The Growing Challenge of Returns in Retail

Current retail return rates are the highest they’ve ever been. According to CNBC, between 5 and 10% of in-store purchases are returned. But that figure rises to 15-40% for online purchases. As customers continue turning online for their shopping needs, return rates will only continue to grow – and they’ll continue to be a problem for retailers.

Returns are a significant inconvenience for retailers, particularly for small businesses. In addition, returns erode profits, costing a combined $100 billion per year for both retailers and manufacturers. Companies are doing what they can to mitigate the lost revenue, but it appears the only way to resolve the problem is to reinvent the process of returns.

The returns process is important to the consumer. So much so that 84% of shoppers said they would not patronize a retailer after a poor returns process.There are several strategies small businesses can employ to alleviate the pressure of return shipping and receiving.

Today’s Typical Return

For small- and mid-sized retailers, online purchases typically follow the same return process. First, the customer navigates to either the company’s website or their emailed receipt to initiate their return. The same four steps usually occur in succession once the company receives the request to return or exchange.

1. Repackage the Product: The first step for the customer after requesting a return is to repackage the item. Depending on the product, the return packaging may or may not be sufficient to keep the item safe and secure.
2. Print the Label: The customer must print and firmly affix the label to the parcel. This requires customers to have access to a printer.
3. Drop Off at Post Office: The customer brings their parcel to the nearest post office or courier location, depending on which delivery services the retailer selected. 
4. Individual Shipping: The shipper accepts the parcel and sends it on its way back to the address identified on the shipping label.
5. Retailer Decision: Once an item is returned, it is either re-inventoried, sold to an off-price company, or destroyed/transferred to a landfill.

While the returns process is relatively simple, it is by no means a frictionless process for the consumer or a cost-effective solution for the retailer.

The Returns Challenge

When it comes to returns, most companies follow the above steps. Unfortunately, the process remains both inefficient and expensive. In addition, there are several challenges associated with the current method of returning merchandise.

1. Shipping rate: Retailers often select the same delivery service that initially transported the purchase to the consumer. This means the retailer has not compared shipping costs for the return journey, missing an opportunity to select the most cost-efficient courier depending on where the return is coming from.
2. Customer travels: While retailers do not incur the cost of their customers having to travel to a post office or courier location, it is an inconvenience the customer must bear. This is especially true for those who live in rural areas. Sometimes, it can lead to a partially processed item return, where the shipping label is sent, but the item is never sent back. For customers reliant on public transportation in urban areas, the time to go back to a store may not be worth the effort.
3. Single item shipping: Companies save on costs by shipping in bulk or combining multiple items in a single box. Without a physical distribution location in every city, retailers are forcing themselves to pay the individual shipping rate for each return instead of obtaining bulk or pallet pricing.
4. Additional staffing: Determining what to do with a returned product requires experience and labor. The choices are usually the same across companies: re-inventory the item, sell it to an off-price company or destroy it. However, making that choice is rarely straightforward, and without a dedicated team can become a costly endeavor.
5. Unnecessary effort: Some retailers will take time, effort, and resources to print a return label and include it within the original packaging. Although only charged if returned, the cost across thousands of orders is significant.

Small- and mid-sized businesses struggle more than their big-box competitors when it comes to the cost of returns. Although all retailers are seeing margins erode due to increasing return challenges.

Larger retailers are usually able to lock in lower shipping rates. Additionally, large retailers often have warehouses closer to the end consumer, saving on logistics costs. By contrast, small business accounting often runs on razor-thin margins. They must work to reduce costs in other ways.

A New Way to Return

While many retailers are focused on reducing their outbound last-mile logistics costs, the returns challenges are emerging as a significant pain point that now requires attention. The solutions coming forward, however, are very much retailer-centric.

For example, even the world’s largest online retailer, Amazon, has partnered with the likes of Kohl’s to provide a physical location for customers to make returns. However, the process remains cumbersome for the customer, with only one Kohl’s store in most major cities. To make a return, consumers must make the trek to the store, park, walk inside the store, stand in line, and then complete their return.

A publically-accessible Smart Locker in a bank building

Customers today are empowered and will continue to demand better from the companies they make purchases from. One concept which is beginning to take shape is the advent of a universal smart locker network. Connected to retailers and within walking distance of most residences, smart lockers are a customer-first approach to returns while providing a cost-effective solution for retailers.

Final Thoughts

There is a long way to go before making a return at the end of the road or in your building’s lobby will be a reality. At ParcelPort we are working hard to make this a reality.

To learn more about how your organization can maximize smart lockers to reduce cost, increase revenue, and delight your customers, contact the ParcelPort team online by visiting www.theParcelPort.com, email at sales@theParcelPort.com or calling 1-800-818-0870.