Addressing the 'Elephant in the Boardroom'

Sourcing Journal highlights the troubles that returns brings to businesses and shares why executives need to address this problem.

 

Sourcing Journal. May 25, 2023

According to a report recently released by the retail data research firm Coresight, returns nationwide occur on 24.4 percent of all online apparel purchases, topping the national average for all online purchases by eight percentage points. Projecting $155 billion in online sales in 2023, these returns amount to a $38 billion potential loss to online retailers, along with another $25 billion in processing costs, based on an Optoro study that found the average cost of processing a return is 66 percent of the original production cost.

Coresight that found that size/fit problems were the No. 1 reason for apparel returns at 53 percent with color second at 16 percent and damage at 10 percent.

The Coresight study, sponsored by AI measurement company 3D Look, found that 85 percent of online apparel retailers were either implementing or planning to implement some form of virtual try-on tools. Of those surveyed, 27 percent currently had the technology in effect, while 58 percent didn’t, but planned to.

As such, the survey recommended virtual try-on technology as the best solution to curb the problem.

“The industry does not use a standardized sizing system and apparel brands and retailers are unable to capture what the customer really looks like in different styles and sizes of apparel,” the Coresight report read. “As solution providers continue to improve the accuracy and user experience of sizing tools, they have potential to provide new levels of personalized customer service in stores and online, which could lead to a shift in the U.S. apparel market.”

But even the most advanced 3D displays can’t replicate the experience a customer gets when they try on a garment, feel it against their skin, move around in it and see themselves as themselves reflected in the physical world.

With an eye toward a more holistic approach to reducing returns, the five-year-old startup Newmine uses AI to analyze all of the feedback from customers to help retailers figure out where the problems are. The company focuses especially on fashion brands and back in February in Las Vegas it won the inaugural Start Up Pitch Contest sponsored by the Reverse Logistics Association.

“More than 73 percent of the reasons for a return can be controlled by the retailer,” said Navjit Bhasin, the company’s founder and CEO. “Whether it’s poor quality or design or service-related or it didn’t arrive on time, retailers are only able to do something about it if they get to the root cause of those returns.”

Using AI, Newmine technology is not just able to help identify those problems, but to offer corrective measures, as well.

“So, great, a customer told you the problem was a size fit. It was too large. Well, what does that tell you? It doesn’t tell you a lot,” said Mark Schwans, vice president of marketing. “But when you go and look at all the other sources of data, you can start to go through AI and the natural language processing and we start to break down very specific things.”

Schwans said some clothing lines are regularly returned for being too large. Sometimes it involves a problem with the vendor, but often it translates to how the garment was displayed on e-commerce.

“What they noticed was the models were sitting and they’re like, ‘wait, we’re going to have the model stand’ and maybe we’re going to put some extra copy around it” to properly communicate how a garment is designed to fit and look, Schwans said.

Getting customers making a return to share detailed information why they’re unhappy with the product is a key part of the strategy, Bhasin said. Including drop-down options like ‘Other’ without further probing doesn’t help retailers acquire valuable insight.

“As a consumer, my motivation is ‘I need my money back,'” Bhasin said. “In the drop-down reason I’m most likely going to pick the one where I’m going to have the least friction, right?”

Beyond asking useful survey questions, Newmine deciphers thousands of social media posts regarding a particular product.

“If a customer is going to take time to write a review, even maybe just a one-liner, that is worth its weight in gold,” Bhasin said. “Because that customer took time to give feedback to the retailer, so that helps us in the prediction.”

When a new client comes on board, Schwans said Newmine asks for a year’s worth of historical data on returns and seeks to collect future data that can provide solutions within one to two weeks. Finding a speedy solution is critical, especially if the retailer is launching a new product line.

“If you think about a fashion retailer, if you can get information maybe on week three or week four that you have a problem, you can make a correction before that massive peak season has ended, versus if you waited until seven or eight weeks,” Schwans said.

Bhasin said sometimes the culprit of clients’ problems with returns are factors they’d never even considered. He pointed to a retailer that discovered that using the name “velvet” in a line of products—even though the product did not technically contain velvet—was causing a spate of returns.

“Things like that are kind of surprising, but it also makes feel people feel good about their product that they’re selling what the consumer wants,” Schwans said. “And that’s always kind of been a positive feedback that we’ve gotten back that people kind of start to feel enlightened about—a better feeling, like they’re listening to what the consumer has been telling them and they can act on it and change and make things better.”

Reducing returns by 10 percent and more can save millions on a company’s bottom line and Bhasin hopes the more that CEOs realize these EBITDA advantages, the more they’ll be willing to talk about returns on quarterly earnings calls where, he says, the status quo has been for everyone to throw up their hands about the inevitable burden of returns.

“It’s an elephant in the boardroom,” Bhasin said. “If investors ask, ‘why are your returns 10, 20, 30 percent?’ they’re going to create accountability out there. And because of a lack of accountability, it’s getting brushed under the carpet.”

Bhasin said the idea for starting up an SaaS that can serve as a retailer’s chief returns officer, came from his days on the mergers and acquisitions side of Golden Gate Capital where his team solved the returns problem only “with brute force,” and only temporarily.

“Call center, DC, IT, finance, merchandising, marketing, and as a team we were able to crunch through the data, tackle an issue one at a time and we were able to bring the returns down, but then guess what? As soon as that team was dismantled, returns went back up,” Bhasin said. “When I asked friends before launching [Newmine], returns is a problem, what do you think the solution would look like? They said, ‘we’re going to need a silver bullet.’ And I told them, the silver bullet did not exist, which meant I had to go make one, and that’s how the chief returns officer was born.

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