Over half of retailers said they are looking for ways to improve return recovery, yet few organizations know how to unlock revenue retention. In this article, we look at the power of a returns decisioning engine and how to systematize margin-making decisions.
Returns are margin crushers for retailers
For years, retailers and brands have considered returns a mere cost of doing business. But as e-commerce continues to gain more ground in overall retail sales and shoppers become more comfortable with returns, the problem has become too costly to ignore—hence why so many finance leaders are asking about returns!
But how do retailers, brands, and 3PLs functionally recover more value from returns?
What is returns decisioning?
In retail, returns decisioning answers the question, “What do I do with this returned item?” It isn’t only about the physical location or movement of returned items through the reverse supply chain—getting this right can have a major impact on financial recovery.
Most organizations have minimal decisioning options or “routes”. Usually, there are three basic options for a return:
1. return to stock (for like-new, resalable items)
2. dispose
3. or recycle
The lack of options and flexibility for routing returns puts retailers in a precarious position to either risk sending non-new inventory to the next customer and damaging the customer experience and brand perception, or routing too much inventory to low-margin or total-loss channels and losing out on critical revenue.
However, to determine the best (aka most profitable) decision for a return, quite a few additional things should be taken into consideration. For example:
- What condition is the item in? Is it damaged, used, or in sellable condition?
- Is the item still in season? Where (geographically) is the item being returned?
- What was the sale price for the item? What is its current value?
- How much of that item do you still have in stock?
- If it’s being returned to a store, does that store carry the item or is it online exclusive?
- What is the item being returned? Is it a relevant category for resale or refurb?
- What is the shipping cost to return this item?
Most often, an associate in a store or warehouse must make these subjective assessments that can lead to error-prone routing or backlogs of returns — not to mention the pressure on the associate to “get it right”. In a recent conversation with a store associate, they said they usually “walk around the store with a return to try and determine if they sell that item or not, and if not, they put it in the ship-to-DC bin.”
Optimized returns decisioning is both the art and science behind increasing margins and improving financial recovery.
