As the retail industry continues to evolve, retailers are grappling with several challenges posed by returns. The rising costs associated with returns management, including transportation expenses and unnecessary touches, have forced retailers to evaluate their return policies as a way to stop the financial impact. Furthermore, inflationary pressures and supply chain disruptions have exacerbated the financial burden on retailers and manufacturers alike. This article explores the factors driving this shift in the reverse logistics industry and highlights some key survey findings that shed light on the evolving landscape of returns in retail.
The Soaring Costs of Returns: Retailers' Struggle to Keep Up with Rising Returns and Escalating Expenses
While returns have been steadily rising each year, until recently retailers were slow to react. That is why 73% of retailers ranked returns as a moderate-to-severe issue for their business. And while many have begun to take action via policy changes, integrated software, enhanced disposition capabilities, and investing in reverse supply chain solutions to minimize the financial impact, 34% of retailers still believe their business does a very poor-to-mediocre job with their returns management process. The escalating costs of returns are driven by various factors, including transportation expenses and excessive touches throughout the returns management lifecycle.
Items that are returned in-store after being purchased online often do not end up back on the shelf, ultimately, resulting in outbound shipping costs borne by the retailers. Additionally, retailers reported that on average returns are touched more than six times before being returned to the shelf. Each touchpoint adds operational costs, further inflating the overall expenses associated with returns. Failing to add value with every touch results in unnecessary financial costs and missed opportunities for improving yield and resale value
The past few years have been tumultuous for supply chains, with disruptions causing transportation costs to skyrocket. While costs have somewhat subsided from the peak of the pandemic, they remain higher than pre-pandemic levels. It was observed that international shipping costs increased by 72 percentage points in the first quarter of 2020, to a peak of 50.3% above trend in the third quarter of 2021. Combined with inflationary pressures affecting product prices, retailers are facing mounting financial challenges in managing returns effectively.
Strategic Changes in Returns Policies Lower Returns Costs
In response to these challenges, retailers are implementing changes in their returns policies. It is no longer sustainable for them to absorb the exorbitant cost to process the returns. In order to complement their software enhancements, retailers are starting to pass costs onto the consumer to help minimize the financial burden. Survey findings from March 2023 indicate that 66.4% of retailers have implemented new product management solutions and now charge fees such as restocking fees or return shipping fees, which is a significant increase from 60% when asked just six months prior in September 2022. For example, Abercrombie deducts $7 from your refund, Neiman Marcus deducts $9.95 from your refund after 15 days, Zara deducts $3.95 from your refund, and Anthropologie charges $5.95 for returns. This trend highlights retailers' aim to recoup a portion of the expenses incurred during the returns process. Moreover, 59.2% of retailers have changed their policies in the last 12 months, offering in-store incentives (BORIS) to minimize expensive ship-back fees, recognizing the need for more cost-effective returns management solutions.
Maximizing Reverse Supply Chain Efficiency: Retailers' Strategic Investments in Reverse Logistics Solutions
To address the growing complexity of returns, retailers are investing in enhancing their reverse supply chain and returns processes. More than 55% of retailers have made such investments into third-party return partners, with a substantial 58% allocating between $1 and $5 million to fuel these improvements. This demonstrates the recognition of the importance of efficient returns solutions as a critical aspect of retail operations.
Conclusion
The landscape of retail returns and the recent investments in policy changes, integrated software, enhanced disposition capabilities, and streamlined supply chain efforts reflects a direct response to the mounting challenges and rising costs faced by retailers. With transportation expenses, unnecessary touches, inflation, and supply chain disruptions all contributing to the financial burden, retailers are implementing strategic changes to optimize their returns management processes. By charging fees, offering incentives to consumers to make their returns in-store, and investing in reverse supply chains, retailers aim to minimize the impact of returns to their bottom line. As the industry continues to evolve, retailers must navigate this complex landscape to find sustainable solutions that balance customer satisfaction with cost efficiency in returns management.
