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Learn How to Protect Profits as E-commerce Returns Surge

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Consumers might be giddy about how easy it is to return merchandise, but retailers aren’t laughing.

Retail returns have been steadily increasing in recent years for a few reasons. One, consumers have been migrating to online shopping, where color, fit and quality aren’t always accurately represented. Two, retailers are offering more generous returns policies in the race for consumer loyalty—creating an endless loop of “try before you buy.” Three, free shipping and pre-paid return labels, aka The Zappos Effect, have spoiled consumers.

The returns numbers are staggering. U.S. consumers returned an estimated $428 billion in merchandise to retailers in 2020, which represented approximately 10.6 percent of total U.S. retail sales, according to the National Retail Federation. Online returns are almost double that, clocking in at 18.1 percent. And while e-commerce drew $565 billion in sales in 2020—heightened by a pandemic that shifted online shopping from convenience to necessity—almost $102 billion of that merchandise was returned.

With consumers increasingly bracketing their online purchases—ordering additional sizes or colors to try on at home before returning the rejects—merchandise for future sales gets unnecessarily taken out of inventory. This also erodes profits. Only 40 to 50 percent of returned apparel can be sold at full price, while apparel taken out of inventory for 8 to 16 weeks can lose up to 50 percent of its value.

But returns aren’t just costly for retailers, they can also create logistical nightmares when not properly managed from an inventory standpoint. Consumers who demand omnichannel buying experiences also want omnichannel return experiences, so it’s essential that retailers have maximum visibility into all merchandise, as well as the individual needs of each respective sales channel. After all, not all items that flow back in will be restocked from where they were sold, if at all.

Managing customer expectations is also paramount, and this covers everything from accurate product descriptions to clear sizing charts, both of which can head off returns in the first place. With 67 percent of shoppers visiting a company’s return policy before they even start shopping, retailers must be honest and clear about return parameters.

Quick refunds are another must for customer satisfaction. “The right ERP system, integrated with a returns application, triggers a refund when the item has been received, inspected and scanned into the warehouse,” says Roberto Mangual, CEO, Exenta. “Automation—which limits time-consuming manual entries and the possibility of errors, delivers speed and accuracy to the refund process. It is the best solution.”

To reduce returns down the road, it’s essential that retailers learn from returns by gathering returns data via reason codes, then taking the feedback upstream along the supply chain to fix any fit or quality issues.

“With ERP and a returns app integration, the company can quickly see what’s driving returns,” said Mangual, adding retailers can then work with design and production teams to improve products and build customer loyalty and satisfaction.

At the end of the day, it’s all about streamlining logistics and boosting efficiencies to save time and frustration, then using money saved for more productive purposes.

“Our ability to automate the returns process through Exenta has allowed us to triple our retail store footprint and triple our e-commerce volume without adding additional employees to our payroll,” said Mark Iannotta, vice president of operations at Veronica Beard, a designer fashion brand with 15 retail stores.

Exenta Whitepaper

Read the “Reversing Reverse Logistics” whitepaper to discover how Exenta’s automatic system provides inventory visibility to optimize retail operations. Click the image or here to download your copy.

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