“Just as retailers are trying to anticipate demand during an uncertain time in an e-commerce environment they have yet to master, there’s also the matter of what comes back to them: Returns. And while most will say order fulfillment is a challenge, managing returns may turn out to be the even larger challenge. “In 2019, holiday returns hit $100 billion,” explains Zac Rogers, assistant professor of supply chain management at Colorado State University. Rogers is continuing to track returns rates for e-commerce, which are often double or triple the rates of brick-and-mortar stores. With e-commerce up roughly 50% this holiday season that will be an issue he says. “Companies are not prepared. They have to figure out how to more effectively handle returns going forward,” adds Rogers.
Over at Newmine, CEO and founder Navjit Bhasin expects a surge in returns that more closely mirrors the increase in e-commerce in general. But the numbers actually aren’t the core of the returns challenge. “Every retailer has a returns problem. Some are focused on containing the cost and others on the process. Some even want to outsource returns and let a third party worry about them,” says Bhasin.
To his point, retailers are trying to do just that, even Amazon. In 2019, several retailers agreed to accept returns from Amazon. In 2020, mall owner Simon Property Group accepted returns from retailers such as Levi’s and Gap at the concierge desk of its malls. Any port in a storm. “But the real problem with returns is that companies are still reactive rather than proactive. And that actually doesn’t matter whether the sale was at a store or e-commerce,” says Bhasin.
Handling returns in the DC is one challenge. Why things are coming back in the first place is often a mystery. “You can’t actually tell oftentimes why people return purchases,” says Mark Holmes, executive vice president, consulting at Newmine. “There’s a lot of noise out there and no real incentive for customers to offer the retailer a reason for their return,” he adds.
One of the known drivers of returns is a consumer practice called bracketing, explains Breckenridge of Fortna. “Consumers are ordering multiple sizes not just in shoes but in shirts and pants, to name three apparel categories. And they’re bracketing in colors too. Bracketing has become massive, and that drives up the number of returns inevitably,” he adds. But that is only one driver of returns, which are inevitable especially in e-commerce.
“You are not going to stop returns,” says Rogers. “You have to invest in solving the problem and turn your weakness into a strength. Retailers are in the process of learning a lot about handling larger than normal volumes of e-commerce returns. It will take time, but they will learn,” he adds.
Bhasin and Holmes both expect retailers to make returns management to be a top priority in 2021. Quite simply, it will require deep analytics and process excellence, they say. However, there’s a strong incentive. Bhasin says a $1 million reduction in returns adds half that to EBITDA.