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Returns Management in Retail: Optimizing the Process with Technology and Best Practices

Returns management is not just about processing returned items. It's about having a technology-enabled, effective returns process that can minimize the impact of returns on your business while improving customer satisfaction and retention.

Mar 21, 2023
15 minutes to read

What's in this article:

  • Why is managing returns crucial for retailers?
  • Minimizing Returns and Maximizing Customer Satisfaction: The Importance of Returns Reconciliation in Retail
  • Maximizing Customer Satisfaction while Minimizing Returns: Best Practices for Optimizing Returns Policy in Retail
  • 6 practical strategies for reducing returns
  • Using technology for winning in returns management
  • Conclusion

For modern-day retailers, managing returns is an inevitable element of business. The reasons for the return can range widely, whether due to a product defect or a customer changing their mind. But regardless of the reason, returns can significantly impact a retailer's bottom line. These returned products are often sold at a steep discount or in bulk as a warehouse deal. Hence, there is excellent value in optimizing the returns process and using technology.

Returns management is not just about processing returned items. It's about having a technology-enabled, effective returns process that can minimize the impact of returns on your business while improving customer satisfaction and retention.

Why is managing returns crucial for retailers?

Returns can have a significant impact on a retailer's bottom line. According to a study by the National Retail Federation, returns cost retailers an estimated $428 billion in 2020. This includes the cost of processing returns, restocking items, and shipping them back to manufacturers or reselling them. The rate of return in the U.S. has increased from 10.6% of total sales in 2020 to 16.6% in 2021.

Hence, while having a returns management process in place is crucial, targeting efficiency is also becoming important for retailers to minimize the impact. Here, a technology-based returns process can help retailers manage returns efficiently, minimize restocking costs, and help identify the root cause of returns. This information can improve product descriptions, optimize the policy, address product defects, and enhance the overall customer experience.

Effective returns management can also improve customer satisfaction and retention. By providing an accessible and transparent returns process, retailers can build customer trust and enhance their overall shopping experience. This can lead to increased customer loyalty and repeat business, which is critical in today's highly competitive retail landscape.

In the following sections, we will discuss how to manage returns effectively and how technology can enable a more efficient returns process.

The importance of returns reconciliation in retail

Returns reconciliation is tracking and analyzing returns data to identify patterns and trends. This information can then be used to make informed decisions about minimizing returns and improving the overall customer experience. Let us first understand reconciliation and then discuss how retailers can use it to manage returns effectively.

The critical components of an effective returns reconciliation process include

  1. Tracking and analyzing return data: Retailers must track and analyze return data to identify patterns and trends. This includes tracking the product type, the reason for the return, and the customer's feedback. By analyzing this data, retailers can identify the root cause of returns and take corrective actions.
  2. Identifying the root cause of returns: Once retailers have analyzed the return data they must identify the root cause. This may involve identifying product defects, addressing issues with product descriptions, or identifying areas of improvement for a superior customer experience.
  3. Taking corrective actions: Based on the return data analysis, retailers must take corrective measures to address the root cause of returns. This may involve improving product descriptions, addressing defects, working with suppliers, or providing better customer support. By taking these corrective actions, retailers can minimize the impact of returns on their business and improve the overall customer experience.

Returning reconciliation is a critical component of returns management for retailers. By tracking and analyzing return data, identifying the root cause of returns, and taking corrective actions, retailers can minimize the impact of returns on their business and improve the overall customer experience.

Best practices for optimizing returns policy in retail

Retailers constantly face the challenge of managing returns while keeping their customers satisfied. More than the ease of providing hassle-free return processes, the customer will remember the hassle of an unpleasant return experience. The bitterness of such an experience stays longer and severely impacts customer loyalty and repeat. To achieve this balance, retailers must optimize their returns policy by creating clear and concise guidelines, clarifying to their customers what to expect.

Let's explore the best practices for optimizing returns policies in retail, focusing on maximizing customer satisfaction while minimizing returns.

Following can be some of the critical elements of an effective returns policy:

  1. Clear communication with customers: Retailers should communicate their returns policy clearly and set the expectations right. This may involve providing clear instructions on returning items, a return timeline, and outlining any associated restrictions or fees. For example, it is better to highlight an item as non-returnable clearly while selling than to keep it subtle. The customer misses it, only to be disappointed while trying to initiate a return.
  2. Easy returns processes: Retailers should make it easy for customers to return items by providing clear instructions and convenient return options. This may involve offering multiple return options, such as in-store or online returns, and providing pre-paid shipping labels or even free return pickup. While such options cost slightly higher, the returns can be realized with repeat purchases and higher volumes. Convenient return options give customers a tremendous stress-free shopping experience which can become a competitive edge for the business.
  3. Fair refund policies: Retailers should provide an acceptable refund policy consistent with industry standards. This may involve providing a full refund for the item's cost or a partial refund if the item has been used or damaged.
  4. Provide excellent customer service: Retailers should provide excellent customer service throughout the returns process. This may involve responding quickly to customer inquiries, providing updates on the status of returns, and addressing any concerns or issues customers may have. The returns process should be taken as seriously as the sales process since customers might be nervous and concerned about the problems they face while returning. At this stage, a pleasant customer service experience can help build an excellent brand image.
  5. Policy review: The return policy should be discussed and reviewed at a defined periodic frequency. The leadership responsible for sales and customer service should actively ensure that their returns policy is up-to-date and matches the current customer expectations and best market offerings.

By creating a clear and easy-to-understand returns policy, providing excellent customer service, and analyzing returns data, retailers can reduce the number of returns they receive while improving customer satisfaction.

6 practical strategies for reducing returns

While managing returns is essential for retailers, reducing the number of returns they receive is equally important. Decreasing returns improves the bottom line and indicates higher customer satisfaction. Here are some strategies retailers can implement to minimize returns:

  1. Improve product descriptions and images: Clear and detailed product descriptions, including accurate sizing information, can reduce the number of returns due to a gap in expectations. High-quality photos and product videos can help customers better understand what they buy.
  2. Offer customer support: Providing excellent customer support can help customers make informed purchasing decisions, reducing the likelihood of returns. Retailers can offer customer support through various live chat, email, or phone support channels.
  3. Provide sizing charts: This point is critical if your business sells a product in different sizes. It can be apparel, furniture, or footwear. Detailed charts can help customers choose the right size, reducing returns due to sizing issues.
  4. Address the root cause of returns: Retailers should analyze the reasons for returns and address the root cause. For example, if a product consistently receives returns due to quality issues, retailers should work with their suppliers to improve the quality.
  5. Provide proactive solutions: Retailers can offer proactive solutions to customers to reduce the likelihood of returns. For example, offering a virtual try-on option for clothing or providing product samples can help customers make informed decisions.
  6. Building a community: Customer reviews are a great way to set expectations while the customer makes the purchase decision. The rating of the product and the reviews of verified customers help set the right expectations and avoid surprises.

Reducing returns requires a proactive approach, and a mix of all the strategies above can be applied.

Using technology for winning in returns management

Technology plays a significant role in returns management for retailers. By using various software and analytics tools, retailers can manage returns more efficiently and effectively. Here are some examples of the types of technology retailers can use:

  1. Returns management software: This software allows retailers to automate the returns process, including processing returns, issuing refunds, and restocking items. Returns management software can also help retailers analyze return data, identify trends, and make informed decisions to reduce returns.
  2. Analytics tools: These tools help build on the data generated by the returns management software. It can analyze returns data and identify patterns and trends. Not only do advanced analytics tools like Ikigai can help you identify the root cause of returns and help predict patterns to reduce them but they also can help improve returns policy and optimize operations.
  3. Customer relationship management (CRM) software: This software helps retailers manage customer relationships and improve customer experiences. By using CRM software, retailers can track customer interactions, identify opportunities to improve the returns process, and provide personalized solutions to customers.

The benefits of using technology to manage returns are significant. Here are some of the key advantages:

  1. Improved efficiency: By automating the returns process, retailers can reduce the time and resources required to manage returns manually.
  2. Greater accuracy: Technology can help retailers manage returns more accurately by reducing errors and ensuring that refunds are issued correctly.
  3. Better customer experiences: By using technology, retailers can provide customers with a more seamless and convenient returns process, thereby enhancing customer satisfaction and loyalty.

Conclusion

Managing returns is crucial for retailers as it can impact their bottom line and customer satisfaction. Retailers can manage returns effectively by implementing reconciliation and policy optimization strategies, reducing returns, and using technology. By tracking and analyzing return data, identifying the root cause of returns, optimizing their returns policy, and using technology, retailers can improve their returns management processes, resulting in greater efficiency, accuracy, and customer satisfaction. We encourage retailers to implement these tips and strategies to improve their returns management processes and ultimately enhance their business operations.

Ikigai is a no-code AI apps platform. Based on cutting-edge MIT research on AI and machine learning, Ikigai helps supply chain teams improve the speed and accuracy of their decisions in the VUCA world, thereby increasing the return on investment (ROI) of the business.

Ikigai combines data analytics, visualizations, and automation with its proprietary technologies, such as aiMatch and aiCasting time series forecasting, and translates them into more precise decision-making data. Let's connect for a quick chat.

In this article:

Authors:

Team Ikigai

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