Insights

Navigating retail returns during the busy holiday season

Jonathan Colehower, Managing Director, UST Global Supply Chain Practice

As the retail landscape evolves, efficiently managing returns has become increasingly critical, especially during peak seasons. Nearly 90% of retailers have adjusted their return policies in the past 12 months to tighten restrictions and make returns more expensive for consumers. This shift is driven by the rising costs associated with managing returns. Retailers are becoming more strategic and savvy about these expenses, implementing policies that help mitigate financial impacts while maintaining customer satisfaction.

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Changing landscape of retail returns

The landscape of retail returns is changing rapidly. Retail product categories that typically had low return rates for in-store purchases are now experiencing a surge in returns when sold online. According to a recent Blue Yonder survey, retailers across the board are experiencing high returns: sports and outdoor equipmenthave seen a 76% increase, cosmetics73%, trade tools/equipment & DIY 72%, and children’s toys 68%. These increases highlight the challenges retailers face in adapting to the new reality of online shopping.

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Significant challenges during peak times

One of the biggest challenges during peak times is reverse logistics. Receiving and processing returned packages requires significant effort. Many retailers have adopted a policy of telling customers to keep low-cost or difficult-to-restock items instead of returning them. For example, retailers like Kohl’s and REI now charge for return shipping, while Neiman Marcus won’t charge you for shipping if the product is back in their hands within 15 days of receiving it. Even Amazon has made some tiny adjustments in its famously returns-friendly policies, charging customers $1 for dropping off packages at a UPS store if they forgo drop-off at a Whole Foods or Amazon Fresh location closer to them.

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Balancing profitability and customer satisfaction

Retailers must stay vigilant and quickly react to competitors' return policies. It’s similar to airlines adjusting fares in response to competitors. If one retailer starts charging for returns, others will follow. The key is finding a balance between profitability and maintaining high customer satisfaction. For instance, Neiman Marcus charges $10 for returns after 15 days, ensuring they can restock and resell items efficiently.

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Best practices for returns policies

Clear communication from the outset is crucial. Retailers encourage bracketing, the common practice of ordering a size up and a size down from the size you think you need, to ensure customer satisfaction, but this must be clearly communicated in the return policies. Simplifying the return process while avoiding making it too easy is essential. For instance, Amazon charges a small fee for returns dropped off at UPS stores but not Whole Foods, subtly guiding customer behavior.

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Charging for returns

Automation plays a crucial role in managing high volumes of returns efficiently. Retailers are providing specific instructions on how to use the original packaging for returns, allowing for standardization and processing automation. Standardizing return packaging enables using robotics and other technologies to streamline the process, reducing manual labor and costs.

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Technological advancements in return management

Retailers are investing in technologies to avoid returns. AI is used to better understand customer preferences, and advanced sizing guides help customers make better purchasing decisions. Improved color guides and product presentations ensure customers know exactly what they are buying, reducing the likelihood of returns. On the logistics side, many retailers are reducing return labels and shifting more responsibility to consumers to handle returns themselves.

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Key consumer expectations

Customers expect returns to be free and fast, and they prefer not to have to travel to return items. Retailers must find ways to make the return process convenient without compromising profitability. This includes clear communication about return policies and finding ways to limit the burden on consumers while managing the inevitable pain points. Fraud accounts for 5 to 10 percent of returns, adding another layer of complexity to managing returns effectively.

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Looking ahead: The future of retail returns

I anticipate the US seeing more legislation like the European Union's, which mandates that retailers cannot tell customers to keep unwanted items. Federal regulations may force retailers to adopt certain practices to protect consumers and the environment.

Retailers should focus on standardization, automation, and outsourcing return management to third parties. Designating ownership of returns management within the company is also crucial. Funding and innovation in this area can significantly impact a retailer's effective return management.

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Top takeaways for retailers

• Designate ownership: Ensure clear responsibility for returns management within the organization, whether it’s the VP of Marketing, Merchandising, or Omnichannel Commerce.
• Prepare for change: Understand that consumer expectations and return policies will continue to evolve. Clear communication with consumers about return policies is essential.
• Leverage third parties: Consider outsourcing returns management to specialized companies that can handle reverse logistics more efficiently.

Effective returns management is vital for retail success, particularly during busy seasons. Retailers can balance profitability with customer satisfaction by implementing clear policies, leveraging technology, and preparing for regulatory changes. These insights provide a roadmap for navigating the complexities of retail returns in the years to come.

For more insights, refer to the UST white paper on retail returns management.

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