetorical question: Two sellers on eBay offer the same item, same price, same condition and same two-day shipping. One doesn't offer free returns. Which one are you buying? In fact, the item with the return option of less friction is 74% more likely to sell over competition.

Right return policy

Returns make a direct impact on a buying decision.

Retailers need to be cognizant of keeping existing customers and capturing potential customers while also making sure they don't lose money in the process. So what is the right silo for return policies during the holiday season and the 11 other months of the year to mitigate risk? It comes down to understanding why brands are making returns difficult in the first place, what works best for that brand, and the underlying costs that lie outside the operational boundaries.

Fast back is important

Faster recovery enablement (reselling items quickly or restocking) is essential, as retailers can lose up to 10% per week of the value on items as seasons, trends, product lines and technologies change. Speed of recovery in these time sensitive situations is imperative to saving retailers millions of dollars.

Data driven solutions that provide insight into each individual customer's shopping habits are also emerging.

Looking ahead to 2023, the retail winners will be those who place the customer first and reap the rewards in 2023 as they adapt their reverse supply chains to their strategic advantage in 2023 and beyond.