Q&A with Supply Chain Expert Rich McMahon
After the last few years of industry upheaval and the explosive growth of digital channels, returns have taken center stage as the critical issue for retailers to tackle in order to thrive during in an economic downturn. Recent research shows that over 90% of retailers say that returns are outpacing revenue.
We spoke with former Chief Strategy Officer and VP Corporate Ops of Bed Bath & Beyond, Rich McMahon, to learn why he believes retailers need to think differently about returns and uncover…
- Why retailers haven't tackled returns
- Who the executive owner of returns should be
- How retailers can think differently about returns and make enhancements across their business
What has been your experience with returns and retail?
Returns have been an age-old problem for retailers throughout my career, but until recently, it’s been a lost number on the P&L. Finance raises it occasionally, yet despite having broad impacts across a retail organization, it's a lost component of the business. It’s gaining attention now due to the explosive growth in ecommerce that was triggered by the pandemic.
Why haven’t retailers been able to address and control returns?
The ownership of returns has been, I think, one of the biggest challenges. It really is not owned in organizations today, despite impacting every functional area, from merchandising to supply chain. The impact is so large and complex–it’s oftentimes not easily measurable. On the other side, there’s a returns perception issue. There’s a whole reverse supply chain dedicated to returning product that most companies focus on when they think of returns. While those are necessary, they do nothing to address the reasons for the returns, and identify steps and actions to prevent future ones.
Can you explain some of the impacts of returns across a retail organization?
In my career, I’ve worked for retailers that had both physical stores and online businesses. Physical stores can be significantly impacted by returns. We had a very liberal return policy–which I believe in! That's great customer service. But, do you attribute the return to the store it’s being returned to or the original purchase source? What impact does that have on your stores and store associates, their goals and KPIs, or even their bonuses? Is it right for them to take that negative hit? Do those stores have the space to display those returned products properly so they can be remarketed and resold? What if that item isn’t part of their assortment? Do they have to send it back to the warehouse and incur extra cost for their store?
The current return structure also puts enormous pressure on distribution facilities. Warehouses are now responsible for receiving products and evaluating whether that product should be resold or dispositioned through other means.
What all of this means is there’s a tremendous amount of time, capital, and labor that’s dedicated to non-revenue generating activities. If that doesn’t demand executive ownership to oversee and improve, I don’t know what does.
What aspect of returns should a returns executive prioritize?
There hasn’t been enough focus put on what’s causing returns, with an attempt to fix the problem. Returns oftentimes signal an issue upstream in the process of getting the product from concept to the customer’s doorstep. An executive needs to be really focused on determining why the return happens in the first place: Is it a product quality issue? A color issue? A delivery issue? Is it how you’re advertising the product? What other factors are playing in?
In your opinion, who should own returns in an organization?
It depends on the organization. However, returns need to have a champion–that's the one thing that I've come to realize. Someone in the organization needs to champion improving returns–and not just the efficiency of the return process–but determining the root cause of a return in order to fix the problem at the source.
Returns could be owned within the supply chain–oftentimes it is because they're a recipient of a lot of the impact of returns. It could be owned by inventory management. It could be owned from a merchant perspective, based on the margin implications of returns, particularly when you think about apparel businesses that have 30%+ return rate structures. Or it could be a financial owner who has an overall P&L responsibility, that’s tasked with determining: how do we drive improved profitability within our organization? Some retailers could have a sustainability champion that understands the opportunity for retailers to reduce the impact on the environment through improved management of returns.
So, I think that the ownership is dependent upon the organization. But that being said, it needs to have a champion and that champion needs to be someone at a senior level. I really believe that you could name a Chief Returns Officer within an organization and assign that level of ownership to someone who will be responsible for driving changes and transforming the organization through returns reduction, by leveraging insights and actionable data so that you can then engage the various parts of the organization.
How would a Chief Returns Officer collaborate across the organization? What kind of improvements do you think could be made?
It depends on the root causes of returns. An executive in charge of returns could engage their merchant community with insights on product performance, taking into account returns in addition to sales. Let’s say there’s an issue that’s leading to increased returns that stems from the manufacturer. If it can be identified early enough in the selling season, merchandisers can take that information back to their suppliers before placing more orders.
Or, should it be uncovered that product descriptions and web imagery are causing a mismatch in customer expectations, it could involve working with the ecommerce team to improve PDPs [Product Detail Pages], photoshop images to be more true-to-product, or ensure customers can locate and easily understand sizing information.
Another area that has a huge impact on returns is our carriers: Are products getting damaged in transit? Are they even arriving to the customer on time? In that case, leadership would coordinate with logistics.
Whatever it might be, those are opportunities to improve the business overall, by better meeting customer needs and ultimately, being a better retailer.
Any final words you’d like to leave retailers with?
Retailers have to think differently about returns. They must think about returns as a critical aspect of their business, a critical aspect of customer service, a critical aspect of the financial structure and financial viability–and profitability–of your organization, and also a critical aspect of their environmental sustainability.
About Rich McMahon
Richard C. McMahon is a visionary and innovative Founder, Digital and Technology-driven Senior Executive and Board Director with extensive experience driving transformational change and creating profitable multibillion-dollar organizations in retail and consumer markets. Rich spent 17 years in Senior Executive roles at Bed Bath & Beyond including Chief Strategy Officer & VP Corporate Operations, Chairman - International and President - Institutional. Rich is adept at building and managing cross-functional teams, driving sustainable revenue growth, enhancing individual growth, instilling a culture of success, streamlining policies and procedures, negotiating and integrating M&A, developing and leading aggressive new market penetration strategies and establishing and directing international joint ventures. Rich has been the Founder & CEO for cda Ventures LLC since June 2015, a consulting, advisory and investment business working with consumer and consumer technology companies. He currently serves on the Advisory Boards for Newmine, Pathr.ai, Traction Technology Partners and The LNK. Visit his LinkedIn to learn more.