Strategies for tackling the steady rise of product returns

The festive season is a huge deal for the retail sector and all those who contribute to getting those products to us in time to fulfil our Christmas wishes. In the UK for example, households spend almost 30% more in December than they do in a typical month. Interestingly the biggest chunk of that spend, 10%, is on apparel and footwear, whilst only 2% is on cigarettes and alcohol. As a nation the British spend more with specialist food stores, but far less on hardware items as we save our DIY projects for the new year.

How and where we spend our money has been evolving. In the UK, online spending has doubled over the past 5 years and the festive season has started earlier through events like cyber Monday and Black Friday.

For retail brand owners, the importance of anticipating demand as correctly as possible is massive – and with product lead times being increasingly hard to anticipate – the sooner they get a handle on this, the better. Of course we don’t get our gift selections right every time and product returns are inevitable. ?What makes it even more challenging for brands is for, 19% of consumers, according to Nosto, those returns are unavoidable. Intentional even. When you are not sure how an outfit will fit, why not buy one in both sizes??Can’t decide on the perfect colour right now? Why not order a selection to your home and decide later? With online shopping being such a visual experience some items are naturally harder to buy virtually and unsurprisingly shoes, are the most commonly returned items.

Measuring the scale of product returns

Records on the global volume of annual product returns tend to vary. Some sources citing Americans ?return $642.6 billion per year, whilst others point to a volumes in the US in 2021 of $761 billion. A point they all agree on is that the trend is accelerating and one wonders how closely the increase in returns is linked to the rise of direct to consumer sales?

Logistics is an exacting business, nearly right is usually not good enough and consumer expectations remain consistently high. When one looks at the top 3 causes of the returns by Logistics Matter,?43% of those causes point to a logistical related error:

1.??????23% - The wrong item delivered

2.??????22% - Product didn’t match description

3.??????20% - goods damaged in transit

The good news for retail brands is they and their supply chain partners are positioned to chip away at 65% of all returns through their own processes. Be that for 43% of all returns through more efficient downstream logistics.?Or in the case of online shopping enhancing the virtual shop window.

20% of all ecommerce sales can be reduced through the use of clearer images and better descriptions to help consumers visualise the product at its end destination.?89% of all consumers read reviews before investing, and according to Reviewbit, just one positive product review can increase conversion rates by 354%. Visualisation is powerful selling technique and seeing furniture in situ placed in someone else’s home, reduces a consumers leap of faith. Large progressive vendors such as Wayfarer, Ikea and Amazon have invested in AR artificial reality to make their products easier to buy. Whilst in the DIY market, apps like Houzz help by doing the thinking for us and reduce waste with calculators to tell you how many tiles, slabs or rolls are required in your DIY project for a given area.

There will be in winners and losers in the adoption of these approaches and when it comes to selling stock, the details count. It stands to reason that the easier you make it to buy your product the more of it you will sell.

For example, it’s great to go into a bricks and mortar DIY to store touch and feel wall paper and even take free product samples home, but it’s those shops that close the information loop for consumers that will waste less and sell more. I.e. If you offer a product a sample, ensure the potential buyer has the product information they need with it to quickly find the product on your website when they are ready to buy.

What can you do to reduce cost of product returns for the remaining 35% of returns?

Some product returns are seemingly unavoidable, but how big a problem is it for your brand? A great starting point is to size your product returns, by asking what volume of returns should you expect and does the breakdown of that vary by region and item?

Decision support tools such as end to end planning software, can be used to forecast the number of returns a given product, or product group is likely to have, enabling you to make strategic decisions about how to manage them. For example, manufactures and resellers of batteries can use Logility to forecast the percentage of returned batteries which will be resold vs. the percentage of batteries that will need refurbishing before being, ‘sales ready’. When you then factor in how long it takes to remodel a battery core into a battery that will be sold, you then have a clearer view of the total usable inventory available to work with.

Understanding return volumes is one highly useful supply chain metric. Another relevant supply chain KPI to this issue is the cost of the product returns by item and location. After all returning a letter is a different proposition to returning a garment, which again is different to a piece of furniture. ?

Logistics specialists DM Delivers help their customers address this challenge through targeted service offerings designed to be ‘hyper local’. No one wants to, “ship air,” and if you can avoid sending heavy and bulky gym equipment across the country and resell it locally – that’s better for all of us. In a recent interview on, Let’s talk Supply Chain, DM Delivers CEO stated, 56% of all items shipped by clients using this service are remarketed within their local markets through local redistribution. This reduces the ESG impact for the vendors involved which in turn helps both the environment and also helps the brands themselves to reduce total landed costs and will form an important component of their ESG tax strategy. ?

Not all items are resalable and sometimes it will be cheaper for the vendor to dispose of an item than to refurbish and resell it. The rise of online shopping has put pressure on logistics companies who are running to catch up as the sheer volumes involved are significant and it is getting worse. The end to this trend is not yet in sight with returns in the US growing from 10.6% in 2020, to 16% in 2021. ?For UPS?this translates to over?60 million returned items between mid-November through to January -which equates to roughly 12 million returns per week.

There’s a growing list of retailers that include Amazon, Target and Walmart, who operate a strategy of offering customers refunds and telling them to keep, or donate the item instead of sending it back. These?stores use AI?to determine if it makes financial sense to ship a return or not. ?With inexpensive items, particularly heavy bulky ones, it may be cost effective to let customers keep the product with a refund, rather than send it back.?Amazon reported donating 100 million returned items to non-profits in this way.

Independent software author Loop, claim to be putting a significant dent in the 5bn pounds of returned items sent to landfill each year. In America Good360 have contributed to the circular economy by connecting corporate brands to registered NFP’s resulting in more than $12 billion worth of donations for the ill, the needy, or infants.

Optimise / Restructure your network design

One strategic way to approach the product challenge is to take a look at your distribution network through a fresh lens and redesign it to reduce TLC, (total landed cost) or improve service levels – or oftentimes both at once.

Historically this has been a process that logistics departments engage in once every 3, 5 or 7 years – often with 3rd party specialists, in line with a renegotiation of a 3PL or warehousing contract for example, but technology advances mean this no longer needs to be the case. Cloud based Network Design applications – sometimes described as 3rd generation, Network Design tools, show the immediate impact of choosing a given greenfield location.

The continued disruption to supply chains over the past 3 years has many organisations exploring near shoring options – i.e. moving production closer to demand. In such circumstances Network Design visualization tools can provide invaluable insight.

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