One of retail’s biggest paradoxes is hiding in plain sight – returns. While often viewed as a costly burden, returns on average actually represent up to 15% of a retailer’s sold inventory at any given time. Yet remarkably, as Blue Yonder’s Corporate VP of Returns Management Tim Robinson recently shared when Anne and I interviewed him for our Omni Talk Retail podcast, most retailers still lack a dedicated “head of returns.”
This organizational gap is striking when you consider that returns now cost retailers approximately $1 trillion globally. Even more striking? Robinson describes returns as potentially “the worst supplier relationship” a retailer could have – they send you stuff every day, you don’t know what’s coming, when it’s coming, or whether you can sell it.
But therein lies the opportunity.
By reimagining returns through a more strategic lens, retailers can transform this seeming liability into a powerful differentiator across three key dimensions:
- Returns as a Function of Inventory Management: The fundamental mindset shift is viewing returns as inventory, not just a customer service function. With 72% of consumers having been refunded by a retailer, according to Blue Yonder research, and told they can keep the item, even in categories like electronics, retailers can do much more to realize value from returns by applying the same rigor as traditional supply chain management.
- Data as the Great Returns Unlock: The digitization of retail has created unprecedented opportunities to leverage returns data. Leading retailers are using this intelligence to make smarter decisions about everything from refund policies to routing optimization. For instance, knowing a customer’s purchase history and return patterns allows for personalized policies that reward loyal customers while managing serial returners, rather than tightening policies universally, which 69% of consumers say defers them from making purchases.
- The Omnichannel Imperative: Perhaps most importantly, retailers can no longer afford to maintain separate online and store-based returns processes. As Robinson explained, many retailers still operate entirely separate supply chains for digital and physical returns – a practice that creates unnecessary costs and complexity. The future, not just for returns but also for just about everything else in retail, requires viewing inventory through a unified omnichannel lens.
The implications for retailers are therefore profound. Those who continue treating returns as a necessary evil will increasingly find themselves at a competitive disadvantage.
The stakes couldn’t be clearer. According to the National Retail Federation (NRF), total returns for the industry amounted to $743 billion in merchandise in 2023. As a percentage of sales, the total return rate for 2023 was 14.5%.
This leads us to a stark reality: we’re approaching a returns reckoning in retail. Those who seize the opportunity to reimagine returns will likely see multiple competitive advantages emerge:
- Their stores will become more profitable as returns drive additional foot traffic and sales
- Their inventory management will improve as they gain visibility into what was previously a “blind” 15% of their stock
- Their customer relationships will deepen as they use returns data to personalize experiences
- Their sustainability metrics will improve as they optimize routing and reduce waste
- Their margins will strengthen as they process returns more efficiently and resell items faster
Meanwhile, those who maintain the status quo will likely face mounting challenges:
- Escalating costs as return volumes continue growing close to 20% year over year
- Eroding margins as they fail to optimize return routing and processing
- Lost sales as returned inventory sits in limbo rather than being quickly restocked
- Customer defection to retailers offering more convenient return experiences
- Growing sustainability concerns as inefficient processes create unnecessary waste
The technology and capabilities exist today to transform returns from retail’s “worst supplier” into one of its greatest opportunities. The only question is: which retailers will seize the opportunity first?
The writing is on the wall – returns are no longer just a cost of doing business but rather a strategic capability that will increasingly separate retail’s winners from its losers. The choice for retailers is simple: reimagine returns now, or risk being left behind.
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Omni Talk® is the retail blog for retailers, written by retailers. Chris Walton and Anne Mezzenga founded Omni Talk® in 2017 and have quickly turned it into one of the fastest growing blogs in retail.