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Retailers look to the supply chain to strengthen margins and solve ‘returns charges’ conundrum

The second half of 2023 is expected to remain a challenging trading period, with inflation still stubbornly high and consumers feeling the pinch.  

It will be more important than ever for retailers and consumer brands to strengthen their margins and tighten operating costs, with customer returns certain to be a key focus of attention.

Retail logistics company, Advanced Supply Chain Group (ASCG), recently surveyed 1,000 consumers and 100 retailers to look at how the ‘returns crunch’ is affecting retailers and to solve the age-old conundrum of whether to charge shoppers for sending items back.

The volume of returns is on the up. More than a third of retailers reported growth in volumes of between 11% – 20% during the past 12 months, while almost 2-in-10 retailers have seen levels increase by as much as 40%. These numbers are leading to retailers to re-think their returns policies, as they look to address margin dilution.

An immediate starting point is reviewing returns charges. If the usage of low- or no-cost services for customers to send items back is growing and proving a bigger burden on the bottom line, charging more for returns can seem like a quick fix. It often isn’t.

Charging for returns tends not to be well received. It can generate negative column inches in media and spark anger and a backlash on social media. This is because shoppers are now at a point where they believe returns should be free of charge. Our consumer research verified this, with two thirds expecting not to have to pay for returns services. Shoppers value this above all else when it comes to the subject of sending items back.

If people are used to receiving a complimentary service, it can be extremely difficult to suddenly transition their attitudes and behaviours towards making payments. 65% of consumers said they’d be less likely to shop with a retailer that charges for returns, and this is the real challenge for eCommerce businesses. Would charges help offset the rising costs of returns but end-up having a more detrimental impact on revenues as sales slump? It’s a big risk to take at any time, and even more so in price-sensitive markets where consumers are squeezed and aiming to make their money go further.

In an attempt to manage this risk, retailers are looking at how else they can manage growing volumes of returns. 29% are thinking about policies that target customers who repeatedly send back large quantities of goods and a fifth are looking at limiting flexible payment options. A similar number are also considering placing limits on the size of customer orders.

These steps can all seem practical measures for encouraging shoppers to think much more about what makes their final baskets, lowering the potential check-out of goods they’ve not properly thought about and which are more likely to be returned. The big risk here is that retailers are effectively strangling the online shopping experience. Consumers want to be confident that they can receive a product and have the opportunity to properly look at this to see if what they’ve bought measures-up to how it was presented online.

Rather than considering charges for returns or changing the sales experiences that consumers want, retailers are much better placed interrogating how effective and efficient their returns process is. Research found that only 13% of retailers are salvaging the majority of their returns (75%+ of overall volumes) as Grade A stock. They are facing significant losses because the value of returned items isn’t being maximised.  

40% of retailers reported that their returns were being re-sold through discount sales channels, while around 12% are regularly disposing of returned inventory. Enhancing salvage rates could yield much greater benefits for bottom lines than introducing charges for returns. More effective processing of returns can improve stock availability to strengthen sales and reduce wastage to make operations more sustainable.

The real returns conundrum for retailers isn’t about charging for returns, it’s about how to integrate returns into supply chains. Data and insight are crucial for achieving this and can deliver savings that help fund the no-cost returns that consumers expect.

Ben Balfour, COO at Advanced Supply Chain Group (ASCG).

Click here to download ASCG’s eBook to read more about the returns crunch, our research findings and how we are supporting retailers and consumer brands in building a more effective supply chain.

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