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In the Wake of ‘Returnageddon’ Retailers Seek New Solutions to an Age-Old Problem

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It was the kind of “-geddon” that could be seen coming from a mile away — a perfect storm combining an ecommerce boom; retailers, fulfillment centers and shipping providers that were already stretched thin by a global pandemic; and the historically hectic holiday season looming. In the aftermath of “Returnageddon,” retailers are putting new energy behind solving this very old problem.

With the stakes for getting returns right continuing to rise, retailers have to focus on multiple elements including the customer’s return experience and streamlining reverse logistics systems (sometimes with the help of third parties). Additional factors include:

  • Return rates for goods bought online run 3X higher than in-store purchases, so as ecommerce continues to rise retailers must be prepared to handle the increased volume;
  • While customer-friendly returns policies and processes play a big role in brand affinity and loyalty, they can also present upselling opportunities for proactive retailers;
  • Most consumers, even those shopping online, prefer to return in a store, so providing options for in-person returns will be crucial; and
  • As the options for returns become more complex, reverse logistics specialists are offering new tech solutions and post-return channels such as recommerce.

More Online Sales Means More Returns

Consumers returned $428 billion in merchandise last year, nearly 11% of all U.S. retail sales, according to estimates from the National Retail Federation. The big driver? Online sales, which increased exponentially during the COVID-19 pandemic.

The return rate has always been higher for goods bought online — as much as 3X that of products bought in stores depending on the category, according to research from returns technology provider Optoro. So when ecommerce sales jumped 32% percent year-over-year as they did in Q4 2020, returns also went through the roof.   

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Retailers across the U.S. rose to the challenge, instituting a broad spectrum of solutions such as instant credit for online returns, contactless return drop-off points, extended return periods and in some cases just letting consumers keep the products.

“There was a good amount of inconvenience; we all kind of struggled through, but there were a bunch of lessons learned,” said Mark Geller, Co-Founder and COO of ecommerce returns provider Happy Returns in an interview with Retail TouchPoints. “I think the lessons are around planning ahead, having sufficient capacity in your system to flex up and reducing your dependency on any one channel.”

Translating those lessons into concrete actions is, of course, easier said than done — so where does retail go from here? Ecommerce clearly isn’t going anywhere. In fact, even after the pandemic moves into the rear-view mirror, 46% of consumers plan to do the same amount of shopping online, and 42% said they will actually shop online even more than they do now, according to a recent study from Pitney Bowes.

Returns Play a Key Role in Customer Attrition and Loyalty

The cost of substandard reverse logistics — both financially and in terms of customer affinity — are clearer than ever before. Retailers that get it right can not only reap significant savings, but also gain a competitive advantage among consumers who are more aware than ever of the options available to them. A study from UPS found that 73% of online shoppers say their returns experience impacts their decision to return to a retailer.

“We’ve reached a moment where brands need to be taking returns as seriously as every other part of the customer experience, otherwise their customers will go elsewhere,” said Jonathan Poma, CEO of returns platform Loop Returns in an interview with Retail TouchPoints.

While many retailers view returns as a problem that needs to be solved, Poma said that returns can actually be a powerful tool to spur loyalty and growth.

“Returns actually hold the key to finding your best customers, and brands that don’t realize that are leaving significant revenue on the table,” he said.

Poma advised brands to put in place a returns solution that offers consumers the same amount of control they have throughout other parts of the shopping process, adding that retailers should look at the return interaction not as the end, but as a chance to continue the relationship.

“A customer should be able to exchange what they bought for any other product in your catalog,” he said. “A return is a second chance to help a customer find a product that they love, so don’t limit their choices to only buying the same product in a different size. Let them find the right size and then keep shopping for more products, all in the same transaction.”

Most Consumers, Even Those Shopping Online, Prefer to Return In-Store

By most accounts, consumers prefer to return in-store, avoiding the complications of printing labels, re-packaging products and traveling to the post office. A pre-COVID survey by the NRF put the in-store return preference number at 80%, and despite the complications created by the pandemic, anecdotal evidence from Happy Returns appears to reinforce this preference. In December 2020, more than half of returns from the company’s network of merchants were made in-store, despite the fact that COVID-19 cases were rising and store closures were rampant, said Geller. That number was even higher in January 2021.

We think that after COVID, the percent of in-person returns is going to be significantly higher, eventually landing at over 70% in general,” he said. “It is fundamentally preferred by the customers, and it is much cheaper for retailers and better for the planet. People don’t want to go back to a process that they didn’t like in the first place, especially now that they understand their options.”

Retailers, even those lacking a significant brick-and-mortar presence, recognize consumers’ preference for in-store returns. For these brands, the rollout of third-party returns at retailers like Kohl’s, Staples and Cost Plus World Market provide a customer-friendly alternative, while the “hosting” retailers get the benefit of additional store traffic.

Retailers could make in-person returns even more convenient, according to Steve Rop, Chief Customer Officer at reverse logistics solution goTRG. “Micro-returns centers in Cost Plus are great, but they don’t fully solve the issue, because it’s still directing the consumers somewhere that the retailer wants them to go,” said Rop in an interview with Retail TouchPoints. “The more convenient play would be the retailer exploring how to partner with destinations that are already a part of the daily activities of the consumer. How do we put a drop-off at Starbucks, because people go there every single morning? How do we put it in a Planet Fitness or a 7-Eleven?”

New Tech Solutions Improve Returns for Customers and Retailers Alike

Convenience is the ultimate key to winning consumers’ hearts in the returns game, but for retailers looking not only to boost loyalty but also to offset the significant financial and environmental impact of returns, it’s not the only driver in addressing return challenges. The issue’s complexity is one reason retailers are increasingly turning to third-party solutions that employ advanced analytics and decisioning tools to help balance the equation — and often apply their analysis on a product-by-product or customer-by-customer basis.  

“We’re going from a binary type of returns process to a multi-node, multiple-attribute returns model,” said Rop. “We used to always go to the store — now we can go almost anywhere to return a product online or physically. You have to have that decision engine, otherwise you’re going to continue to be inefficient.”

“Tech-driven solutions now address all of the necessary touch points to make returns easier for consumers and retailers,” said Larisa Summers, CMO at Optoro in an interview with Retail TouchPoints. “Easy-to-use online return portals to initiate returns and collect data on return reasons, instant credit, QR code-enabled contactless drop-off returns and physical drop-off locations with package-less/label-less options all help retailers offer exceptional return experiences that can boost consumer loyalty.” 

Return Meets the Resale Economy

Beyond choosing how or even if to accept returns, retailers have a host of options for what to do with the products once they receive them. One new alternative gaining traction is recommerce through online marketplaces.

“Recommerce is becoming an increasingly effective channel for retailers to recover value from returned and unsold goods,” said Summers. Optoro’s Bulq liquidation service accepts returned and unsold goods from retailers, then helps those goods find a home with new sellers, including on resale marketplaces like eBay. Amazon is taking a similar tack with liquidation marketplace B-Stock.

“Given the accelerated growth of ecommerce, these kinds of cross-industry partnerships are creating opportunities for retailers and brands to modernize return experiences for consumers and backend processes for retailers,” said Summers.

Now is the Moment to Make Improvements for Holiday 2021

With 2020 quickly slipping into the realm of memory, now is the moment to make improvements with an eye to holiday 2021.

“This is the time for retailers. The pain is kind of still fresh and they kind of know what the issues were,” said Geller. “There’s no time like the present. Do not wait until September or October to improve your returns process.”

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