Managing Returns Post-Holiday and All Year Round

Synopsis:

No matter how great your products are, returns in retail are going to happen, especially with so many items purchased online. With the variety of new sales channels and fulfillment models, managing returns isn’t as straightforward as it used to be.

Retailers, brands and distributors that work together at better managing returns can reduce how often they happen and how much they cost – not just after the post-holiday returns rush, but all year round. Making the returns process easy also improves consumer loyalty.

On this episode:

Chris Gunderson (CG):   Welcome to the Mastering The Retail Game podcast from SPS Commerce, where we explore the new rules of retail and provide real world advice on how to win by learning from your peers and industry experts.

I’m your host, Chris Gunderson, and today we’ll be talking about retail returns, how to deal with them, how to prevent as many returns as possible, and how to use them to increase customer loyalty when they inevitably happen.

And returns will happen. No matter how great your products are, returns in retail go hand in hand, especially these days when so many items are purchased online, sight unseen. Sometimes the purchase isn’t up to the customer’s expectations and an item has to be returned. This can be a straightforward process when an item is bought in a store and returned to a store.

But what about all the times when it’s not? With eCommerce, marketplaces, drop shipping, buy online pickup in-store, and the variety of other new online sales channels and fulfillment options available, there are now also many ways to return or exchange products.

However, when retailers, brands and distributors work on their trading partner agreements to satisfy new sales channels and fulfillment models, they can be so focused on the sales potential that they often don’t spend enough time thinking about how to address the returns.

Scott Roti and Ben Carlson are here to talk about the post-holiday return season, the ins and outs of returns policies that satisfy customers, and how easy returns processes can be used to increase lifetime customer value.

Scott Roti is the senior customer strategist at SPS Commerce with previous experience as an electronics and entertainment buyer at Target, and most recently, director of eCommerce sales and operations at COKeM International.

Ben Carlson is the sales manager for logistics at SPS Commerce with nearly a decade of experience helping third-party logistics providers meet the expectations of their customer partners. Prior to that, he spent several years at UPS, the globally known leader in logistics for both packages and freight.

Welcome to the podcast, Ben and Scott.

Scott Roti (SR):         Thanks for having us.

Ben Carlson (BC):     Thank you. Nice to be here.

CG:       Hey, you bet. So late in December through about the middle of January is peak return season. With more online sales predicted and completed than ever before, how did retailers prepare differently for returns this year?

SR:        Yeah. I think one thing that’s really starting to change is retailers are now starting to prepare for the returns. As eCommerce continues to grow, they’re starting to know that this looming returns is pending. And I think as part of that, they’ve really started to shift their strategy from the old days of “Try and make the process as painful as possible to deter returns” to actually using it as a way to engage with customers and drive future sales and make it as simple and easy for the customer as possible.

The way that you’ve really started to see this on the eCommerce space is that a lot more stores are doing returns. It’s not that long ago that if you bought online, you may not be able to return to that same retailer store. But then they’re starting to allow you to return at other people’s store. At the end of the day, the goal for these retailers is to consolidate returns and make it as easy and simple for the customer as possible.

CG:       That makes sense. Ben, with your logistics partners, are you seeing them doing anything different?

BC:       Yeah absolutely. No surprise to anyone, returns are going up. You look at any stats that are available, like look at the amount of returns that UPS is handling compared to a year ago, it’s up significantly. And with that is our pain points. If you’re not addressing it, the pain only increases. And I think the opportunity for logistics partners to help with that is more than it ever has been. And so what we’ve seen in our space are, instead of focusing in on getting brands in the door, “Use my service on order execution,” we have a couple of partners that are actually leading with how easy they can make returns and take that problem off the consumer’s plate as a way to then get the normal day-to-day order to shipment process. So that’s one trend that I’ve definitely seen as a result of the influx of returns.

SR:        Yeah, when you talk about some of the data that we’ve seen, I think there was even a… I saw some article from September and they were polling customers on how much did they think they will return this holiday season. And 77% of consumers said that they anticipated returning something – one of the gifts – that they would receive this holiday season. And that’s where a lot of retailers, as they see data like that, they know that this is coming and they can become a lot more prepared to be able to handle that influx of returns.

BC:       Yeah. And something our logistics partners definitely help out with is, is that necessary? Are there things we could do to actually help keep that more inline or even reduce it? So something worth noting I guess.

CG:       I wonder how many of those gifts were from grandparents?

SR:        Totally.

BC:       Fruitcakes.

CG:       Right, exactly. Scott, you’re talking with retailers day-in and day-out. What are some primary reasons you’re hearing for customers returning product, online or otherwise?

SR:        Yeah, I think that you can bucket the reasons into two different categories. You have the logistics and supply-chain side, so maybe it was promised to be there on Wednesday, but it didn’t show up until Friday. Different time of transit type of challenges.

But then there’s the other category of product information. And that’s where we see a lot that can be the proactive side of how can you try and limit the returns? And things that can drive that are maybe the wrong item shipped, or the right product but it was in the wrong size or color. The description may be not clear enough, or the picture may not display the colors as bright and vibrant as what shows up. So there’s a lot of different things there from a product attribute or product description that can really drive the customer experience and ultimately results in returns.

BC:       I just would echo that, really at the end of the day returns are the result of largely something not being what you expected it was, and the easiest place to solve for that is information. And it’s really knowing from a brand perspective, what are your consumers looking for before they make that purchase? And if you have that dialed in, the chances are you can make unnecessary returns, you can reduce those. So that’s what I would say.

SR:        I always go to my jeans example of trying to find the right pair of jeans. Years ago you’d always go into the store and try on countless pairs of jeans until you find that one that fits the way you want it to. Well, in the online space, what that looks like is I may end up ordering five different pairs in the hopes that I find the one that fits me the way that I want it to. The way retailers are trying to evolve that is they may be trying to solicit reviews on, “Does this fit just right? Does it fit larger than anticipated? Does it fit smaller than anticipated?” And really trying to build out the additional content that may not be coming from the supplier or the retailer, but it’s coming from the end-users that are actually getting it. And that data then is able to inform the customer so they feel more confident in their purchase and may reduce the amount of returns in the long run.

BC:       On something that, I would say our logistics partners really stress when they take on any business, is just end-to-end, knowing in advance all the questions around what is going to be our return rate. “What is acceptable? What does this look like? Where is it coming from?” And the more that brands are in touch with their consumers to answer those questions, and the logistics partner in all parties know in advance of what that process looks like, the better you’re going to be able to control costs downstream. And that’s definitely something that our partner community helps with.

CG:       That’s great. I know that blue jeans example really resonates with me, so thanks guys.  Ben, buy online pickup in-store, or BOPIS, was a key trend during the holidays. How does buy online return in-store, or BORIS compare, and are consumers responding? How do retailers prepare for this newest process?

BC:       Yeah. Just personally, I would say the fact that the real gap of ordering on Amazon was, “Man, what a pain in the butt to return. I’ve got to figure out how to ship this thing back. It’s going to take me a while to get my money back.” And retailers were sort of resting on their laurels that, “Maybe I won’t order from Amazon because that returns process is kind of a pain.”

Well, insert Kohl’s, right? So now I can go to Kohl’s, I can return that item, I can get an instant… There’s like no difference now. Or I can go to the UPS store, same thing. I can return it, get my money right back just as if I was in the store.

So that being said, Target and others where the whole concept of buying online and returning in-store is definitely something at the forefront whereas in the past it wasn’t necessarily there. If you bought online you’d have to return online, you can’t go to the store. So I think retailers are responding with flexibility as a result of what others in the eCommerce space have done to disrupt.

SR:        Yeah I look on the buy side. So in buy online pickup in-store, it’s just a different fulfillment model that really allows customers to interact or shop with a brand or retailer the way that they choose that they want to. Offering different options is something that we continue to see it grow in the retail space as each and every person… You and I, we don’t shop the exact same way and retailers should allow us to shop the way that we want to shop.

And I think that mentality is starting to move over to the return side as well. What retailers are really starting to see is that some people want to be able to print off a label, take it to the mailbox and ship it. I hate that way. I would much rather take it to a store and know that it’s taken care of and know that it’s done, get my money back and just move on. So I think the trend of buy online and return in-store will continue to grow, as it’s just another way that customers can make it easier for them.

One thing I saw, and from a retailer perspective, I love buy online return in-store because it takes out so much of an expense of processing a return. I think Target just announced that when they fulfill an order out of their store rather than through their distribution center, it takes out 40 percent of the cost. That’s crazy. And if you think you could almost reverse engineer then and say that that same cost savings could be applied to returning a product as well, and when you look at that, the amount of costs that is being taken out of your supply chain is so, so, so powerful to your organization.

BC:       Not to mention you get that consumer in the door. They process their return now that they’re there, what are the sales that result of that easy return process? So what does that do to revenue?

CG:       That was a great stat about Target. And on a personal level, I remember when Amazon rolled out that Kohl’s return policy and we shortly after that we got a Prime membership so that really resonates with me as well.

What about when there are drop shippers involved? How can retailers and drop shippers better prepare for the influx of returns that happens after the December shopping season?

BC:       Well, I think first and foremost, being in touch with your consumer, how they buy, what they’re looking for, providing the right information, leveraging technology to provide that information in real-time, either at the point of purchase or after purchase is key. And the more you understand what these consumers’ expectations are, and generally speaking, you’re in touch with your business, the better able you are to deal with this on the front end and build a model that’s based on that.

Because the key to managing cost and to working with your partners and having them help you reduce cost, is knowing as far in advance what that looks like so that you can then model off of that, versus deal with unexpected returns or unnecessary returns that then really eat into your margin after the fact.

SR:        Yeah I think, when I look at retailers and drop shippers as preparing for the returns, it’s looking at doing the same sort of exercise that they’re doing for trying to process that Black Friday through Cyber Monday through Cyber Week order fulfillment. So much work and preparation goes into handling the orders on the front end and making sure you’re getting them out in a timely manner. That same level of focus should be given to processing the returns on the backend as well. Each time a customer orders from you or returns something from you, it’s a way that they’re interacting with you as a retailer. And you got to make sure that you’re making it an easy process for them because you want to make sure that they come back to you going forward as well.

CG:       Oh, that’s great. Scott, in the retailers you’re talking with, what can you do to make a customer happy when they have to send back an item so that hopefully they’ll be comfortable making another purchase in the future? What are you hearing from your partners?

SR:        Yeah, I think one of the main things is how easy you are making it for them. When you look at it, some retailers have different processes for however the order is being fulfilled. So if an order goes to a drop ship, versus their distribution center, the return process may be different. Or if they have a marketplace it could be different again.

One of the main things that I’m seeing is that they’re trying to make it be as consistent to the customer as possible. And I think that’s truly the most important thing. Whether it be having that return label in the package, or you sign into your account and you’re able to print off the return label there, just making sure that’s as consistent and easy for the customer as possible.

CG:       Yeah, your logistics partners, if I think of a 3PL or a carrier, what are they doing to help that scenario?

BC:       Well, they’re certainly helping on execution and keeping your costs in line and leveraging technology wherever possible to reduce costs and increase satisfaction. And one thing is just, I’ll put my consumer hat on for a minute. If you think about the various places that you order from and the various return policies that exist, everything from you basically show up and you’re in a court of law and you have to explain with documentation, and we’ve all been through that and it’s a very limited window. You know, am I happy with that process and am I probably less likely to buy from them? Absolutely.

The other extreme that I thought about that was kind of interesting on this topic of making it as easy as possible for the consumer, is making sure that you’re in line with their expectations. So, an example that I had, last year ordered a rooftop carrier for my car. And it was all around a trip that I was going to take and ended up not needing that rooftop carrier for that trip. I ended up doing something different.

And this thing sat in my garage for close to six months. A couple things fell on it, scratched it up pretty good. And I bought it from REI, who we all know has an amazing return policy. And I thought with the lens like, “I’m going to go back there and see maybe if they’ll give me half or, you know, because it is damaged and it’s been quite some time. I mean I could have used the thing the entire summer, right? And let’s see what they’re able to do.” Well, they didn’t even look at the item, they gave me full money back and I was just so blown away by the fact that they did that. And it was almost to the point where I’m like, “That’s really unusual and you did not need to do that. I’m probably as equal to buy from you as I was before.” And it’s just more of a question of, was that really necessary? And I mean I think it was great. It obviously it worked out well for me. But I’m planning on either getting an in-store credit for half, or maybe even having to go to Craigslist with it.

So it’s just a matter of, “While that return policy is great, is that the right return policy in line with my expectations as a consumer?” So I decided to throw that out there when we’re talking about expectations.

SR:        Yeah.

CG:       That’s a great example. It seems like they surpassed your expectations-

BC:       Wildly.

CG:       … wildly on that example.

BC:       Yeah they did laps around it.

CG:       Scott, are there some examples of retailers that are doing this really well, and what can others learn from that?

SR:        Yeah, I think some of the mass retailers are a little ahead of the game in the sense that they are trying to allow customers to return the way that they want to. Just like the way that they’re making customers be able to buy the way that they want to.

So I think if you look at like a Walmart and Target, they’ve really made it, regardless of who you’re purchasing from, whether it be Target or a drop shipper or a marketplace seller, if you’re able to take that into their store and return it and make it be as easy as possible. So I look at them and I think they’re leading the charge and making it a positive experience to return.

Then I look at the other end of the spectrum and I look at some of the digitally native brands, and the ones that as you’re scrolling through Instagram that you always see that are trying to sell products to you. It’s only eCommerce. They don’t have any brick and mortar stores. Well, they may not have any stores, and what they’re doing is they’re partnering with third parties. And whether it be a third-party logistics provider or be a third-party service and they’re partnering with stores that aren’t theirs. And you can go and return that product, and it’s so seamless. You’re just able to provide your email and they look up and they’re able to find your order, they check it in and you have the money right in your pocket that day.

I think that’s really important. As people look at their money, they don’t want to be tied up in a return process for a week, two weeks, three weeks. Some people really need that back right away. And I think some of these digitally native brands, by partnering with third parties are able to get that back to you and that’s really important.

BC:       Right. Yeah and again, it just goes back to expectations as a consumer. Do I expect the same process for an item, an apparel item, that I do with buying a deep freezer? No, me as a consumer I don’t. And it’s just really identifying what those expectations are from the consumer and then taking it upstream and partnering with the people that are doing execution on returns for you and/or other shipping. The closer you’re dialed into your consumer expectations, again, the better you are able to model cost and make the process better and thus driving satisfaction. So that’s more generally what I would say. But yeah, there’s a wide array of policies out there and some do great, others don’t.

SR:        Yeah, and I think the policies can vary, but even the dates and things can really vary based on the type of product that you’re selling. I know someone like Apple and Lululemon, they only have 14-day return policies. But if you look at their products, it may or may not, there may be reasons for that. Like Apple, they don’t want to throw out this expensive technology that could be outdated in 14 days for all we know. And then you have other ones like the REI example that you talked through.

BC:       Yeah. It’s that balance of what are my customer’s expectations? And then really within that confine, not necessarily just generally saying let’s make returns as easy as possible. But within the consumer expectations within that guideline, leveraging technology, leveraging information, leveraging processes and looking at it as something that, “Is this something I want to be doing in-house? Or is this, am I world-class at it?” All those things within the confines of consumer expectations, will I think be a good place to be a guiding principle.

CG:       So it sounds like, if I’m hearing you guys right, basically what Amazon did with Kohl’s and that partnership, a lot of other smaller retailers or smaller online pure plays are really following that model and it’s just become a consumer expectation. Would that be a good way to summarize this section?

BC:       It summarizes the last decade.

SR:        Yeah.

CG:       Absolutely. Absolutely, absolutely.  Scott, so what are the best ways to prevent returns all year ’round? Whether the item was bought in-store or bought online and drop shipped from a vendor?

SR:        Yeah, I think there’s two ways to look at it. One is really having a clearer, detailed return policy, that is consistent. Too often retailers that sell multiple different categories may have different return policies for different product categories. And as you go through that checkout as a customer, you just want to make sure that you clearly understand what the return policy is for that product. So I think that’s one portion.

Then the other one is when it comes down to product data and attributes. So that’s where it plays into the apparel or other products where you just want to know how does it fit, what does the colors look like? All of those different features that the product has, the more clear and more data that you can provide to that person that when they’re buying it, the better to limit returns.

BC:       Yeah to echo that and something I hear from our partners is, there’s so much information available but it’s tough to get all systems and people on the same page and the more you can do that and leverage the information available to that consumer within their expectations to make a good choice will only help, and a key… Just a super-low-hanging fruit thing that I hear is that managing accurate inventory, and that snapshot, providing that to the consumer. It’s a real struggle that a lot of brands will start with a logistics partner, is not being able to do that and provide accurate inventory information. And that’s something that somebody in that space that specializes in that could help.

CG:       That’s great. And I’m sure our retailers out there are very interested in preventing returns so thanks for that feedback.

So Ben, how can accurate inventory information reduce the rate of returns?

BC:       Well, let’s just take it… Easy to put your consumer hat on for a minute. If you’re buying something and there’s time sensitivity to it and they say you have it, and all of a sudden you’re one day into that process and all of a sudden they don’t have it and it’s going to be a week later, chances are you’re going to be getting money back. And there’s a, like a credit and a return. So having the inventory accurate, which a lot of, of course our partners help with and streamline that will do a number of things. It will allow you to make decisions.

For example, maybe I’m really overstocked in the West Coast and I’m getting a lot of orders on the East Coast. Maybe I should make a change. If you don’t know that that exists and you don’t have accurate inventory information, you’re not able to do that and you’re going to continue to lose out on sales on the East Coast. That’s just an example of that. So it just drives consumer satisfaction obviously, having as much information at the time of purchase as possible.

CG:       So coming out of the holiday season I immediately thought about what I need to buy for Valentine’s day right now. So thanks for the reminder there. And Scott, how about you?

SR:        Yeah I think, any commerce, the purchase starts with an inventory feed. And the more that you can have that accurate clear picture of what inventory is, the more likely you are going to be able to capture the order and get it to them on time. So much of what happens is, the inventory may not be right and it ends up resulting in a canceled order, a backorder, delayed shipment. If the product’s not ready to ship right when you say it is, it could ultimately result in a return. And I think that’s one of the key things to eCommerce, is that inventory accuracy. And that’s a lot of what we do here, is making sure that we are able to provide that for our customers and our retailers.

BC:       Yeah. Also worth noting, I can order from you ten times and not ever remember the nine times that it went super-well, and it’s that one time that it’s not accurate, how are you going to respond in that time? And if you don’t respond how I think you should, I’m never going to order from you again even though you did it right nine times out of ten. So it’s just stuff will happen. Even if you get all the systems perfect there still will be issues. It’s also worth knowing how are you going to respond to consumers when things don’t go exactly right.

SR:        Yeah, yeah. Consumers don’t know who all plays a role in getting their order to them. They don’t know that it may be the warehouse worker, it may be a 3PL, it may be drop shipped. And then all the carriers and all those different people that touch a package from the time it’s ordered to the time it’s delivered on your door. What they know is, did it get there on time when you promised it would be? And I know I’m guilty of tracking my orders relentlessly. I get made fun of all the time by my friends and family as being that guy that’s tracking.

But it’s what our expectations are now. As we look at different retailers that are leading the way in the space, we have that visibility and we have that knowledge. And if something’s going wrong in the supply chain, we know. And we want to know why. And if it goes wrong, it could lead to us not shopping from that retailer again, just like what you said.

BC:       Yeah. And Chris, to your point, each time more information, more real-time information is provided, that becomes the bar. You don’t go back to the world of not knowing where your UPS truck is in your neighborhood and potentially even flagging the driver down. We’re not going to go back to the stages where that isn’t available. So if you’re not, as a brand and a logistics partner, keeping up with the expectations of the consumer that are being put out there each time a huge milestone technologically is reached, you’re behind obviously.

CG:       Yeah the bar is always being raised. That’s for sure. We’ve talked a lot about making returns easy for the customer. Scott, are there ways to streamline the returns process for retailers and suppliers?

SR:        Yeah, I think there’s different ways to look at it. And I think one of the main things is upfront, is trying to determine is this core to your business? And trying to figure out are there other solutions? And it may be that there’s a third party out there that could have software or the processing, either way. There’s different factors of that, that could just make it easier from the customer’s perspective and ultimately easier and more cost-effective for you as the retailer.

BC:       Yeah. I guess what I would add to that, of course I would always suggest looking at processes that could be outsourced and determining is this a core competency and all of that. That’s worth definitely noting.

That said, when you do figure out what you want philosophically your return policy to be in line with consumer expectations, what technology exists out there to make that process easy? It’s something just super-simple. Maybe I’m an online retailer and I’m shipping direct to consumer based on my website traffic. Maybe I include a return label in there with an already identified RA number. So if that consumer decides to return it and that hits the system, that’s already in there and it makes everyone’s life easier. The information’s available, the consumer has that label already there. That’s just an example of leveraging technology.

SR:        So true. And the other thing is that that makes it easier on the front end. But then think about how that helps the retailer or whomever is processing the returns on the backend. Once that shows up there, they have that label and it tells them everything they need to know. It tells them, why was that returned, when was it returned, who was returned from, and make sure that that credit back to the customer is happening in a timely manner as well. All those things are very challenging and it can all be solved by a simple barcode. So yeah, it’s really important to try and put through some of those technology improvements upfront.

BC:       Yeah, and what I hear from our partners in the logistic space is, the worst case scenario are receiving a bunch of returns and not having any idea why. No visibility-

SR:        Trying to find the order.

BC:       Yeah. That is worst case scenario. So if you set the bar as low as that and try to improve on that and try to get in line with your consumer expectations, you’ve got a ton of options out there to make that process better.

SR:        So true.

CG:       Yeah. That sounds like a package that’s going to sit there for a while, right?

BC:       Right. And we’ve all been in warehouses where that occurs. The blind shipments and all of that.

CG:       Well Ben, I’m going to throw this question out to you first. Do you have any final advice for retailers and suppliers that want to streamline and reduce returns?

BC:       It really, it begs the question like, really anything in your business process, is this a core competency of mine and am I executing on this well? And if the answer to those questions are no, look at outsourcing it. I think returns, there are very few people that manage returns perfectly and if that’s eating into your margin and not meeting your consumer’s expectation, there are a ton of people that specialize in that. We have a lot of logistics partners that help reduce cost and increase consumer satisfaction, that you could look at outsourcing. So that’d be my recommendation just more generally. Is this worth doing in-house or is this worth outsourcing? And if so, outsource it.

CG:       Thank you so much. And Scott, same question for you with more of the retailer perspective. Do you have any advice for retailers and suppliers that want to streamline and reduce returns?

SR:        Yeah, I think as consumers are changing their expectations on how they want to buy from retailers, their expectations on how they want to return to retailers is changing as well. So I really encourage retailers to look at what is the end-to-end return process look like and continue to focus on trying to make it as simple and easy as possible. By doing that you’re going to build brand loyalty and brand trust. So focus on the customer and then everything else will fall into line.

CG:       Couldn’t have said it any better. And what a great way to cap off this time. Thank you Scott and Ben for joining us and sharing your knowledge with us today. I really appreciate it.

SR:        My pleasure.

BC:       Anytime. Thanks for having us.

CG:       You bet.

Thanks for listening to this episode of Mastering the Retail Game. You can read transcripts of this podcast, review show notes, and listen to other episodes by visiting spscommerce.com/podcast, or by subscribing to the podcast on your podcast player. Join us on the next episode of Mastering the Retail Game for more advice on what you need to know to win over today’s consumers. Until then, this is Chris Gunderson signing off.

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