The Supply Side: Retail returns a $380 billion industry challenge

Retail returns remain a challenge for even the largest retailers like Walmart and Amazon. A recent report from Optoro, a Washington, D.C.-based provider of returns optimization software, found the impact on American brands and retailers is growing each year, with consumers returning about $380 billion in merchandise annually.

The growth of e-commerce is a big factor in rising return rates, which can be as high as 30% for large and small companies. Optoro notes companies specializing in apparel and accessories can have return rates as high as 40%. With more liberal return policies from retailers like Amazon, Zappos and Walmart, customers are more likely to shop online for items like clothing and shoes, knowing the return process is simple and often times free.

The National Retail Federation estimates as many as 49% of retailers offer free returns policies. Optoro reports even at Walmart and Amazon, returns can be tricky on the retailer side.

“Unlike the forward supply chains where inventory is consistent and uniform, the reverse supply chain is dynamic and unpredictable as items can come back to retailers in a variety of conditions — open box, new or sometimes used,” the Optoro report said.

Returns remain a challenge for retailers because they can have a paralyzing effect on forward sales. As returns mount, so does the amount of distressed inventory, which has to be sold in order to hit company goals.

Optoro said without the proper means to accommodate distressed inventory, retailers and brands will face ballooning costs. According to the report, there is a way retailers and brands can try and recoup lost profits while increasing recovery and sales velocity, reducing warehouse costs and gaining visibility into the reverse logistics cycle. The relatively new software category of Return Optimization Platforms (ROPs) can directly reduce warehouse costs and increase visibility.

Supply Chain Dive reports just 3% of retailers cite reverse logistics as their biggest supply chain investment in 2018. Instead, there is more investment in customer facing systems like Mobile Express Return, which Walmart unveiled in October 2017. Though Walmart announced the plan a year ago, in June it was still not functional at stores in Northwest Arkansas. The retailer has turned on the Mobile Express Return service in local stores, but there could still be times when items purchased in a particular store are not returnable at another store, as the inventory assortments at stores can vary.

Eligible items purchased on Walmart.com can be easily returned to a local Walmart store location. Customers can see if an item is eligible for store return on the retailer’s website. To take advantage of the expedited service, customers must start the return process on their mobile phone by accessing the Walmart app.

Walmart said it is also working to create a similar streamlined return process for items sold by third-party sellers. That service is still not available. Bryce Paden, co-founder of i2i Labs in Rogers, recently said for retailers to be able to offer frictionless in-store returns of items purchased online, the retailer’s inventory between the two businesses must be synced. Paden said it’s not an easy task for a behemoth like Walmart, which runs two separate inventory systems.

He said Amazon, a mostly pure online retailer, didn’t have to try and merge two separate systems. Paden said there’s still plenty of work for retailers and brands to do in effectively managing returns. He applauded Walmart’s recent efforts to bridge its physical assets with its digital capabilities.

“We know that returning an item and waiting for a refund, especially for a product purchased online, isn’t always seamless, so we’ve completely transformed the process for our customers, whether they are shopping in stores or at Walmart.com,” said Daniel Eckert, senior vice president of services and digital acceleration for Walmart U.S. “By leveraging our physical stores and the Walmart app, we’re changing the returns game in ways that only Walmart can.”

Walmart made Mobile Express Return available on certain categories. It still has not been rolled out for all categories.

In September 2017, Amazon and Kohl’s announced they were teaming up to allow consumers to return Amazon purchases at select Kohl’s stores. This program allows Amazon customers to bring in their unpackaged returns. Kohl’s packs and ships the return to Amazon for free.

“This is a great example of how Kohl’s and Amazon are leveraging each other’s strengths — the power of Kohl’s’ store portfolio and omnichannel capabilities combined with the power of Amazon’s reach and loyal customer base,” said Richard Schepp, chief administrative officer at Kohl’s.

Optoro reports the partnership between Amazon and Kohl’s led to an 8.5% increase in customer traffic at Kohl’s stores that offer the service. The returns are available in 82 stores across Los Angeles, Chicago and Milwaukee.

The Amazon shopper starts the process online at Amazon’s Return Center where they select the store they want to process the return. They print the shipping label and drop it off at the Kohl’s store. Amazon allows customers to track the status of the return online. Amazon typically refunds the Prime customer long before it actually receives the merchandise back.

“Amazon returns at Kohl’s creates a convenient location for Amazon customers to return eligible Amazon.com merchandise,” said Shivi Shankaran, director of worldwide customer returns at Amazon. “Teaming up with Kohl’s provides an incredible opportunity to pair our world-class return experience with a great shopping experience.”

While Walmart and Amazon have been proactive in testing expedited return policies, the Optoro survey of the largest 120 retailers and brands found only 30% have systems that quantify the full cost of returns. Recommendations from the Optoro report include multiple return options for shoppers, good communication on return policies and processing the returns within five days.

“More than 50% of our respondents say that it takes at least one week or more to process a return and get refunds back out to customers,” the report said.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.