Looking at investments in retail returns automation?

Tis’ the season for retail projections. So, in the festive spirt here’s another point of view for your stockings. Throughout 2023 and 2024 we are estimating to see a strong focus on investments in technology to improve the reliability, speed and transparency of retail returns.

Retail returns (or ‘reverse logistics’) is currently the single biggest under-developed section of automation in the supply chain.

Consumer returns in the US are projected to exceed $816bn this year, according to new data from the National Retail Federation (NRF). Retailers are an unmitigated disaster for margins.

?Driven by rising retail sales post-covid, the average return rate reduced slightly to 16.5% during the year compared with 16.6% last year. The data showed that for every $1bn in sales, the average retailer incurs $165m in merchandise returns, while retailers lose $10.40 to return fraud for every $100 in returned merchandise they accepted.

?So why has this part of the process been under-developed to date?

?Partly, the mentality of investments in technology is still focused on labour returns and not overall margin. When the focus is on labour, the goal is to remove (predominantly) order assembly and picking hours and as the labour costs of handling returns is only a fraction (15 to 20% of picking costs usually) then investments in technology to focus on it take second place to picking technology.

?Secondly, the processes are far more complex and non-standard. There's a high labour intensity required in checking items are complete and repackaging items requires a human touch usually, however there are still many elements of the process than can be dramatically sped up with automation. Sequencing and automatic presentation of returns to colleagues at workstations to work on is a key opportunity.

?Current direction will frustrate customers more than delight them

?Urban Outfitters, TJ Maxx, Kohl's, Levi's are just some of the brands that are now charging between $8 and $11 for items to be returned via their online channels in order to cover reprocessing costs (free if returned to store). H&M, meanwhile, is currently testing return fees in Norway.

The problem with this is the perceived fairness from a customer’s perspective. If the customer isn’t paying for restocking and processing if they take the item to a store, then the customer links the costs only with the transport costs and not the re-processing.

This also is likely to lead customers into feelings on unfair pressure on them to reduce their returns. The problem with this is that, ultimately all this will do is reduce turnover, especially in fashion as we all know the challenges of sizing variation between brands add a further layer of complexity for the online customer. Most retailers are quite rightly focusing on digital wardrobe technology, virtual try-on, ‘fit’s like’ and so on before taxing the customer for the cost of not knowing what sizes they should buy. If these aren’t in place already then, the additional returns costs are more likely to spark a wave of customer switching.

I reported earlier this year on Walmart's acquisition of Zeekit and the impact that this is likely to have on their customer base.

Back to market time is a major consideration

Often overlooked in investment business cases is the value of returning items for sale at a quicker rate. One of the benefits of an automated process is knowing which items are where in each point of the returns process – even better if some returns can be prioritised so that they can be put back to stock quicker. It isn’t unusual for some fashion returns to sit untouched for several weeks at peak time as manual operations are not designed for peak week – if the fashion season is only 6 weeks long this greatly reduces the possibility of reselling the item at full RRP.

?More critical are grocery returns. At the moment between 2 and 3% of grocery orders fail on delivery, usually due to the customer being absent. When this happens, the majority of orders are returned to a store (70% of all grocery online orders are still picked from a supermarket shelf). Having to spend time, especially with fresh produce, meat and fish returning these items to shelf are lost hours for the supermarket and the loss of even 24 hours in a fresh setting means expensive produce is often disposed of rather than being returned and reduced.

?Automating the return of these items to stock is not easy, but if the retailer is already considering an investment in automation for order picking then widening the business case to also focus on the benefits of additional technology for the processing and handling of returns is a great idea. In many cases the additional technology required to make a fully automated picking solution, also be a great depicking and returns solution is minimal – but if often gets completely missed.?