Product Returns Hit the Breaking Point

In today’s world, customer satisfcation is more crucial than ever. As the number of shopping options continue to increase year over year, retaining your brand’s consumer base will usually determine your company’s profitability.

In fact, according to Bain & Company, increasing customer retention by just 5% can boost profits between 25% and 95%. While retailers have been able to effectively pivot toward improving the consumer’s in-store shopping experience, one area is causing retailers financial pain like never before – product returns.

Returns and the New Reality

As the world of retail continues to evolve, managing product returns has become a major challenge for retailers. With the rise of e-commerce, more consumers are shopping online, leading to an increase in returns. In fact, according to the National Retail Federation, returns have more than doubled in the U.S. after just seven years, from $649B in 2015 to more than $1.8T at the close of 2022.

The trend towards free shipping and returns has emerged as another key factor contributing to the mounting problem. Many retailers now offer free shipping as a standard part of their online shopping experience, and some even offer free returns, which has undoubtedly been a popular move with consumers.

However, the free services have placed additional strain on retailers. So much so that almost 91% of retailers now report return rates are outpacing revenue growth. Grappling with the challenge of balancing the need to attract and retain customers with the costs of managing returns, retailers must explore innovative approaches to product returns.

Reversing the Returns Problem

To tackle the rising challenge of product returns, retailers are now tapping into the power of AI and machine learning to delve into customer data and uncover the underlying causes. By analyzing patterns and trends in customer behavior, retailers can take swift action to deter returns.

New technologies can dynamically enhance product descriptions and sizing charts, providing customers with personalized recommendations, and offering more detailed product images and videos to aid them in making more informed purchasing decisions.

Reducing the likelyhood of a return happening, however, is only part of the equation. Returns will continue to occur and when they do, the cost of processing those returns will substantially eat into any margins that remain for any given piece of merchanchise.

It is the reverse logistics process many retailers have effectively ignored. Not because retailers don’t understand the shear cost reverse logistics have on their bottom line, but because solutions have been slow to enter the market. The primary culprit behind the lack of reverse logistics solutions is commonly associated with the necessary capital outlay required to achieve any sort of meaningful traction.

Fortunately, a combination of revese logistics solutions are finally proving themselves worthy of commitment by retailers and supporting partners.

Make it Simple and They Will Come

It is known customers are like water; always following the path of least resistence. With the exception of consumers that have a devout attachment to a particular brand, when it comes to returns, the process must be easy.

And while 36% of shoppers mention mail (paying general couriers for each individual return) is their preferred method to return merchandise, nearly the same number at 33% would rather return to a designated drop-off location. The near split between preferred return methods can be attributed to a multitude of factors, including convenience, proximity, and personal preference.

Retailers can leverage this situation to not only minimize their returns cost, but also enhance customer satisfaction. The result of which can lead to increased loyalty and sales in the long run. The question becomes what solutions should retailers pursue.

Generally speaking, there are three ways to deploy effective drop-off locations beyond a retailer’s own physical store location:

• Other retailers – To make returns more convenient for customers, retailers sometimes partner with other retailers in different niches to accept returns on their behalf. Although retailers no longer must pay shipping on a per-retrun basis, most retail partnerships lack the cost-saving benefits of processing and aggregation, resulting in moderate overall savings.
• Indedpendent return kiosks – In an effort to combat the mounting challenge of product returns, retailers are now turning to manned kiosks strategically placed in busy areas, such as malls, to process and send back the influx of returns. While kiosks can save retailers on individual shipping and aggregation of returns, kiosks carry their own labor costs and restrictive access to normal business hours.
• Smart lockers – Smart locker networks can accept, aggregate, and ship returns back to retailers, all while providing consumers with 24/7 access in convenient locations. Their ability to be placed almost anywhere makes them a game-changer for retailers seeking to streamline their reverse logistics process. A robust smart locker network easily accessible by the majority of a metro’s areas population can save retailers upwards of 50% per return.

As e-commerce booms and free shipping and returns become the norm, managing product returns has become increasingly challenging for retailers. However, they are fighting back with innovative solutions, such as leveraging the power of AI and machine learning to reduce the likelihood of returns and investing in reverse logistics solutions like independent return kiosks and smart lockers.

By simplifying the returns process and meeting customers where they are, retailers will not only save money on returns costs, but also boost customer satisfaction and loyalty. Parcel Port is proud to be leading the reverse logistics revolution by building North America’s first multi-functional smart locker network to reduce the costs of forward and reverse logistics in an eco-friendly way.