Overcoming the Visibility Gap in Returns Management to Maximize Retail Success

Point of View

For companies in the retail segment, the focal point to building their business is to grow sales numbers every quarter. The idea of improving ‘customer experience’ comes under this ambit, as there is a direct correlation between satisfied customers and their interest in being a repeat patron of the business.

In this melee, companies tend to often miss making the distinction between gross sales and net sales. The denominator to this is product returns. For one, product returns are bad for business as they lengthen sales cycles, are cumbersome to resell, and have a definitive impact on the customers’ brand perspective. Secondly, a less-than-adequate returns process can drive customers away from the business, casting a long shadow on customer acquisition and retention.

This lack of distinction between gross and net sales is largely a matter of visibility, or absence thereof. The challenge is heightened during peak seasons when a significant portion of products are returned — for various reasons, like dissatisfaction with gifts or sizing issues. The downstream impact of such returns may overwhelm logistics operations, as it can lead to warehouse overstock, increased costs of storage, and dilemmas with insufficient leased space to handle returns.

The central issue with not having visibility into returns primarily has to do with companies not actively measuring them. The tools and systems necessary to track return metrics are less frequently used or prioritized than those that monitor gross sales. Companies rely on manual processes that are not explicitly designed to manage returns, hindering the creation of detailed returns reports and strategizing for minimizing them. 

A fundamental challenge here is the lack of clear ownership over the returns process. The problem is that roles overseeing returns are rare in most retail businesses. Is this the responsibility of the sales division, or should there be a dedicated role to manage returns logistics? Companies need to figure this out, as establishing ownership would ensure a regular review of return metrics, helping quantify their business impact. 

The first step to managing returns is recognizing the need to consistently monitor and manage returns, not just annually but on a regular and systematic basis — monthly or quarterly. This shift from a yearly retrospective analysis towards a more frequent, measured approach allows companies to grasp the full scope of their return issues. 

Scheduled assessments help understand the actual return percentages, spotlighting the channels that witness higher return frequency and the products most affected. For instance, a retailer might notice an increased rate of returns for a specific product sold through its e-commerce channel, prompting a closer examination of the returns’ reasons — potentially leading to strategic adjustments in how the product is sold or marketed. 

Integrating returns data to forward logistics operations can reveal opportunities to optimize stock levels. Occasionally, returned products that aren’t yet processed can lead a business to believe they are out of stock on SKUs relating to the returns, missing out on potential re-sales on the returns. Or, this could lead them to push new orders, bloating inventory. 

A comprehensive returns management system optimizes the entire supply chain flow to enhance visibility across all facets of the retail ecosystem. While planning is crucial to accommodate immediate returns, products that make their way back many months later due to defects covered under warranty need a different approach. Collecting information on such returns over the year will give actionable data that can improve net sales estimates. For instance, knowing that products in a specific category have an annual return rate of 5-8% allows a company to enter a season or fiscal year with informed expectations regarding potential returns. 

This deeper understanding of returns, derived from both immediate and long-term data, helps focus on the root causes of returns. Eventually, this leads to better sales and marketing strategies across multiple selling platforms. 

For this to work, companies must look to implement systems and technologies specifically designed to streamline the returns process. While such tools do not eliminate the time required for handling returns, they enable faster returns processing, leading to quicker restocking and resale of returned items. 

Quicker returns processing is particularly critical for fast-moving products or SKUs that see significant return volumes post-peak season. The faster such items are processed and returned to inventory, the quicker a company can recoup costs and avoid lost sales due to products being marked out of stock online, despite physical stock availability in warehouses.

The returns data, if analyzed, can offer valuable insights for further optimizing the returns process and overall supply chain management. For instance, retailers with a clear understanding of the type of returns and the ‘urgency’ of their restocking can look to consolidate returns before shipping, rather than moving individual parcel returns — realizing significant savings on logistics. 

Ultimately, everything comes down to enhancing overall visibility into the process, which hinges on the availability and use of appropriate technology and tools. Returns management systems go beyond just facilitating efficient returns processing, ensuring companies can anticipate returns, rather than merely reacting to it.

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