Most retailers are aware of the importance of interdepartmental communication and the need to understand the impact of decisions across the company. However, a common challenge is to connect decisions in one department with the impact to another. I believe this is key to delivering a seamless purchasing journey for the consumer. To illustrate this issue, let’s take a look at our survey of top UK retailers. We found that when looking at KPIs companies seem to consider the order process a one-way system and overlook returns.
One-way system Retailers certainly know how to process and deliver orders and they realise what is most important – for the customer and for the business. To accomplish this objective, whole enterprise transparency is required. Our survey of UK retailers revealed that only 42% say they have good visibility of performance metrics across departments. Understanding the performance of each contributor to the total consumer experience is key. It is important to understand once the delivery is out the door, the order is not complete. Relationship building continues as customers have a habit of returning items. For many retailers, the return process is not straightforward and represents a point of friction for many consumers. According to a recent study by micros only 50% of retailers offer in-store returns for goods purchased online, which could be a competitive advantage for multi-channel retailers against pure-plays.
Ignored - Why are returns low on the priority scale for retailers? Although 10% of those surveyed say they take inventory into account when prioritising their actions, almost none (2%) had returns as part of their KPIs. Merchants are focused on selling and typically store operations and supply chain leaders are tasked with managing the return. The presence of a KPI on returns is an indicator that most companies execute the sale and the return through different organizations within a retailer. When asked to rate each area of the business, only 46% agree it is important to have visibility of returns. Compare this to the 83% who think it is important to have visibility of Marketing or 85% for Merchandising.
Expensive This lack of focus on returns may turn out to be very expensive for companies in the short and long run. First, consider the financial condition. Returns are costly (and many retailers exclude the cost of returns from their KPI’s) and when combined with special promotions they may be generating losses. Secondly, customer satisfaction increases if retailers and brands are able to process a return right the first time: returns may be the indication that the product is not what it is featured to be. As an example, one of our customers, a luxury retailer, had a dress priced at more than $2,000 that was hugely popular and about to sell out, the buyer believed they needed to order more stock. When they looked at the data our solution set that links inventory and returns, they realised that the sales spike was immediately followed by a return rate of nearly 70%. Adding more stock was not the right solution and the item that seemed such a good performer from an online sale perspective actually wasn’t. Customers were indicating this post-purchase and the retailer was able to cut losses by looking at the connected data between departments, beyond order and delivery. Further analysis enabled the buyer to correct the issues that were causing the high rate of returns and saved sales, reduced returns and increased customer satisfaction. Preventing returns in the first place is the best approach to increase profit and customer satisfaction. A good place to start is connecting data across internal silos. With connected data and insights that drive recommendations, retailers can discover the real cause and effect combined with action plans to improve the total customer experience and improved financials. For this example, all businesses need to increase profit; however, promoting and shipping items that are being returned will erode their stock model, customer loyalty and the already lower margins. Consumers expect and demand more flexibility with the shopping and returns process; a large number of retailers are already offering free returns - and with 88% fashion retailers now offering international delivery, they cannot afford to have returns out of control.
Look both ways In the same way that retailers need to streamline marketing, merchandising and shipping, the various departments must be aligned and have visibility over the entire process. With 42% of those surveyed admitting that their visibility of returns was below average or non-existent (only 31% admitted they had good visibility of returns in the company). The economic and logistic impact of returns is too large to be ignored. Companies need to start tracking their returns and consider inputs and outputs:
- Track the current levels of returns and their cost
- Understand what affects returns
- Quantify the effect of a reduction in returns in the organisation
Disregarding returns breaks the order process: the customer shopping cycle is not just incomplete, but may have been broken for future purchases.
Conclusion Customers research, buy and return in different places. Understanding customer returns has always been important. Doing so requires tracking returns, understanding their impact across the organisation and viewing the transaction as a continuum touch points with the customer. The future of retail is not about delivering by drone, but about offering available items and delivering them in the most convenient way, at the most convenient time for the customer. Retailers and brands will need to move away from focussing on the channel and concentrate on the customer if they want to stay profitable.
