Post-holiday returns management: Strategies for Retailers

January is the season of returns – the rate at which shoppers bring back goods in the post-holiday returns period jumps by almost 9% * compared to the rest of the year.

The latest figures from the National Retail Federation indicate that in 2023 the value of returned items was $743 billion. ** Given that returns management can cost as much as 66% of the original sale price, *** returns represent a big headache for retailers.

Offer choice

Retailers should offer a range of customer returns methods – such as collection from home or a locker, postal return or return to store. The majority of shoppers check a retailers returns policy and choice is an important factor in deciding to buy.

Offering customer returns to store, including for goods bought online (known as Buy Online Return In Store, or BORIS) is a particularly effective strategy:

• Firstly because customers like it – 54% say that in-store is their preferred method of return +
• Secondly because it offers the lowest returns management processing costs (compared the alternatives of distribution centre returns handling and third-party specialist reverse logistics services)
• Thirdly because bringing the customer into the store gives the retailer the opportunity to sell a replacement item and generate revenue that offsets some of the cost of the return. Over half of customers returning goods buy something new on the same visit.

Consider customer experience

Yes, returns management can be costly, but it can also be a chance to offer a positive customer experience. So the cost of handling holiday returns must be seen in the context of the overall customer experience approach. A smooth and hassle-free returns experience drives high levels of customer satisfaction, which directly translates to return visits, with 97% saying they’d shop with a retailer again after a positive returns experience.

Crucial to the returns management experience is choice, as described above, and return policy optimisation. For postal or pickup returns, this means strategies such as providing the return label and return packaging with the goods, and having a range of places from which the returned goods can be collected.

Analysis

It’s essential for retailers to have in-depth insights into their returns management process – for example, understanding which items are being returned most frequently, which stores have the most post-holiday returns, individuals with high rates of customer returns, and the reason for return. This returns management information can inform product buying decisions and can help to identify fraudulent activity.

Efficient inventory management

Sound reverse logistics, getting the customer returns back onto the shelf, in the DC or the store, as fast as possible is key to being able to resell the items sooner, and reduce the overall cost of returns management. Efficient returns processing must be fully integrated with inventory management, so that returned items are clearly visible as part of the stock pool.

Loyalty

If goods were purchased as part of a loyalty program, with points earned or spent, then it’s crucial that post-holiday returns are reflected in the customer’s loyalty profile. Otherwise, the retailer is giving away loyalty points without having the revenue of the original sale.

The role of POS technology

The strategies outlined above need to be supported by the retailer’s point of sale technology. The best point of sale systems for returns management must have:

Are returns rates increasing or declining?

Returns rates increased significantly during the pandemic, in large part due to the massive increase in online shopping. In 2023, the percentage of goods returned actually dropped, from an average of 16.5% of all items purchased, to 14.5%. However, the value of returned goods increased from $642 billion in 2002 to $743 billion in 2023 (according to the National Retail Federation). This value increase can primarily be attributed to the increased cost of goods due to inflation and the cost-of-living crisis.  Regardless of annual overall rates, returns always increase during the holiday season.

What are the pros and cons of third-party reverse logistics providers?

Some retailers opt not to process their own returns, but to engage the services of a third-party specialist reverse logistics provider. This approach certainly reduces the effort needed by the retailer, and the staff required. The appeal that that they can outsource the issue by simply handing it over to someone else. But there are two significant downsides – firstly the cost. Third party reverse logistics is not cheap, and only increases the cost of managing returns. Secondly, it usually takes longer, increasing the time between receiving the return and being able to resell it. So it is a strategy that requires careful consideration and an understanding of the impact on the business.

References:-

* https://capitaloneshopping.com/research/average-retail-return-rate/#:~:text=The%20average%20retail%20return%20rate,store%20retail%20returns%20are%20fraudulent.
** https://cdn.nrf.com/sites/default/files/2024-01/2023 Consumer Returns in the Retail Industry.pdf
*** https://econsultancy.com/retailers-innovating-online-returns/
**** https://www.mmu.ac.uk/artshumanities/news/story/?id=15299#:~:text=In%20the%20US%20alone%2C%20clothing,incinerated%20or%20deposited%20in%20landfill.
+ https://www.forbes.com/sites/shelleykohan/2022/10/30/consumers-say-hassle-free-returns-are-more-important-than-ever/?sh=5a1af9a8642b