Returns: The Bottom Line Bully

As we approach Q4 of 2020, we decided to do a Newmine Rewind series and republish some of our most visionary content. ...

As we approach Q4 of 2020, we decided to do a Newmine Rewind series and republish some of our most visionary content. We’re calling it “Product Returns Reduction: The Time is Now.”

In 2019, retailers still considered returns as a “cost of doing business,” but Newmine spearheaded thought leadership around Returns Reduction, knowing that simply mitigating the costs of returns is insufficient and unsustainable. With the sharp rise of eCommerce due to coronavirus, product returns have risen to an even greater drain on retailers’ bottom lines and are threatening their very survival. This series is a great place to start if you’re looking to familiarize yourself with product returns as well as understand the financial and operational rewards of a persistent returns strategy.

Read on…

Why Act Now on Returns Reduction?

In order to create frictionless shopping experiences and compete with giants like Amazon, eCommerce retailers have taken a customer-centric approach to returns by making them fast, free, and easy. In fact, the Journal of Marketing found that retailers who offer free returns see customers spend up to 457% more than they did before initiating a free returns policy—an indication that a customer-centric approach is a competitive advantage for top-line growth.

Article Image

However, in our post-pandemic world, a strong bottom line is needed for business longevity. While historic return rates for brick-and-mortar stores hovered around 8%, online return rates can skyrocket to 45% in some product categories–And as eCommerce becomes the primary shopping channel mid-pandemic, returns have only become a bigger threat.


Join the Returns Reduction Movement

Richard Branson once said that “Every great movement in the world starts with a tiny group of people who simply refuse to accept a situation.When companies are in a comfortable place, they are less inclined to take bold steps to create change. Without disrupting the current order, retailers will continue to see returns increasingly bully and erode their bottom lines. Not only is Returns Reduction possible and the benefits tangible, unifying your corporate culture around Returns Reduction is an endeavor with sustainable benefits across the value chain:

  • Improved EBITDA and Reduced OPEX – While a “Returns Reduction Movement” may seem to have expansive, unattainable goals, the fact is that moving the needle just a bit leads to big financial rewards. Newmine has found that a $1 M Returns Reduction delivers $0.5 M to the bottom line—money that can be invested back into the business on revenue growth initiatives.
  • Enhanced Customer Experience – Returns Reduction also improves your customer experience and retention. Retailers don’t like to admit the amount of merchandise that comes back for reasons like “wrong item shipped” or “defective,” but these events occur more often than they would like. Not only is it a waste of OPEX, but it’s also a significant customer experience risk, as 80% of first-time shoppers who must return an item will never shop again with that retailer. Returns Reduction has a substantial positive impact on Customer Lifetime Value.
  • Product Development Intelligence – Collecting and synthesizing return data, including quantified customer reviews and feedback, will offer insight into what customers are truly looking for. That ability to forecast will drive future product success.

The 4 Pillars of Returns Reduction

In order to put a dent in your annual return rates, you will need both an aggregated and granular view of your returns data. The data is housed in business systems such as eCommerce, CRM, OM, WMS, and POS. Customer experience data is stored in reviews and on social media. The key to an effective Returns Reduction Movement starts with organizing all data into a single view to create a cohesive picture of customer returns. The next step is to leverage this data to achieve Returns Reduction by addressing four fundamental requirements:

  • Root Cause Discovery: “Returns Reduction” means reducing both the number of avoidable returns and the cost of returns when they do happen. Returns Reduction is only possible once the data is collected and analyzed in one central system in order to discover the root cause of returns.
  •  Timeliness: Too often have businesses relied on a “post mortem” after each season to recognize the impact of returns. By addressing the problems in-season, and in near real time, you can prevent avoidable returns.
  • Actionable: Your ability to reveal the Root Cause and focus on your highest priority products and categories will enable your team to effectively address the issues.
  • Collaborative: Returns and their associated reasons are a direct byproduct of the entire organization. Any successful initiative will require two essential elements:
    • a “single version of the truth” for all returns and shared by all business users, and
    • a collaborative workflow mechanism to manage team alerts, support action, and measure success.

Ensuring Your Returns Reduction Initiative Is Successful

Companies rarely take business improvements seriously until it threatens their survival–And COVID-19 is testing us all. Organizations that have made the leap to omnichannel, while still maintaining high operating costs, are risking severe deterioration to their bottom lines. Take the steps below to ensure your returns reduction initiative is successful:

  1. Shared Vision: Build your movement around a shared Returns Reduction vision and strategy that is communicated relentlessly throughout the business. Start with a two-year retrospective of your returns data for FY17-FY18 and identify a few of the largest returned items (lost sales revenue) where the need for change is clear.
  2. Accountability: Hold sponsors, process owners, project managers, and team members accountable to deadlines and deliverables. Set up the forums to manage return initiatives and give them the right support and attention.
  3. Right Stakeholders:  Few, if any, organizations have a role titled “Chief Returns Officer.” In lieu of not having one executive that is responsible for the total lost revenue due to returns, we encourage our clients to assemble a cross-functional team including Merchandising, Digital, Marketing, Supply Chain, and Finance.
  4. Tools and Skills: Give project managers, process owners, sponsors, and team members Analytics and AI-based tools. Spend time educating teams. Newmine’s flagship software, Chief Returns Officer™, is an AI-based Returns Reduction Platform that empowers teams with the analytics needed to reduce returns.
  5. Processes, Metrics, and MBOs:  In order to preserve the new improvements and reduction in return rates, establish and monitor “at-risk” products, set return rate goals, and create return reduction MBOs. Every $1 M in reduced returns, contributes $0.5 M to the bottom line EBITDA.
Article Image

All innovative disruption requires some discomfort as companies forge a new strategic path. Check out your potential savings in our Returns Reduction Calculator and then ask yourself: can you afford not to change?

This blog was originally published on the Retail Value Chain Federation blog.

Similar posts

Perspectives and thought leadership from retail visionaries. 

Keep informed on retail industry and product returns insights so you can recover revenue and enhance your customer experience.