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03/03/2022

Navigating Returns: Strategies to Avoid a Logistical Nightmare

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Returns and refunds sticker on cardboard box

Returns management has long been a hurdle for retailers and brands, and one that has been magnified amid COVID as consumers increasingly shop online, prompting an increase in returns.

Saavy retailers have embraced digitial solutions to overcome return-related obstacles and provide a more streamlined process from order to fulfillment. From incentives to pick up items in-store to intercepting warehouse mistakes early on, retailers can simplify the returns process with the right set of tools. 

For those unable to implement these strategies, however — whether due to a lack of funding in the area or IT infrastructure that doesn’t support the retailer’s needs — returns can become a logistical nightmare. 

Read key insights from industry experts who are at the forefront of returns management, and apply learnings from recent RIS research that shows where today’s retailers are applying returns strategies to fill existing gaps and elevate the consumer experience.

Read on for a transcript from RIS’ latest webinar — The Evolving State of Retail Returns — to learn how today’s retailers are tackling the biggest challenges related to returns management and the opportunities they can tap into.

Tim Denman: Welcome to “The Evolving State of Retail Returns” webinar, which is hosted by RIS and presented in partnership with SAP. I'm Tim Denman, editor-in-chief of RIS, and I appreciate you joining.

Returns have been an age-old problem in retail. Return volumes have greatly increased over the past few years, as e-commerce sales have skyrocketed — a direct result of the ongoing health crisis. These increased returns have bogged down supply chains, creating a logistical and operational nightmare for retailers, as well as negatively affected the customer experience. Not to mention, the disruption returns can have on a retailers’ bottom line.

In response, retailers are working diligently to identify the foundational source of the problem and adjusting their operational approaches to meet the challenges head on. Today will be part one of a two-part webinar series. We'll be exploring the current returns problem, primarily focusing on the current state of affairs and the challenges retailers are facing, while also sprinkling a few potential solutions throughout, for good measure. In the next webinar — part two, which will take place next Tuesday — we'll dive deeper into the solution aspect.

With me today to explore the current state of retail returns, and what retailers can do to turn this ongoing challenge into an opportunity, are Robin Barrett Wilson and Pano Papadopoulos, both of SAP. Robin and Pano, thank you for taking time to discuss this important topic with us. May you each introduce yourself to the audience and describe your role at SAP? Robin, let’s start with you, please.

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Webinar Slide: Speakers
Webinar Slide: Speakers

Robin Barrett Wilson: Thanks for having me, Tim. I'm the industry advisor for fashion here at SAP. I come from the industry with a background in store operations for Victoria Secret. I was also a buyer for Macy's and worked for VF Corporation. I’ve also had the privilege of opening my own brand, which I did for about four years, having several stores, an online business, and designing and producing everything out of New York City. Now, with SAP I get to work with fashion brands and retailers all over North America, talking to them about challenges they're having and how we might be able to help.

Pano Papadopoulos: Thank you very much. Thank you also, Robin, for being here with me. My name is Pano Papadopoulos. I'm on the solution management team responsible for the order and returns management solutions that we have currently built. I had the pleasure to be on this journey from the very first ideation through the moment that we introduced this product to market. I’ve spent more than two decades in this technology, this industry, and this technology sector for retail. I’ve done a lot of activities around commerce, order management, and supply chain management.

Denman: Well, thank you Pano and Robin. This webinar grew out of some recent targeted research RIS conducted on returns management. We benchmark the current state of returns in the industry, some key challenges, and what retailers are doing now, as well as our plans for the future to improve the returns experience. You can access the full report here.

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Webinar Slide: RIS Returns Management Survey
Webinar Slide: RIS Returns Management Survey

As we're all well aware, returns volume has increased drastically over the last two years. This first group of data points provides some perspective into the actual increases. We see here that 60% of retailers report some sort of increase over the past two years, around 33% reported the same, and only 7% report a decrease over this time.

What's striking is that 20% of respondents overall report an increase of more than 10%, which is substantial. Where are retailers seeing the greatest increase? Not surprisingly, 55% report that online purchases have shown the greatest increase, which has been influenced by the massive peak in online shopping because of the pandemic.

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Webinar Slide: Returns Volume, RIS Research
Webinar Slide: Returns Volume, RIS Research

We asked retailers for the primary root cause of product returns, and not surprisingly, the top five responses could all be attributed to the very nature of digital commerce as a remote enterprise: product quality was not as they expected, problem with the fit, damages, late arrival, and maybe they bought the product just to try it out. 

Had these purchases been made in a physical environment where the customer had the ability to touch, feel, and try on, results likely would've been very different. Returns have the potential to negatively affect the overall customer experience, and 84% of those surveyed said that's a major concern for retailers, followed by financial concerns, processing costs, revenue leakage, markdowns, etc.

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Webinar Slide: Root Cause Returns, RIS Research
Webinar Slide: Root Cause Returns, RIS Research

While the customer experience is a significant concern, the good news is most retailers believe that customers would rank their personal experience at par, or better than, their competitors. However, if you look at it from a glass half empty perspective, perhaps meeting the industry norm is not enough – retailers want to beat the competition. Pano, why do you think retailers must address the return challenge head-on, and why is now the time to do it?

Papadopoulos: When we started exploring the order management journey, we recognized very quickly that returns are very particular. We saw that, with the increase of the commerce, there was a bull-whip effect with the substantial increase of returns, and that creates a negative impact from a margin perspective. There is a margin perspective and there is also a customer experience perspective to that. Many customers were very happy and willing to participate in this project, so we had the chance to work with five or six customers very closely on this topic.

As we're looking at the responses from customers, not much of the returns that occurred made their way back to the commerce cycle. The reverse logistics weren’t there either because it wasn't needed or it wasn’t something that they were putting the focus on. 

“Again, the focus was on commerce growth more than optimizing the returns journey. We saw this as a great opportunity to emphasize, especially on the returns.”
— Pano Papadopoulos, Chief Solution Expert, Order Management, SAP

Barrett Wilson: In this time that we're in — within retail and fashion — any opportunity that we can bring convenience to the customer, as well as have the brand identify an opportunity to deliver something better, is what this is all about. What we have done is keep those things in mind as we move forward with a newer solution.

 

Denman: Robin, you touched on the customer, which is key. What type of input have you received from customers, concerning the returns challenge?

Barrett Wilson: When we spoke to our retailers — we interviewed 80 — there were four buckets that responses fell into on the topic of returns challenges. The first being the customer experience. Customers today are looking for transparency and convenience; they want to do things the way they want to do them. Having a return voucher and parcel doesn't work anymore. The retailer’s ability to have a dynamic decision based on why somebody is returning something is critical. Is it fit? Is it the quality? Is there a flaw? These are all things that need to be taken into consideration and thought about.

The second is who makes the decisions when items come back. It's difficult when standards have to be in place: was the item worn? Can it be resold? Can it be refurbished or repaired? Third is the ability to have reporting. If there is a challenge with fit, if an item is up to par, to standards, etc. is important. 

“Luxury retailers also have fraud to think about. Unfortunately they’re at that risk quite a bit. Is the item real? Was it bought from the brand itself?”
— Robin Barrett Wilson, Industry Executive, Advisor - Fashion, SAP

Lastly, it's an opportunity. When I was in the stores, someone returning something was a great opportunity to replace it. Above and beyond that, is there a repair service? Is there a re-commerce opportunity? Is there some sort of rental opportunity? Trade-ins, vintage, a lot of this is happening with customers today, and they're taking advantage of it.

Papadopoulos: One of the most interesting parts is that the customer experience is obvious. The logistics of the returns, especially dispositioning, qualifying, and having the opportunity to do follow-up processes, or recognizing potential fraud — that is something that remains cumbersome today in the returns process. Addressing that with software to make the logistical or evolutionary process, for example, in a warehouse, but also in-store or through another party is an opportunity that we got back from our customers.

Denman: Robin, what is the consumer perception and expectations from the brand, when it comes to returning an item? What should that experience ultimately be?

Barrett Wilson: Customers want to be able to return items and do it in a way that's convenient for them. 

“Brands today need to have a transparent published return policy that's easy to follow, not convoluted, and doesn't put restrictions on them. That way, there seems to be more of an impulse buy or a return purchase.”
— Robin Barrett Wilson, Industry Executive, Advisor - Fashion, SAP

The ability to talk to the customer about returning the item, not putting it into a landfill, not throwing it away— there's also an environmental impact here. If it’s not put back in a box and they do go to the store — we can talk about logistics, gas, etc. — there is a reduction in carbon footprint, whichever route they choose. Being able to indicate multiple orders, how items are returned or exchanged, and then the ability for the retailer to publish those results and reduce their carbon footprint is a big win-win.

Denman: Agreed. If you look at some retailers like Costco — they are known for taking back anything, in any condition — it's part of their value proposition. It's the reason why a lot of people shop there.

“Levi's is also a great example. They're taking back vintage trucker jackets — depending on what year it’s taken back, what year it was produced, customers get more money and can buy new items. They give customers credit to buy new items, which makes it a great program. There's a lot of innovation going on around it.”
— Robin Barrett Wilson, Industry Executive, Advisor - Fashion, SAP

Denman: Pano, are you seeing a lot of opportunities out there? What's the opportunity for retailers to improve the returns management? If retailers are to invest in returns management, what kind of ROI, what will happen to improve it for them?

Papadopoulos: In essence, at this point, the cost factor is up, it’s fiscally the biggest concern that customers saw. This was seen more as a cost and was calculated into the margin calculation. The situation today is that we cannot continue like that, it's not accepted any more. Some even discussed, why not intelligently say to the customer, “if you do this or that, what kind of impact would it have for your carbon footprint?” Make it so that the influence is also the decision.

Being more intelligent, a bit smarter in the way returns are treated, as well as avoiding returns is a big opportunity. The even bigger opportunity is the logistics and dispositioning parts — what's the next best action. How do you reintroduce these items into the selling cycle, or resell the products. Similar to the Levi’s example, you reintroduce used items, at the end it creates a thrift shop job where there is a circular economy. 

“On one hand, this is going to be an investment for the companies, but if they want to survive and stay relevant in the next 5-10 years, it needs to start today. Tackling the returns process is not only the returns, but also being part of the circular economy.”
— Pano Papadopoulos, Chief Solution Expert, Order Management, SAP

Denman: The last few minutes we’ve spoken about a lot of strategic ideas, such as returning an old Levi's jacket or taking returns back in-store or out-of-store, but what's missing from a tech perspective? What do retailers need to invest in to pull this off? It's one thing to say, "Hey, we'll accept anything back," but if you're not prepared to do it, you're at a loss. What are retailers missing from a tech perspective to make all these great things possible?

Papadopoulos: From a customer experience, we saw that it's potentially not perfect. There are things that have been done to make it as easy as possible — not to the full extent as it should be, but there are things that are being done. What’s definitely missing is the logistics part in the back. There is a gap when the item arrives in the warehouse, and what do I do, what is the next best action: Do I repair it, do I send it back to the supplier, do I reintroduce it because it's okay, can I sell it as refurbished? — and so on and so forth. That's something that needs to be taken action.

Another point from the retailers and brands we spoke to is that very often the idea of sending it back to a return warehouse doesn't work anymore. Retailers recognize and know they can communicate to their consumers through an app or other online accounts, they can retrieve the address to send it to the next best point. It could go back to the supplier, a specific store, and so on.

“The ability to tell the customer,’Look, if we do this action together, we're going to save that much carbon footprint, or it's going to be sustainable this way and that way,’ that is something that does not exist today.”
— Pano Papadopoulos, Chief Solution Expert, Order Management, SAP

Barrett Wilson: Reporting is also sparse. The ability to identify items that aren't the right fit is a big bit of information. If there are a lot of items and they’re still being sold, but it’s getting a lot of returns — adjust what detail is given with the product so that people don't return the item. For example, if it runs a bit small, size up, etc. Those are details where the data is there to help reduce the amount of returns that are coming in.

Denman: This last question here, we're going to dive a little deeper into this inpart twoof the webinar series next week, but perhaps you can give a little sneak peek on some of the process improvements that retailers can implement. We’ve touched on it a little bit — improving the return situation.

Papadopoulos: As Robin explained, there are four areas that we are looking into. The first being the customer experience. By looking into these four topics we're looking at an end-to-end process — starting at the customer experience, then embracing and including the customer into the returns journey, as well as increasing the sustainability efforts from the retailer, explaining what's going to happen if this is done, or that. That needs to be happening intelligently. We don't want to reduce commerce, but that is the customer experience first.

The second is the dispositioning part, as I explained before. Whether this is the service center, the warehouse, the store — the dispositioning part. The third part is the reporting, which is crucial.

“A lot of customers say that they don't have the data, they cannot look or see why something’s happening, especially in the returns management.”
— Pano Papadopoulos, Chief Solution Expert, Order Management, SAP

As Robin mentioned, make the changes in descriptions, change the product information management system, and so on, and so on.

The fourth part is new business models, such as the circular economy or reintroducing used items, trade-ins. The idea of renting products is also gaining popularity as part of this bigger initiative that SAP is currently driving.

Barrett Wilson: One last thing I’d like to mention. Although it's not returns, there's some creative things that can happen. Domino's pizza is giving a $5.00 credit to customers for picking up the pizza, instead of having it delivered because there's a shortage of pizza delivery people. It's an opportunity for brands to get a little bit creative, as well get the customer involved.

Denman: Unfortunately, we are out of time. Thank you Pano and Robin for joining us today, thanks everyone for listening in, and obviously, thank you SAP for sponsoring today’s event. We appreciate your time and great insights. Until next week, thank you everyone for listening in and state safe.

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