How retailers are shaking up the returns process

With free returns an engrained expectation among today’s shoppers, there’s growing pressure for retailers to get their returns process right.

November 04, 2019

For today’s retailers, dealing with returned goods is one of the toughest challenges they face.

As many as half of online purchases are returned – with consumers in Germany and the Netherlands most likely to send back items, according to PostNord data. In 2018, Germans returned €5.5 billion worth of goods, a University of Bamberg study says. And it’s a growing issue: as e-commerce becomes more commonplace, so does the volume of returns. It could cost UK retailers £5.6 billion (€6.5 billion) a year by 2023. 

Part of the reason has nothing to do with fit: about a third of shoppers over-order to qualify for free delivery knowing their purchases can be returned, while a fifth order multiple versions of the same item before deciding which to keep.

“As retail moves towards an omnichannel environment, returns are an increasingly important aspect of the shopping experience,” says Tjard Martinus, Head of Retail Research, JLL. “Yet for many retailers, it is a huge financial and logistics challenge to offer the free, seamless returns customers expect.”

On top of that, as items are sent back through delivery networks, they generate a substantial carbon footprint, often ending up in landfills.

Yet charging for return shipping could impact revenues - one survey found nearly two-thirds of shoppers wouldn’t make an order if they had to pay for returns.

Path of new returns  

Click-and-collect processes are sparking fresh ideas about how to make returns more efficient.

At various online-born retailers including Asos and Zalando, customers can return items to drop-off points or parcel lockers, which are popular as click-and-collect delivery points, rather than sending them through the postal system. 

However, for omnichannel retailers, encouraging in-person returns is of growing interest, as customers who come into a store often exchange rather than refund their unwanted items.

“The physical store can still play a crucial role in dealing with online returns. If a retailer provides a frictionless experience for customers returning products, this can help to strengthen brand loyalty and encourage future purchases,” says Martinus.

Such are the benefits of attracting in-store customers that in the US, Nordstrom’s and Walgreen’s are two of the growing number of retailers accepting competitors’ returns.

Technology is helping to improve stock control. For example, RFID tracking tags, which allow retailers to manage click-and-collect, can optimise returns by providing insights into where items are returned. Meanwhile, Zara’s parent company Indetix has added microchips into security tags to geolocate items anywhere in the supply chain. CEO Pablo Isla said the move supports more full-price sales as items in-stock at stores can also be used to fulfil online orders.    

For retailers, such purchase and return data can inform decisions on leasing warehouse space as well as how store space to dedicate to dealing with returns. “Retailers can experiment with different store formats in locations their customers use most to find what works for them,” says Martinus.

French supermarket chain, for example, supplement its suburban superstores with central pickup-only shops; other retailers could employ a similar strategy for returns as well as collections of online orders. 

New infrastructure for returns

For smaller retailers, outsourcing fulfilment and returns to logistics providers is a more cost-efficient option. Outsourcing let retailers reach areas they wouldn’t necessarily have a presence in, improving the returns experience for more customers,” notes Martinus.

In the US, this is driving the take-up of warehouse space as providers look to meet rising demand.

“As retailers need to process a growing amount of returns, we will see more dedicated return centres,” says Martinus. Such warehousing is suited to the urban outskirts where delivery vehicles may have less impact on city centres increasingly congested by delivery vehicles.

One strategy to improve efficiency – and reduce environmental impact – is for providers to combine the delivery and pickup of orders, facilitated by more data sharing not only between logistics providers, but between retailers.

“A lot can be accomplished by sharing insights into customers and the overall market. When we can combine that with Artifical Intelligence (AI), we’ll see a new level of efficiency for fulfilment as well as returns,” says Martinus.

Prepping for the future of shopping

Many retailers are focusing on reducing the volume of returns in the first place.

Uniqlo, Zara and Aldo offer interactive size guides to refine recommendations, while Sephora has an augmented reality app where customers can virtually try on makeup. Asos and Boden are among those blacklisting users who regularly return most of their orders.

As ecommerce continues to rise in Europe, retailers could take inspiration from the US, where mega-retailers are leading the charge on returns reform.

“What European retail can take from the US model is how to embrace this change in how people shop and experiment with logistics,” says Martinus. “Ecommerce is only the beginning, and how we use technology in daily life will drive demand for new ways of shopping and new ways of getting items from warehouses to consumers – and in some cases, back again."