Retailers are experiencing a shift as consumer shopping habits have changed over the last few years. Though many well-known traditional retailers are shuttering their doors, the growth of online purchasing continues at a rapid pace.
With such unprecedented changes come a few growing pains. One of the most significant is the high volume of returns. With the current system, this epidemic of returns is costing retailers an estimated $260 billion in lost revenue per year.
“In total, Americans returned $260 billion in merchandise to retailers last year, or 8 percent of all purchases, according to the National Retail Federation. That swells to 10 percent around the holiday season. Because less than half of returned goods are re-sold at full price, retailers may end up forfeiting 10 percent of their sales at the busiest time of year, according to Gartner Research.” - CNBC
Why do returns have such a profound impact on the industry, and what can be done to curtail it?
The Returns Epidemic
With retail giants like Amazon and Costco leading the charge, many stores offer a hassle-free return policy as a means of providing exceptional customer service. Unfortunately, this has the notable side effect of enabling consumers to buy items in bulk with no intention of keeping everything.
One of the reasons this is happening so frequently is that some people are waiting to see if a product goes on sale, then they return it and claim the difference as profit. Another reason is that they may be unsure about how much they want it and plan to make returns later.
In fact, when asked about their spending habits, many shoppers admitted that they would be much more careful about purchases if they had to pay to return them later.
Almost a third of all online orders are returned compared to only 9% of purchases made in a brick-and-mortar store, according to Bloomberg. This is largely due to free shipping offered by most companies, which has also caused an increase of online purchases by almost three times those of physical stores. Why it matters: Returns can be costly for online companies -- anywhere from 20-65% of the cost of goods sold a UPS study found.
How it Impacts Retailers
Why do returns have such an impact on retailers? Couldn’t they restock an item and resell it? The issue is one of ‘time’.
- First, a customer may hold onto a product before returning it, after which the item may be out of season.
- The second thing causing delays is the structure of each store’s reverse supply chain. When returns are brought in, they are not processed fast enough to ensure the retailer can receive a profit. Delays in the reverse supply chain can results in products that could be out of season or out of production by the time they are returned to the shelves.
Another significant problem with current systems is that many retailers offer store credit or refunds on products, even if the person didn’t buy it.
While this method is designed to allow gifts to be returned without a receipt, it also allows people to get away with theft.
Another method of fraud is when a product goes on sale. Customers may buy the item at the lower cost and try to return it with a receipt with the higher price on it so that they can pocket the difference.
Overall, the issue of return fraud can cost upwards of $14 billion annually, which is why it is crucial to find a comprehensive solution.
What Can be Done?
Although there are several methods that retailers can use to combat these issues (i.e., charging for returns, better loss prevention), these may affect the brand’s reputation and customer satisfaction. As such, one viable option is technology.
RFID tags are already being used to manage inventory for many different manufacturers and warehouses but can also be utilized on the retail floor. The cost for implementing such a system should offset by the savings from reducing return issues.
How Does RFID Help?
There are several ways RFID technology can solve the problems created by too many returns.
Here are some of the benefits of having RFID in place.
Rather than having store associates log returns into inventory manually, RFID tags can simply be scanned, and the process is done automatically in a matter of seconds. A new sales tag can then be attached, and the product can be back on the shelves within hours or days instead of weeks.
There are benefits beyond reducing returns as RFID tags helps to make inventory management much easier. Instead of manually sorting boxes and piles of products, they can be scanned quickly and efficiently. Time can be saved on both ends of the process.
Having each tag scanned during each phase of the supply train offers the opportunity to know the history of an item. This streamlines a retailers’ back end and prove whether the product was paid for. It will also show the price paid to be sure discounted items are not returned for a higher price. This option is a big step to fighting return fraud.
The Bottom Line
Since maintaining a hassle-free return policy has become standard operation for most retailers, it appears the best solutions to combat growing return problems is to adapt new RFID technology.