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How Retailers Can Cope with COVID-19 Digital Returns Rush

Amid COVID-19, e-commerce volumes have seen a spike akin to the Black Friday rush. But now retail is facing another surge, which more closely mimics the period of post-holiday returns.

Even while sheltering in place, consumers kept filling their online carts with clothing and footwear. While they felt comfortable placing orders, many held off on starting the return process. Now that some states are reopening, the already stressed fulfillment channels are going to see an influx of returns, straining reverse logistics operations.

“There’s a huge latent return rate waiting to be triggered as states reopen, and just last week we are starting to see that tsunami of returns hit the reverse-logistics value chain,” said Eduardo Vilar, founder and CEO of digital return experience company Returnly.

According to data from reverse logistics firm Optoro, two-thirds of shoppers typically prefer to return purchases directly to a store. But during store closures, this avenue was cut off, leading them to either mail items in or wait until brick-and-mortar locations reopened. This switch toward mailed in returns could be permanent, with 45 percent of shoppers saying they will continue to ship their packages back.

Additionally, as consumers have been shopping more online, this is putting retailers at greater risk for more returns. In general, e-commerce has a return rate that is up to three times the rate of brick-and-mortar’s.

As a result of these combined factors, packages are now flooding into distribution centers that were already stressed in forward logistics operations due to the rise in online shopping and health-related staffing disruptions. Peter Sobotta, founder and CEO of digital returns experience company Return Logic, noted that some retailers halted all operations to keep workers out of their warehouses and reduce overhead, which put returns on hold.

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With this potential for distribution center disruption, one of the factors that can help companies wade through this influx of returns is building redundancies into their operations. According to Vilar, some of his clients extended their partnerships to more third-party logistics companies during the crisis, lowering the possibility that mandated closures at one facility would shut down reverse logistics.

Health is also a concern in both the front and back ends of reverse logistics. Larisa Summers, senior vice president of marketing at Optoro, said companies should be preparing workers to handle returned items safely, which now means appropriately sanitizing packages and packages.

Adding automation

As fulfillment centers process more returns, it becomes even more important to build more efficiency into reverse logistics. Switching over some processes from manual to automated procedures can free up some much-needed manpower to handle tasks that cannot be done by an artificial intelligence.

“It’s like a black swan for companies that were non-digitally native that have to adapt their business model to support this additional pressure, both in fulfillment and returns,” Vilar said. “And we are seeing this set of brands and retailers come to the market for online solutions to pretty much put returns in autopilot.”

Return Logic’s solution automates a number of steps in reverse logistics, beginning with enabling consumers to start a return themselves. Some retailers force customers to contact customer service to receive a shipping label, which requires headcount on the retailer’s side and a delay in initiating the return. By giving shoppers a way to print their own label, the process can be expedited while also freeing up staff to work on other tasks.

Meanwhile, Returnly’s Credit product automates the process of accepting an exchange. Returnly takes on the risk and pays for the item, so that the right item can be shipped to the consumer before their return is received. This cuts down on customer service inquiries that are related to the status of a refund, and it also helps retailers close more sales.

Automation further assists retailers in keeping track of all the nuances that come with returns processing. For instance, this digitization can determine whether a shopper is still in their return window or easily figure out if they bought an item when it was final sale.

What can’t be automated is the physical opening of boxes, which may necessitate a bigger team to process returns.

“Even though a customer can go to your website, generate a return label and ship it, the choke point is going to become what are your procedures to handle the material and get it back into the inventory and do it in a financially sound manner,” Sobotta said. “That is a real challenge for retailers. The recommendation would be map out your processes, understand your volume and put headcount in place ahead of that curve, because it’s only going to grow in intensity.”

Data gleaned from returns processing can also be used to help retailers shape return policies that will best serve their business needs. For instance, having guidelines to allow a longer window for exchanges than returns may raise returns, but more will be requests for swaps rather than refunds.

Moving merchandise

The speed at which returns are processed has a profound impact on how much a retailer loses. Consumer behavior during this pandemic is costing merchants as out-of-season apparel comes back later than usual, lowering the chance that it can be resold without significant discounts.

One of the ways that retailers purge returned merchandise is to sell it at an aggressive promotional price to consumers in a final sale clearance event.

As an alternative, companies can remarket products in secondary channels. For instance, Optoro funnels client returns to “recommerce” channels such as the retailer’s outlet stores or secondary marketplaces.

“Identifying the next-best channel for a return—whether clearance, resale, liquidation or donation—quickly can prevent returns from being trashed,” Summers said. “Data analytics and technology can remove the guesswork and help determine the next-best home for a return, preventing unnecessary shipments and optimizing recovery value.”

Retailers have to weigh the cost-benefit analysis of refurbishing a return to be salable, as making repairs will often be more expensive than just liquidating.

Sometimes, the cost of taking back an item even outweighs the value of the merchandise. In these cases, it might make more sense to enable a valued customer to keep and donate an item rather than paying the financial and environmental cost of shipping it back.

Returning customers

Return policies are not always the first thought in retail marketing, but they can make a significant difference in customer acquisition. If consumers are considering buying from a retailer for the first time, a lenient and clear return policy can help them make a more confident purchase. Optoro found that 30 percent of consumers opted to make a purchase during stay-at-home orders because of flexible return policies.

“Retailers should make their return policies more flexible by extending return windows for a period after stores reopen and offering free return shipping,” Summers said. “This can prevent a returns surge, and spread out returns over a longer period of time.”

Experts agree that extending return windows is a good practice, but the time frame is up for debate. Vilar suggests that retailers that typically offer 30 days for a return temporarily move the window to 90 days.

Meanwhile, Sobotta believes that while companies should consider expanding their return window by between 50 and 100 percent, changes to a return policy should be based on consumer needs. Polling a retailer’s actual audience can give insight into what they actually want. Also, for some smaller retailers, lengthening deadlines may be cost prohibitive because they can’t afford to move the inventory liability. “Don’t just do it for good PR,” Sobotta said. “You have to do it because it adds meaning to your customers.”

Ultimately, the returns process has significant impact on customer lifetime value. Optoro finds that 97 percent of customers would continue to shop with a retailer following a positive returns experience, while 89 percent of those who had a negative experience are unlikely to shop again.

“If you think a return is the cost of a $10 shipping label and a $20 item you ship, it’s not,” Sobotta said. “It’s the $3,000 of lifetime value, Google AdWords and customer acquisition costs… So returns can have a dramatic impact on the health of the customer base, which is why we look at it so seriously.”