Retail

Why returns is costing retailers 6% of the RRP of all sales

In a nutshell

Returns has become an unsustainable issue for retailers. In this article, we summarise the key findings and recommendations from our whitepaper 'Returns plc: the biggest supplier you didn't know you had', including five areas where retailers should focus. 

Katie Quarmby

WRITTEN BY

Katie Quarmby

Posted April 6, 2023

Every time we analyse a retailer’s returns data, they are surprised to learn that:

  1. Returns are their biggest supplier; and
  2. Returns can account for a 6% hit on the RRP of all sales

This is largely down to returns being unloved in organisational design – it lacks meaningful ownership and actionable insights into the biggest costs and opportunities for improvement.

As a result, key metrics like the total cost of a return are instead given a misleading proxy (such as the cost of a third party-logistics provider), and the returns strategy is more likely to be based on a perception of what customers want rather than data-driven, purposeful investments optimising customer satisfaction and business value.

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Returns is unloved in organisational design – it lacks meaningful ownership and actionable insights into the biggest costs and opportunities for improvement
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In a weak economic environment, and with the volume of returns continuing to grow, retailers need to rethink their approach to this issue. Our latest whitepaper, Returns plc: the biggest supplier you didn't know you had, shares some insightful data and a new model to help retailers reduce costs, increase recovered revenue (including improving stock availability), improve customer satisfaction and reduce the environmental impact of returns.

1) End-to-end ownership

End-to-end ownership covers everything from the reasons for returns and the online customer journey through to in-store processes, merchandising and stock exit. This will look different for every retailer, but the goal is to have a high-performing cross-functional team with clear performance metrics, clear areas of responsibility and proactive management.

At the moment, many teams are held back by a lack of alignment and a lack of actionable insights.

2) The regret feedback loop

Retailers are deploying a variety of tactics to reduce the number of regretted returns, but our studies suggest these don’t always work. As well as improving the effectiveness of tactics like sizing tools, there needs to be a rigorous improvement cycle sharing returns analytics with customer, buying, merchandising and supply chain teams to help them make better decisions.

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3) Rational returns policies

Returns policies should evolve over time, but the right proposition doesn’t necessarily mean the most generous – it should be decided based on data. This allows retailers to make informed decisions about things like charging for returns, changing returns windows and adding/removing returns options.

4) Data-driven reselling decisions

There is inherent value in returns, a retailer’s largest and “nearest shore” supplier. Intelligent reverse stock management allows retailers to see where stock can be used to plug gaps in availability, and by leveraging existing network capabilities retailers can cost effectively move stock between channels and stores.

Building in contribution logic also enables retailers to decide whether it’s worth processing the item for a resale, or whether it’s more cost-effective to donate it to charity, mark it down or let the customer keep it. 

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Intelligent reverse stock management allows retailers to see where stock can be used to plug gaps in availability
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5) Unified cost controls

As the number of returns continues to grow, retailers should prioritise an end-to-end review of the returns process to highlight areas of inefficiency – like reworking items, poorly designed processing technology and system duplication – and consider automating manual tasks. 

This article originally featured in Retail Week 

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