Last year’s holiday shopping season was a solid knockout in retail sales. eMarketer1 says total retail spending was up 5.4% to $998.32 billion, with brick-and-mortar sales rising 3.9% to $874.42 billion and eCommerce landing at 16.7% to $123.90 billion. eMarketer also expects that the 2019 holiday season will see healthy US retail spending growth of 3.7% to $1.035 trillion. Additionally, as seen from NRF’s Annual Holiday Consumer Survey2, the average amount of money consumers are spending on gifts for family, friends and coworkers continues to increase each year, to about $638.
While that sounds fantastic, the reality is that a substantial portion of holiday-season purchases will be returned and many of these, including those purchased through a digital or online channel, go directly back to brick-and-mortar stores where the customer is expecting a frictionless return process.
Returns are inevitable, unavoidable and inherent to the modern consumer journey. A complete knockout is unrealistic. However, retailers can embrace a smarter approach to inventory management to deliver a technical knockout.
Let's relate this to boxing for the blow-by-blow detail of what this means for retailers in terms of inventory management, revenue and profitability.
In the U.S. alone, Statista3 estimates returns will cost $550 billion by 2020, 75.2% more than four years prior.
The New Topography of Retail report found:
58% expect retailers to know the reasons for their return - View Infographic
Narvar Consumer report4 found:
96% would shop again with a retailer based on a good returns experience.
22% of respondents have returned a gift they received to an online retailer.
40% find it easier to return items to a store.
17% wouldn’t buy a thing without the option to return in-store.
This stick and move approach means inventory is continually moving and not necessarily coming back to the place from where it was purchased. From a customer service perspective, retailers are well-accustomed to accommodating their customers when it comes to returns. What remains a challenge for many retailers, though, is how to fully and accurately represent the return activities in both inventory management and future planning cycles. So what can retailers do to roll with the punches of high returns?
While in-store holiday returns can create an opportunity for retailers to satisfy customer service expectations, they also present challenges for inventory and product lifecycle management. According to the Wall Street Journal, returns to a store cost a retailer an average of $3 per item in administrative expenses and can be made available for resale within a day. While items shipped back to a distribution center or third-party logistics provider cost roughly $6 or more per item to process and take at least four days to become available for resale. The upside is in-store return policies for online purchases is an increase in foot traffic, the opportunity to position incremental sales opportunities, or the potential to substitute an alternate size or style for the returned item which can drive customer loyalty or point deductions.
However, it is our experience that most retailers, even the largest ones, are not adjusting their merchandise financial plans in a way that allows them to take advantage of this main event. For one thing, even in the age of omnichannel consumer behavior, retailers’ online and in-store operations often operate in silos with the bulk of returns going to stores. While the eCommerce team believes sales are soaring, the stores have a different perspective and challenges. If a retailer sells a lot over the holidays and does not see many returns, the natural assumption is to going to keep rolling and buying to replenish the online channel inventory.
Unfortunately, the eCommerce team doesn't see the left hook coming their way on the store side, with returned merchandise stacking up in every corner. When not planned for, this can create challenges for the organization and specifically the inventory management team. The returned inventory creates a distraction for a salesperson, removing them from the floor to repackage items, steam them, or whatever may be necessary to avoid losing revenue. Additionally, online-only items returned in the store are mismatched or incongruent items that the store may not have in its localized assortment. Retailers must prepare for a quick counterpunch by empowering associates to discount the misplaced item, ship it back to a warehouse or retag the inventory to be able to process the sale.
By eliminating silos on the inventory management level, and focusing on an enterprise-wide planning process, retailers are making tremendous strides in better managing a product lifecycle that includes inevitable returns. The resulting planning steps are adapted to reflect the individual retailer’s needs. However the process begins with having insight into the makeup of the overall inventory. From there, develop a championship strategy to land on a unanimous decision.
For example, as some retailers consider reducing their number of stores based on underperformance, a contender may elect to retain hubs that play a significant role in fulfillment. By transition select physical locations from traditional formats to hubs for customer returns, they can also generate extra foot traffic and convert new sales from all those holiday returns.
A retailer’s returns management plan should leverage a complete, unified picture of the organization’s inventory; essentially one version of the truth. The key is to stay agile and consider the customers return journey in the pre-season plan to help react adequately to in-season returns.
The Oracle Retail Merchandise Financial Planning solution has built-in functionality that reflects best practices used by retailer champions worldwide. It helps retailers stay in the ring and on their feet to fight another holiday season.
Put Your Guard Up – Plan the customer journey to better react in-season
Avoid the Ten Count – Take a holistic approach to planning returns across all channels
Pay No Attention to the Fringe Contender – Understand each location’s role in the retail supply chain