Returns on the Rise

At the Consumer Returns Conference in Nashville, TN, Larisa Summers, Optoro’s VP of Marketing & eCommerce, addressed some key retail trends facing the industry. Summers, a true veteran of the retail industry, set the scene by citing the increasing volume of returns as a massive challenge and opportunity for retailers and OEMs. This is not new — for years, returns have been part of the norm for retailers, but the growth of eCommerce has accelerated a rise in returns. While brick-and-mortar stores see 5-10% return rates, eCommerce businesses experience return rates between 18-35%.

On its own, this is a staggering problem for retailers across the country, but the rise in returns is a ripple effect that touches many other parts of the retail industry. Summers’ presentation highlights 5 challenges on the horizon that are directly related to the growing returns problem.

Omni-Channel Fulfillment Causes Complications

Omni-Channel fulfillment is the process by which a retailer with both physical and online stores may fulfill a customer’s online order from a physical store’s stock, or vice versa. While this usually means a faster execution on a delivery for a customer, omni-channel fulfillment is complicating the returns problem given that 42% of online orders are shipped from a store, and a whopping 90% of online orders are returned at a store. This is confusing for inventory systems and ensures that returned inventory is increasingly becoming trapped at stores and depreciating in value.

Millennials Have Unique Needs and Behaviors

It’s no secret that millennials have an affinity for online shopping, but millennials have displayed such unique behaviors online and thus, have unique needs as it pertains to their interactions with retailers. Millennials truly embody the omni-channel experience, not only interacting with brands across various online channels and devices, but they’re also more likely to make a purchase at the point of return — whether that’s in-store or online. So while returns are a growing problem, as long as retailers have a system in place so smartly handle the logistics of returns, they can actually be an opportunity with this specific demographic.

Preventing Returns Shouldn’t be a Focus for Retailers

This might seem counterintuitive given how Summers’ set the stage for her presentation, but research shows that customers who return — provided the experience is seamless and easy — are more likely to purchase again. In other words, the returns experience actually creates customer loyalty. So rather than attempting to prevent returns in the first place, retailers are better off adapting their customer experience so that the returns process is as easy and painless as possible. It’s understandable that some retailers may be skeptical about almost encouraging returns by making them easy or even free, but research supports the fact that loyal customers are more financially sustainable for your brand, and are certainly worth the cost of a few returns.

According to Collect, a customer loyalty app vendor, only about 20% of a given brand’s customer base are considered “loyal,” but they contribute about 80% of the brand’s revenue, and acquiring new customers can be up to 25x more expensive than retaining an existing customer. These stats alone should drive retailers toward offering a better, more customer-friendly returns process.

Changing Environmental Regulations may Require Action

The issue of unmanaged returned inventory is not only a problem of financial loss for retailers, but also environmental waste that’s incredibly dangerous and not sustainable. Millions of returned products that are not resold or repurposed due to poor reverse logistics management end up in landfills, despite most being in perfect condition.

Summers explained that the EPA fined companies over $100M between 2011 and 2013 for improper disposal of hazardous materials. But in 2014, the EPA requested comments from retailers about existing waste management regulations that kicked off a five year “comment period” during which a few rules and clarifications have been issued, but no major legislation has passed. Summer predicts that there will be new compliance standards put into place in the near future, but it’s too early to tell what those might be. She urged retailers to monitor the situation and take action when definitive legislation has been passed.

Liquidation Doesn’t Solve the Returns Problem

Summers last point provided the most staggering statistics about practices that have been going on in retail for decades. Among retailers, there’s a myth that liquidation solves the return management problem, but on average only 40% of the country’s returns are liquidated. So what happens to the other 60%? They’re either disposed, returned to stock, or returned to vendor. This non-liquidated inventory creates a massive hidden cost to retailers that goes beyond just asset depreciation. Summers explained that if you factor in shipping cost and replacements or credits in addition to depreciation, any type of return that’s not properly managed through a reverse logistics management system will cost a retailer 20-30% of its sale price. This is a major point of financial loss for retailers that can easily be addressed by treating returns holistically.

Summers concluded by recapping these major shifting points in retail. Between omni-channel fulfillment, a growing generation of unique buyers, increased customer loyalty from buyers who return, looming environmental regulations, and liquidation’s lack of recovery, retailers are hard-pressed to address their inefficient returns practices head-on. Forward logistics is something that retailers and OEMs have historically focused their efforts on, leaving reverse logistics neglected, which is why they often turn to liquidation as a last-ditch effort to recover minimal value from distressed inventory.

What we do know is that an integrated reverse logistics management system would help retailers address this key piece of the logistics puzzle, but only a few retailers are properly employing reverse logistics to do so. As the industry of reverse logistics continues to grow over the next few years, we expect order to increase recovery and decrease environmental waste,