The increase in the return rate and why technology is essential to keep them at bay
Today, most professionals in the shipping and transportation industry seem to be focused on one aspect of the returns and reverse logistics dilemma: how to manage the returns experience and keep customer satisfaction high. raised. It’s time to explore a new angle: why do returns happen and what can retailers do to reduce the cost and frequency of returns?
These are critical questions to address as the size of the retail market typically means returns take a large chunk out of potential profits and increase handling and shipping costs.
As stated in a report published by Allied Market Research, reverse logistics and returns were estimated at $635.6 billion in 2020 and will likely exceed $928 billion by 2028. The report also noted that in 2021 the return rate was estimated to 16.6% for the number of products that consumers buy and then come back. With this kind of revenue at stake and so much spending on returns, it’s easy to see why the move to “how are we minimizing this impact?” leans more towards “what can we do to prevent this from happening?”
The problem with returns in retail
Even with the current state of market economies and volatility across multiple industries seeming to grow daily, many companies still do not fully understand the magnitude of the retail yield problem. This is not a minor inconvenience or something that smart budgeting or smart accounting can easily deny. In 2020, U.S. retail sales returns totaled $428 billion.
That’s 10.6% of total retail, according to Chain Store Age’s 2021 report. However, according to a CNBC report in January 2022, the average return rate for online purchases was 20.8% – an increase from 18.1% last year, as found by National Retail. Federation, which was $761 billion in merchandise sales that ended up as returns in 2021.
For retailers, even a 10% nominal rate of return, which might be higher for some retailers in specific markets, could be devastating and prevent them from seizing growth opportunities. Much of this impact stems from the current situation where retailers have no cushion or alternative to fall back on should something go wrong. The problems with current market plans and processes are more devastating when moving to a Plan B means creating a Plan B from scratch.
Why returns are a growing concern in logistics
These increased rates or returns are of increasing concern to retailers. Dealing with reverse logistics diverts money, resources and staff hours from more profitable services that retailers could focus on instead. A high rate of return also adds to cash flow issues and makes budgeting and financial planning more difficult, especially for smaller retailers. And according to a 2020 Voxware survey, late deliveries cause 30% of consumers to say they’re less likely to return to a supplier who didn’t deliver on time or had issues that led to a return.
Returns harm retailers and supply chains in multiple ways.
- They clog supply lines and take up space on trucks that could have been used for profitable loads.
- Empty transports are more likely with high return volumes due to unplanned journeys and routes.
- Customer loyalty and brand reputation both suffer and suffer.
- Team members added stress and pressure to offset the effects of retail returns.
- Ultimately, the overall supply chain slows down and is less efficient when returns occur regularly.
Shippers need to better control returns
Shippers can better control returns and manage orders and shipments while improving customer relationships by keeping the following in mind:
- Returns will continue to be a determining factor in the struggle of e-commerce businesses. Businesses that are better at returns will sell better, and when retailers can minimize returns, they can improve future growth and profitability.
- Returns are the white elephant in the room that has been overlooked for too long. Retailers need to consider what underlying factors may be contributing to high return rates, then consider how these issues can be addressed and resolved.
- In cases where returns cannot be avoided and become necessary to ensure customer confidence, streamlining the process is essential. Easy door-to-door pickup, a remote drop-off location, and printed mail labels can make the process easier and cheaper for everyone.
- Retailers can also save time and money by leveraging existing channels and modes already in use. All couriers currently providing deliveries can also manage returns and bring products back to the store, distribution center, warehouse or other location.
- Retailers must follow current trends and processes to meet customer needs while protecting their own goals and initiatives. Retailers need returns capability technology to work properly.
In that same 2021 Chain Store Age survey, retailers reported an average return rate of 11% for orders. Only 3% responded that they felt their current return rates were acceptable. The others think things could be better and they would be willing to work on reducing return rates.
An omnichannel retailer sitting at an average rate of 10%, or about 3% of annual revenue, could be looking at returns of up to $30 million for $1 billion in sales. Numbers like these have retailers looking for opportunities to reduce returns, streamline the process and increase profitability as much as possible.
Easy-to-use technology is key to leveraging the gig economy to manage return pickups and initial deliveries
Few, if any, buyers buy with the direct and immediate intention of returning the product. Some consider today’s consumers to be greedy and manipulative, and the habit of returning results from the embarrassment of choice. However, this is only partially true. The reality is that buyers want to keep their purchases. That’s why they make them in the first place. Most find it annoying and time-consuming to return items after making a deliberate purchase.
Suppose retailers can solve these problems and meet customers on common ground. The number of returns needed can decrease significantly, saving buyers and retailers a lot of time and money. Improving retail performance requires leveraging the gig economy and thinking creatively about managing returns and deliveries while embracing innovative technologies and tools.
Approaching returns in this way can help retailers keep more of their hard-earned cash while helping shoppers keep more of the products they buy. Now is the time to act by building partnerships that put technology in the hands of those who stand to gain returns. It also leads to giving retailers another way to prioritize pickups and deliveries in the gig economy.