Retail Returns: A Leading Indicator Of Consumer's New Attitude Towards Inventory

By Guy Courtin, Infor Retail

In 2017, there were $351 billion worth of returns in the United States retail market. That number would make the returns business the second largest retailer behind Walmart (Walmart is at $482 billion, with the second-place retailer, Costco at $116 billion in revenue).[1] However, retailers such Walmart and Costco have traditionally viewed returns as a necessary evil. Their goal was to reduce this number by forcing or encouraging customers to retain more than they return. Often, consumers have to be aware of not only what could be returned, but when. At times, these rules are so thick with fine print that it seems easier to just keep the merchandise rather than run the gauntlet of trying to exchange the product.

Today, retailers must deal with a different world: one where consumers have the power and are using that power to demand more flexible return policies. Return policies are becoming an important aspect in the buying decision; in fact, 67 percent of consumers will check the return policy before completing a transaction.[2] Returns are now a competitive advantage for retailers and to some degree, a leading indicator of how customers are starting to think differently about ownership.

So, how should retailers and brands view this aspect of their business?

Return Channels Are An Important Source Of Inventory

Retailers and brands should not view returns as a cost center, but rather as a source of inventory they can fold back into their supply chain. Companies such as Dell, HP and Apple already have processes in place, often via third parties, that help take back products and determine how they can be reintroduced into their supply chains. For example, there is an entire section in the Apple store for refurbished goods. These products often simply need to have their hard drive wiped or some basic cosmetic updates and then are ready for a second life. Similarly, players in the automotive space, such as Audi, are reselling “preowned” vehicles, finding ways to capture incremental revenue from an asset. Retailers, across the spectrum, need to think about returns along the same lines as the automotive or consumer electronic players. How can companies use old products to supplement the new inventory coming into the distribution pipeline? It is vital to quickly assess the viability of inventory and determine if it still holds value and is able to be integrated back into the supply chain.

Returns Are An Opportunity To Build On Customer Relationships

Retailers have a massive challenge – how do they earn their consumers’ loyalty while also acquiring new clients? Savvy retailers will look at returns not as an opportunity to minimize costs and try to temper unhappy customers, but as a chance to interact with those consumers. In a world of Amazon and Alibaba, it is too simple for transactions to occur touch free, dominated by digital interactions between the consumer and the brands. With returns, there is an opportunity to take advantage of that activity and turn it into a touch point between the consumer and the brand. Of course, brands must be sensitive that this transaction will tend to be one based on a negative – perhaps the size was not right, the product was damaged or the consumer did not like the color. How can retailers turn this from a possible negative to a positive experience for the consumer? Retailers need not only make the process simple and easy but figure out how to take advantage of this touch point. Make sure to resolve the issue, find a way to promote other items that can meet the need and use it as an opportunity to communicate the importance of that customer.

Returns Are An Indicator Of How Consumers View Ownership

When looking at the overall trends in retail, the entire notion of “owning” has been turned on its head. We use Lyft and Uber to get around without the need to own a car, Rent the Runway teaches us we can rent our outfit and accessories for our night out and Home Depot allows us to rent that power drill for a project. We also see Stitch Fix give us the subscription model for our wardrobe. These are all solutions to a desire from consumers to seek the experience without having to invest in the inventory. The returns business is no different. LL Bean was legendary in their returns policy because they made it as much a part of the experience as the actual product. Their duck boot was the inventory, but being able to bring them back anytime to have them replaced or fixed meant that LL Bean was guaranteeing customers an experience.[3] It was not necessarily about returning a physical good, but using that product coupled with a generous return policy to ensure the customer needs and expectations were upheld.

Returns should no longer be seen as a headache and cost center for retailers. Rather, savvy retailers need to look at returns as a fresh source of inventory to supplement their needs, an opportunity to interact and exceed their customers’ expectations and part of the story on how ownership is perceived. Returns as a customer service opportunity, so treat it as such.