Just last week, retailers across the globe were pressured to meet the high demand of holiday sales, which included making sure inventory was stocked and shipments were delivered on time. Now that Christmas is over, the same retail companies are being forced to switch gears and focus on adequately managing the number of items consumers are unhappy with.
A survey conducted by the National Retail Federation revealed that, this year, retail returns are expected to be higher than in previous years, with a total estimate of $260.5 billion.
Real cost of retail returns
The increase in returned goods could be attributed to the growth of online shopping. When people buy items online, such as an article of clothing, they can't be absolutely certain it will be what they expect until it is delivered.
And, as the industry expands, companies are becoming more competitive. In an email to The Motley Fool, Optoro Marketing Director Carly Llewellyn explained that the numbers are "going up as e-commerce sales rise and retailers are forced to offer more liberal return policies. Returns and excess inventory cost retailers $500 billion in the U.S., and over $1 trillion worldwide."
However, inventory overstock and consumers simply changing their minds about items are not the only problems stores are presented with when it comes to returned products.
The NRF also reported that, of the merchandise returned this holiday season, more than 3.5 percent is expected to be fraudulent, which will end up costing retailers approximately $2.2 billion, more than last year's estimate of $1.9 billion. The survey also found that more than 90 percent of retailers agreed that one of the biggest contributing factors to the cost of illegitimate returns involves stolen items.
To minimize the risk of these financial burdens, it is essential for companies to properly manage reverse logistics, or retail return, processing. Unfortunately, this has become especially difficult. As the growth of e-commerce has come to influence return rates, it has also complicated the way logistics operate.
According to a RetailCustomerExperience.com article, Dale Rogers, a logistics and supply chain management professor, indicated in a Harvard Business Review webinar that nearly 70 percent of retailers lack a cohesive plan for handling the returns and reverse logistics of omnichannel purchasing.
This is a major issue, considering 88 percent of online shoppers assess a company's return policies before buying a product, the source noted.
Strategy for reverse logistics
In today's digitalized world, consumers have higher expectations than ever before, which is why it is so important for business leaders to ensure supply chain operations are able to efficiently meet such demands. But how can this be done?
In the article, strategy and operational consultants Brandon Rael, Simon Piesse and Andrew Billings suggested that, in order to strengthen the relationship between a company and consumer, retailers must facilitate loyalty and transparency while optimizing return and logistics processes.
"The challenge for the retailer is to provide a frictionless experiences while mitigating consumer risk by ensuring consumers are not penalized for in-store returns of online purchases," the authors stated. "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."
One approach the consultants recommended is using analytics and data to determine which items are returned most frequently and why, then applying the necessary changes and updates to improve the product, which, in turn, helps to reduce return rates.
The source also added that supply chains can be optimized to better prepare for expected volumes of return.
The Motley Fool revealed that another way some retail giants, including Target Corp. and Wal-Mart, manage return logistics is by allowing and encouraging consumers to purchase products online, but requesting all returns and exchanges be done in-store.