As a result of this shift, retailers have been reckoning with an avalanche of product returns. Returns Reduction, the process of proactively analyzing and addressing the upstream issues that cause returns (in order to prevent future returns), must become the cornerstone to any returns optimization strategy. What was historically an afterthought has become top of mind: 79% of retailers say returns reduction has become more important for them in 2021.
Former CEO for Giorgio Armani, Valentino USA, and Prada, Graziano de Boni coined the E3 concept for us to illustrate the magnitude of impact returns have on a retail business. Returns effect your business economically, your customer emotionally, and our environment.
Economic ImplicationsIt’s no secret that returns, and the cost of processing them, can be massively detrimental to a retailer’s financial health. In 2020, returns totaled $428 B in North America. That’s 10% of all retail trade. Incisiv surveyed retail executives for their 2021 State of the Industry Report, Retail Returns and found that 84% believe there is a significant ROI in reducing returns, and the majority of those surveyed believe there is an opportunity to reduce return rates by an average 31%. With every $1M in returns reduction adding $0.5M to the bottom line, addressing returns can be one of the “lowest hanging fruits” when it comes to making improvements to top and bottom lines and margin.
Beyond the economic case, the total business impact of returns is much greater, and yet less than 4% of retailers consider consumer, brand, or the environment when calculating the cost of returns.
Emotional Relationship with Your BrandMuch of the contemporary discourse around returns espouses the ways in which a positive returns experience contributes to customer loyalty, and with good reason: 95% of customers say a poor returns experience will make them less likely to shop from a brand again. However, consider the following insights:
- 42% of shoppers will stop shopping a retailer upon multiple instances of needing to make a return
- 62% will reduce shopping with the retailer
- 72% will post a negative rating or review
The majority of North American consumers believe it’s important for a brand to be sustainable or eco-friendly—taking into account the environment as part of your strategy has never been more important. Product returns have an adverse effect on the environment in a couple key areas, including landfill waste and carbon emissions. Reverse logistics provider Optoro estimates that 5 B pounds of returned goods end up in landfill annually and that 16 million metric tons of carbon dioxide were emitted from the transportation of returns in the US last year. Proactive retailer intervention can make a significant dent in reducing returns and subsequently reducing waste and carbon emissions, making the strong case for returns reduction as part of your sustainability strategy.
The ripple effect of returns makes waves across these three dimensions. By allowing product returns to continue to escalate, the industry is losing $125 B annually, risking customer churn and brand reputation, and putting undue stress on our vulnerable planet. Rampant returns are an indication that there are errors or inefficiencies that need to be addressed throughout the business. It’s time to address the industry old problem, rather than viewing it as a cost of doing business.
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Data in this blog was sourced from the 2021 State of the Industry Report, Retail Returns, Incisiv commissioned by Newmine.
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