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Next in Retail Podcast

Solving the Returns Issue in Retail

Expert takes on tackling the trillion dollar problem

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Reva: You’re listening to Next in Retail from Publicis Sapient. The podcast that shares insights on unlocking what’s next in digital transformation.

Reva: With the ever-growing shift to online spend, retailers are now faced with a not-so-secret trillion-dollar problem: consumers are returning more products than ever before. 2020 data shows that roughly 5 to 10% of all sales are returned. What’s worse, many consumers expect to issue these returns via mail. The cost to many retailers are becoming too difficult to maintain.

In today’s episode, we’re going to discuss the strategies that retailers should employ to nip this issue. Joining me today is Guy Elliott, Retail Industry Lead at Publicis Sapient for EMEA and APAC, and Andy Halliwell, Retail Strategy Lead for EMEA and APAC. I’m your host for this session, Reva Bhatia. Now let’s dive in.

So, Guy, I’m going to kick things off with a question for you. There are two elements to the returns issue with retailers. One is minimizing the returns, and the second is minimizing the impact of returns. Can you provide some insight on how these two dimensions vary?

Guy: Sure, so the first one minimizing returns is all about giving the customer what they want the first time or trying to maximize the chance that you give your customer that they want for the first time, so you’re really trying to do things and obviously it varies by category of product and everything else, but essentially, how do you give them the information they need to make a decision that maximizes your chances that when it arrives it is the thing that they expected, be that the right size or fit, be it that frankly just the product they were looking for in the 1st place. And so, you can use a lot of techniques through the ordering process to help them understand what they’re buying and sort of try to give him as much information as possible. So, it’s actually the opposite of what is often considered good marketing or advertising, but you want to actually maximize the chance that the description that you have so they know exactly what it is they’re getting.

And then you want to minimize the cost if they do have to return it ‘cause there’s always going to be returns no matter what you do, no matter how you try to maximize your chances there’s always going to be returns, so then you want to minimize the cost. And that’s a combination of things that you want to do, but it’s optimization, so how do you make it as cheap as possible for that product to be returned, but also how do you make smart decisions around the returns process? So how do you not take back something that’s actually not ever going to be used again? How do you persuade them to use alternate channels for returns? And how do you help them make better decisions around where it should go, or how do you make better decisions for them about where it should go in the event, they have to return it? So, on one hand you’re trying to make sure they don’t return it, but if they do, what are all the tools you can use to minimize the cost of a return when you do have to take it back?

Reva: Excellent. Good description. So, to dig a little deeper, and I’m going to kick this over to you, Andy, on how retailers might stop returns from happening to begin with. Do you mind sharing some insights on how retailers should be tackling this problem? I know Guy started to touch on it earlier, but let’s deep dive on some of the more specific things that retailers should be doing in this space.

Andy: So specifically around returns, data is kind of key in this process. You need as much data as possible about the product, the product information itself in the first place, and the data around how people are buying it, how people are returning it, so that you can feed that into the upfront customer experience. You know my experience with ASOS that they do a good job with this where they will show you kind of people like you prefer this kind of size. They don’t return this size, but they will return these other sizes. You can also use this data to work out what might be the best fit based on previous purchases that they’ve made. So, if you know that they have bought a size 32 in G-Star jeans for example, then maybe they need a size 30 or maybe they need a size 34 in this particular kind of jean because of how it fits. Use that data to your advantage and help make sure that from the off it fits people right and so they don’t actually need to return it.

The second thing you can use that data for as well is to identify people who are serial returners. So, if somebody is coming to you buying £1000 worth of stock and then returning £850 of it, then you know that they’re likely to return a huge amount of the stuff to you. So, you’re going to look at that data, and you’re going to say right well number one maybe I’m gonna charge you for returns because of the high volume of returns I see from you. Now that is a strategy which needs to be tested with your specific brand and your specific audience to see how that is going to land because that can cause some negative changes in people’s perception of your business. The other thing that you can do is you can identify them early, and then you can maybe redirect them to a nearby store where you have the product in stock. Again, you need the data on where your inventory is in order to be able to direct them to the right store. Maybe you can even go one step further and just try and get people to go in store to return product as well because you know that at least is going to mitigate some of the costs of having people return.

And then the final point, and again I’m going to keep coming back to data, but you know product data. Making sure you’ve got the richest information possible about your product, the best sort of high-definition photography. Make sure that you sweat those assets. Make sure you’ve got videos from product. So, product videos generally help sell product anywhere between three and ten times more than product that doesn’t have video. So, you know video is definitely a really useful sales tool. But make sure that when you’re showing product on model, how tall is that model? How big are they? You know, are they are they are size 16 in you know and so that dress really fits them nicely, or you know is that guy you know 40–43-inch chest in which case you know what maybe it won’t fit the same on your slightly slimmer build. You know, share that information and create confidence using you know third party reviews, maybe it’s Trustpilot or I don’t know depending on the product there the consumers association, Which? or What Hi-Fi?, but use those kind of third-party reviews tools in order to create confidence that the product people are purchasing is a high-quality product and is going to work in the environment they need it in.

Guy: I actually think just to pile on to that little bit, I think that another point was key which is one of the biggest issues of returns is not that the product itself is wrong, but actually people order, especially in clothing, obviously people order multiple sizes of the same product expecting to return two out of three, right? So, you order the size you think you are, then the size larger and the size smaller, so you expect you’re gonna have two out of three returned in all cases, in that in best case. Actually, you might have all three returned, and so, to Andy’s point, if you can share as much information possible and generate more confidence that actually when you choose the size, it is the right size, you start to minimize that kind of mass buying ‘cause that happens even if you sold them the right product they’re still returning two things, you can minimize people doing that because they’re confident, because of the reviews, the fit analysis, you can actually start to drive down your costs by not having to ship three items and take two back which is going to cause you a loss in almost every case.

Andy: I actually saw an interesting, an interesting new thing recently where I think it’s Bloomingdale’s in North America has started shipping high value product with a security tag on it. It’s a security tag that the consumer can take off themselves, but it can’t be reattached once it’s been taken off. And the idea here is that they are trying to prevent people from buying a product, wearing it once out to that, you know, girls’ night out on a Thursday evening or, you know, wearing it to a, you know, the wedding. So, you know, buying the super expensive Brioni suit to a wedding, wearing it once and then returning it back, right? Well, so the idea behind the security tag is that you can’t return it if the tag has been taken off. So, you can, you can have it sent to your home, you can try it on, you can make sure it fits, but if you do take the tag off, then they aren’t going to give you a refund. And I, I think that’s a really interesting idea that will certainly, I think it will certainly change some consumer behavior that we’re seeing in the marketplace. It’ll be interesting to see how successful it is and actually what the additional cost is of actually attaching those tags to the product before you ship it so…

Reva: That is intriguing, and wedding season is around the corner, so just in time Bloomingdale’s. And I will say every single time we talk about people ordering multiple sizes and returning two of them, I feel seen because I chronically do that. But I will say, I do always read reviews of products when they are available, and I always watch videos of products when they are available, and hopefully that makes me make better decisions slash just shop a lot more. I don’t know. TBD. TBD.

Guy: Or, order less, less of the same item.

Reva: Yeah, exactly. OK, so Guy, I’m gonna toss it back over to you now to offer up some suggestions on combatting the other side of the equation. So, Andy, you just talked through all of the fantastic ideas to thwart returns and double clicked into that. Now let’s assume the Revas of the world are returning products, how do you minimize the impact of the returns? 

Guy: Yeah, this is this is an important one because you’ve got to get it right. The returns processes, first of all I will say, is critical to the overall customer experience. And so if you get this wrong by trying to focus only on minimizing your costs, you can cause yourself a big issue from a sales perspective, right? Recent data came out and says that 84% of shoppers will reject a retailer who has a bad returns experience. That’s a huge impact if you do it badly, right? So, so you’ve got to balance the cost impact with the, I guess, the sales impact and the brand impact. So, that’s the first point I’ll make, not necessarily helpful but something to worry about as you’re thinking about optimizing the return process.

Beyond that again to pile on Andy’s data point, a lot of it is about data because the returns process is, even if you minimize the cost of getting it from the customer to your warehouse, the returns process is inherently inefficient because a lot of the times a returned product can’t be used again, so you’re actually shipping it back to the warehouse, and then it’s got to go to landfill, or to recycling or to wherever it’s going afterwards, which is a cost in and of itself. Equally you could have a return coming back to a warehouse, and the store down the road is desperately out of stock of those items, and so it goes all the way back to the warehouse, and then somebody figures out what you’re going to do with it, and they sent it to the store, so you actually just had two legs in your shipping process as opposed to one. Alright? So, there’s a lot of stuff you can do to use data to actually optimize your returns process, and it’s actually quite simple to do. So, you could dynamically print out a label that says I know that I have no inventory, and warehouse A or warehouse versus warehouse B or in store C, or this is going straight to the landfill, and the label dynamically prints out, customer doesn’t know anything about that ‘cause they don’t ever look at the shipping address, right? And it just goes to the right place at the right time to minimize the cost of the return, right? So, that’s actually a relatively easy thing to do that has a pretty significant impact on your return process.

Guy: There are retailers who are spending huge amounts of money flying product between warehouses to try to get product into the right space. Where if you’ve got 1,000 returns, and it goes to the warehouse that doesn’t have any in stock, you just cut out that that airplane going back and forth from two warehouses, right? So there, so that’s one way you can do it. Another one, and Andy touched on this, and it is a sensitive one, but I actually think it’s one that the retailers need to look at more and more is, so average value of a customer rather than average revenue a customer. So, if you are, if a customer is a serial returner, why wouldn’t you cut them off from free returns? You’re not making money off of them in the first place. You might lose that sale, that’s true, and so your revenue might decline, but actually your profit goes up significantly. And so yes there’s brand impact and everything else, but at the end of the day, you’ve got to weigh out those two things as a retailer and maybe dynamically say, “You, Reva, don’t get to return things. Me, Guy, ‘cause I never return anything, I have all the free returns I want if, if it ever happens that’s needed.” So, you can optimize your cost base by being smart about this thing and then of course balancing the brand impact and everything else.

You know another one is to try to encourage obviously alternate channel returns. There are cheaper channels than a customer taking it back into a store especially at that store doesn’t have stock, so how do you actually encourage them or incentivize them to do that? Maybe you give them a discount on their next purchase if they if they do their return in-store. Maybe you just use marketing or, or sort of messaging to try to persuade them it’s going to be more so their benefit to go in-store. So, we have the other size in store if you just want to wander down there, give us a return, we have the other one in stock, you can try it on. So, how do you actually persuade them it’s in their interest to do what is actually better for you as a retailer ultimately anyway? And actually, that’s the nirvana because if you can actually take the return and immediately sell them the right size, if it’s clothing or actually alternate product, you both minimize your cost of the return and make/keep the sale anyway. And I actually think more and more, you can make customers feel almost guilty about returning, right? And then persuade them into store or other channels. So, more and more sustainability is becoming an issue. Carbon impact is becoming an issue, so actually think if retailers start to layer this messaging into the returns process, you can almost guilt an inverted karma the customer into a less expensive channel, like returning him to store or maybe not returning if it’s closed by, by you know playing on what is better for the planet ultimately, and so you’re not just guilting them for the sake of guilting them, you’re actually hopefully doing something better for the planet in the first place. So, there’s a lot of tools you can use to actually dynamically influence the customer to do something that is better for you as a retailer.

Reva: The guilt method would really work on me. I don’t know if the carbon footprint one would, but if somebody was like, if a retailer, you know, J. Crew all of a sudden was like, “Reva, it’s been seven days since you left your house. Maybe you should leave your house and return this item instead of just putting it out for the mail carrier to pick up, you lazy piece.” That would really work on me.

Guy: But it is bit sort of carrot and stick, right? How do you actually sort of give them an incentive to do something good and also potentially disincentivize them? You know, through again, charging for returns or… the other one is dynamically charging shipping, right? So actually, you can almost reverse incentivize so, when a serial returner is buying something instead of giving them free shipping, dynamically charge them a bit of money for shipping, so it starts to cover some of the costs of what you know they’re going to do when they return the product.

Reva: I mean, we’re going to talk about the data problem a little bit, but anecdotally, so I think you guys both know me well enough and know this, that I have a shopping problem.

Guy: We’ll use you as a test case.

Reva: Yeah, exactly. But you know it’s interesting, there’s one retailer who I’m a particularly big fan of. And I shop with them very enthusiastically, but I often buy multiple sizes. Not only are they not using data to know that I am a chronic returner, but I am actually a very high loyalty tier because of my spend. And that’s another fascinating fact, they on the flip side give me free overnight shipping because I’m a high loyalty tier, when I return 2/3 of what I buy. I’m not going to the retailer because I don’t want to lose my status.

Guy: The truth is that’s pretty much every retailer. It’s a fantastic point. They need to get much smarter about customer value, rather than customer spend because customer spend is a really bad metric. You could go into, you know, to use your example, you could go into any store, buy $5,000 worth of product, walk out of the store, walk back in the next day, return all of it and they’ll think you’re the best customer in the world, which is crazy stupid.

And so, retailers need to get smarter about that and yeah it doesn’t have to be your cut off completely or you don’t get free returns, but like you said, there’s no free overnight shipping. Why would you do that for customer you know you’re going to return? So, that’s a great point and really important actually.

Andy: We’re also seeing, I was looking at some research that came out in NRF earlier than this year that says that some people are basically setting up this idea of neighborhood community delivery and collection points. So, for example, people drop off their packages and put them in my front room, and then I deliver them to my neighbors, you know, 1-2-3 doors away or whatever it is, but I basically keep it in my house as I’m home all day, and then I will just drop it off to them. I’ll do, that’s not even the last mile, but I’ll do the last meter on behalf of the delivery company. But there’s no reason why you couldn’t apply the same model to returns, for example, right? Which again, just means that rather than like 5 people on the same street always sending their returns back, and especially if you’re Amazon for example, where I don’t know about you guys, but literally every person on my street gets multiple Amazon deliveries a day at the moment, like why not just collect them altogether. I have one house like you know nominated collection point and one house you’re nominated returns point. It would save packaging. You can put multiple things back into the same box. It would be easier, cheaper, less CO2 impact, so…

Reva: Going back to the concept that you raised at the kickoff of the session, Guy, which is be more comfortable telling people to just keep things. I think it’s something that people, a lot of retailers feel might be brand dilutive or once word gets out that we’re just giving away stuff for free like who knows what will happen then, but…

Guy: There’s a lot of especially the more budget retailer. So, the company Shein, a Chinese company I believe. Really cheap products, and actually they say keep it ‘cause frankly the amount they charge for the product is not worth taking it back, especially shipping back to China. So, retailers are starting to get smarter, but it is a long journey. It’s interesting you mentioned the whole Amazon thing because they were, and I can’t remember the stats off the top of my head, but they were famously quoted as saying, when they get to a point where the returns process where the percentage is low enough, they can they will start to predictively send you stuff, because the risk of sending it to you is lower than the value they’ll get of people like you saying, “Wow, this is actually really cool. I’m going to start buying this.” So that’s the future when AI gets good enough to say, I know you well enough I’m going to start sending you stuff I think you’re going to need, and you’re going to return less of it than it’s going to cost me to send it to you. That’s the real nirvana of returns.

And I do want to get one point we skipped over, which Andy mentioned I think it’s really interesting, which is probably a little bit further out there, but also is the person-to-person returns. Now there’s all kinds of implications and risks and probably liabilities associated with this. But if Andy was returning a T-shirt ‘cause it’s too small, and I wanted said T-shirt, in said size, could you connect the dots on that and have Andy return it directly to me for a small, discounted fee because of the risk associated with it not being perfectly packed and potentially being dirty ‘cause you know and he didn’t wash it after trying it out or whatever it is, right? Again, it’s a little harder to do a little bit more interesting for a risk perspective, but this kind of peer to peer, person to person is becoming more and more of a thing even in retailing, and so that that could become something retailers play with as well.

Andy: Yep, especially if you can offer product like that at outlet prices rather than full price.

Guy: Correct. I mean, if you know you’re going to landfill, why not give him 50% and say look this may be dirty when Andy sends it to you, may not be packaged in the best way, but it’s 50% off, and it’s otherwise new, so go for it. Take the risk. And if it really is bad, you take it back as a return afterwards, so hey, you know, not so bad.

Reva: That’s true. Awesome, so those are all the questions I had lined up for you. This was a really fantastic dialogue. I appreciate you guys coming on here to unpack the plaguing problem of returns that retailers are facing. Hopefully, we’ve given our retailer friends out there some good food for thought. 

Guy: How do we fight against the Revas of the world?

Reva: How do we stop Reva up from buying a small, medium and large in everything, returning everything, doing it over expedited shipping? Yeah, I mean, I’m clearly, I’m clearly the problem they’re trying to solve for here, so…

Guy: Clearly.

Reva: Alright gentlemen, appreciate you taking the time. Thank you.

Andy: Thanks very much, guys. 

Guy: Thank you, Reva.

Andy: Cheers.

Reva: Thanks for tuning in to Next in Retail. Be sure to subscribe, so you don’t miss a beat on the future of digital and retail.

Hilding Anderson
Hilding Anderson
Head of Strategy, NA Retail
Andy Halliwell
Andy Halliwell
Senior Client Partner at Publicis Sapient, Retail and Consumer Products