Retailers don’t have to scale these growing returns peaks alone.
While most of us are busy taking down the Christmas decorations, many others will be returning those wrong-sized or otherwise unwanted gifts. That’s why UPS expects to return more than a million packages to retailers on January 6, 2016.
Accordingly, UPS has designated this “National Returns Day,” the year’s busiest day for returns. By the end of this first week of the year, we expect to process more than five million return packages – 500,000 more than this time last year.
Just as significantly, UPS data shows that efforts to move holiday sales earlier with events like Black Friday and Cyber Monday have created twin peaks of returns volume. These peaks impact overall holiday sales results and call for a strategic approach to the returns process, which has become increasingly important to retail success.
Data collected on UPS’s year-over-year return volume from 2012 to 2015 shows savvy consumers are returning items earlier, creating two return peaks, with the first spike in mid-December and the second in early January.
Analysis suggests Cyber Weekend purchases are frequently bought for personal use and returned in mid-December, while December purchases are typically holiday gifts that trigger a January returns spike.
Although the final returns results for this holiday season aren’t in yet, we expect this trend to become even more pronounced this year as retailers continue to push promotional efforts earlier in the season.
One outcome: A significant impact on financial results for retailers. Everyone from the C-suite to Wall Street focuses on sales revenue upticks, but that’s only one metric.
If 25 to 30 percent of those sales come back, you didn’t make as much as you thought you did. And you have a double hit: Not only have you lost a sale, but you have to deal with the cost of the returned merchandise logistics cycle.
While this isn’t the best of news for retailers, it’s definitely the reality. Studies show the expense of returns processing can range anywhere from 20 percent to 65 percent of the cost of goods sold which amounted to 8.8 percent of total channel sales in 2014, or $284 billion.1
The key questions are how quickly can you get a return item back, what shape is it in when it arrives and how can you best recover maximum value?
Retailers have traditionally focused on outbound sales and the forward supply chain, but haven’t paid much attention to returns as a strategic priority.
“ How quickly can you get a return item back, what shape is it in and how can you best recover maximum value?”
Saving the sale
While many retailers are best advised to opt for a customer-friendly “no questions asked” approach with a pre-printed label in the box, others should consider the opportunity to save the sale.
Consider the classic “some assembly required” scenario, in which a customer gets frustrated and just tucks everything back in the box to return it. How can this be prevented?
For high-value purchases or items that might be hard to assemble or operate (such as electronics), retailers should consider placing a “speed bump” in the process, requiring customers to call for a Return Authorization. At that point customer service staff can probe for the reason behind the return, walk them through the “how-to” steps, and prevent the return.
Sure, it’s an extra step in the returns process that may not be appropriate for many products (such as apparel), but it provides a better customer service experience and the sale is kept on the books.
Another approach is to offer YouTube videos on how to assemble, how to operate and/or troubleshooting. Some retailers are incorporating virtual fitment programs (sizing apps and shape guides) on their websites so consumers can try it on – virtually.
Options for disposition
It’s inevitable that some products will be returned, especially in online channels where apparel and footwear have 30 to 40 percent return rates, according to data from the consulting firm Kurt Salmon.
Reverse logistics often comes into play – in handling returns to the manufacturer, transferring from one store to another, refurbishing, or re-kitting. It may be appropriate, with electronics for example, to disassemble and reuse expensive parts, recycle commodity components, donate useable goods or decide to just discard.
A UPS pharmaceutical customer is a good example. They previously tossed out millions of dollars’ worth of expensive medications after the expiration date occurred. They implemented technology to track expiration dates and raise an electronic “red flag” when the date approached.
Affected products are promptly picked, returned to the distribution center and redeployed to a market where that item is a hot seller.
According to an article in Inbound Logistics, Home Depot is one retailer that’s opted for the consolidation center model, where store returns of all kinds are processed at centralized facilities dedicated to sorting through merchandise2.
Items are returned to vendors, sold at auction in truckload quantities, sent to online marketplaces similar to eBay or destroyed because of manufacturer terms and conditions.
Reducing administrative and transportation costs this way cuts reverse logistics costs by 40 percent on average, says Charles Johnston, Home Depot director of repair and returns for the Atlanta-based retailer.2
Booming secondary markets
The secondary market, including discount , salvage centers and auctions has grown 57 percent since 2008, and represents nearly 3 percent of U.S. GDP.3
This $486 billion market represents an excellent opportunity to recover value from customer returns and excess or unused inventory in retail stores or warehouses.
The secondary market, capitalized on the increase in bargain hunters prowling outlet malls for deals. Many major shoe brands take advantage of these outlets to sell last year’s merchandise.
The complex omnichannel environment in which retailers now operate calls for a clear understanding of both forward and reverse logistics, especially since both play a key role in improving both customer satisfaction and bottom-line profitability.
Satisfying shoppers is the end game
One of the eye-opening results from our survey of online shoppers is 83 percent of shoppers are satisfied with their overall shopping experience, but only 62 percent are satisfied with online returns.
The UPS Pulse of the Online Shopper™ study shows that, when given a choice, 61 percent would prefer to return purchases to a physical store instead of shipping it back.
This has the attractive side benefit of driving more sales, as 70 percent of those returning to a store say they have made another purchase.
UPS’s 2015 white paper, Rethinking Online Returns, indicates that many retailers aren’t taking full advantage of this trend by neglecting to promote the option to return online purchase to a nearby store location.
With these challenges and opportunities in mind, UPS offers retailers a versatile set of services and technology solutions for online returns.
We can help retailers develop a returns strategy that balances customer service and cost. Plus, we’re making it easier for the growing legions of consumers to receive and return packages with services like UPS My Choice® and UPS Access PointTM locations.
1National Retail Federation 2014 Return Fraud Survey, October & November, 2014
3 “Omnichannel Retailing: Reverse Logistics and Customer Loyalty,” Harvard Business Review, September, 2015.
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