Retailers Rattled by Customer Returns
Blog: Software AG Blog - Reality Check
An email comes from your favorite store with an offer on a T-shirt that you like and you order it online in two colors and in two sizes, just to be sure. The retailer is offering free returns, so what do you have to lose. The T-shirts arrive and you choose the size that fits best, bundle up the other two and send them back. Simple, right?
Not for the retailer. Items must be returned to the supply chain and re-worked back into inventories, ending up in the right place at the right time. Customers will engage with a retailer via whatever channel is more convenient at that moment. The same can be said for returns; goods can be returned by post or delivery service, in store, or to a branch or third party.
What gets returned, to where, when and in what condition, can make it almost impossible for a retailer to keep track of inventory – and opens up the floodgates for return fraud. Also, processing returns often means extra manpower, something that will soon become even more costly with the new National Minimum Living Wage in the UK. Return fraud is rife.
Returns are only expected to increase as the growth of online retail proliferates. The impact on retailers of a massive increase in returns cannot be overstated. According to the National Retail Federation, total merchandise returns accounted for more than $260 billion in lost sales for US retailers in 2015. And, with many retailers offering free returns on goods, the problem could spin out of control if measures are not taken.
However, retailers do not want to discourage the “retail moment,” the magical instant in time where someone wants to do or buy something, and one way to ensure that customers “bite” is to offer a free return if s/he is not satisfied. That way, customers can safely order items in a larger variety of colours and sizes, and easily return those which are unsuitable.
This, in turn, creates the possibility of additional returns – according to some analysts rates of return are increasing by 10-15% each year. A lot of a retailer’s profit margin can be eaten up by handling and repackaging returns.
With increased returns comes a higher incidence of return fraud. The NRF estimated that return fraud accounted for 6.1% of returns in 2015. This equates to $9.1 billion, or about the entire annual revenue of some sizable retailers – like Family Dollar, Home Retail Group or Colruyt. According to the NRF, over 90% of retailers have experienced the return of stolen merchandise and 70% have had returns made by organized retail crime groups.
Returns processing and return fraud present unique challenges for retailers in that they erode sales margin and have the potential to massively reduce overall business efficiency.
Returns fraud needs to be stopped at source and in real time – rather than spotted in a retrospective report. The combination of predictive and real-time analytics can enable this. Once returned, process automation and streamlining is needed in order to accelerate the return to inventory.
Because the customer is waiting.