Can Apparel Get Out in Front of a Growing Returns Problem?

2020.Dec.23 Sourcing Journal



All the talk about this holiday’s “Shipageddon” has many in apparel worried about drowning in a tsunami of returns.


A CBRE report projects e-commerce returns this season could reach $70.5 billion, a massive 73 percent increase from the previous five-year average. On top of already strained carrier networks such as FedEx, UPS and the USPS, air freight now has to handle and transport Covid-19 vaccine shipments, straining supply chains even further.


Early in the traditional holiday shopping season, returns already started creeping up. For one-week immediately following Black Friday weekend, Returnly saw returns volume grow by 47 percent from the prior year, and expects a similar post-Christmas uptick.


Consumers widely agree that the returns process impacts their shopping experience: 97 percent says a retailer’s returns policy affects their likelihood of repeat purchasing, according to warehouse automation and analytics solutions provider Voxware. This figure has continuously increased over the 10 years that Voxware has conducted its returns survey.


Naturally, most consumers want shipping mistakes fixed quickly. Nearly 40 percent expect to receive the correct item within one to two days of flagging the mistake, Voxware said. Somehow, 51 percent of respondents said they returned an incorrect item only to have a wrong item sent the second time around, indicating that merchants are overwhelmed with the requests and likely relying on outdated procedures to handle these customer experiences.


And to make matters worse, returns technology provider Optoro estimates that a reverse logistics supply chain requires, on average, up to 20 percent more space and labor capacity compared with forward logistics.


“More space will be required for distribution networks. However, cutting down on the overall return rate should be a paramount goal going forward,” said John Morris, industrial & logistics and retail leader for CBRE. “Technologies such as virtual sizing and augmented reality can help provide more accurate product assessments, allowing consumers to make more informed decisions and reduce returns. Innovations like this will help retailers limit their losses and cut product waste—a win-win for everyone.”


As in-store returns dwindle, retailers leverage convenience to entice shoppers


With Covid-19 cases rising, retail may field more returns in warehouses versus in stores. One October study from reverse logistics platform GoTRG said more than 50 percent of respondents are expecting to return up to half of the gifts they receive, while 65 percent say they won’t be returning their gifts in-store this year. Similarly, the Voxware study said that 56 percent of consumers prefer the option to return items via pre-paid postage, up from 47 percent in 2018.


Walmart is addressing these customer habits through a new FedEx partnership, picking up items sold on its website from customers’ homes without charging a fee. And Amazon just extended its box-free, label-free returns policy to all 500 Whole Foods Market stores, alongside 5,000 UPS Store locations and more than 1,100 Kohl’s stores. Service providers including Narvar, Optoro and Happy Returns have all introduced similar offerings scaled these returns processes with new retailers so that shoppers can drop off returns at a local store with packing or mailing anything.


Monetary incentives certainly come in handy as well, with retailers instituting (or reinstituting) fees for returns by mail, and making in-store returns free.


David Sobie, CEO of Happy Returns, says the firm’s partners now see greater than 50 percent of their returns happening in person instead of by mail.


“For consumers, we adapted our returns process to be contact-free, to help consumers feel safe as they were conducting their necessary returns,” said Sobie. “For partners, our consolidated in-person returns help them reduce their dependence on first-mile individual consumer shipments, which are more subject to delays and customer dissatisfaction, and instead we consolidate shipments with higher grade shipping services and also ship by freight to help our partners reduce their risk of exposure to problems related to the excessive demands on logistics systems.”


The increased carrier demands and processing delays at overloaded fulfillment centers and logistics partners can delay refunds, another problem many new services are aiming to resolve. According to Accenture, 70 percent of customers now expect refunds within six days, compared to the 2019 holiday season’s average of 13.4 days.


Fifty-one percent of consumers want good communications and visibility during the refund process, like tracking the package, get a receipt confirmation and seeing refund details, according to an October survey from logistics e-solutions provider Doddle. This figure is up from 41 percent in May, illustrating that communications and visibility are table stakes and can free customer service reps for other priorities.


“We hear these situations where returns have been backlogged on the dock, and they have not been processed, so there’s a cost of fielding customer complaints and customer service calls,” said Amit Sharma, CEO and founder of Narvar.


Sharma points out that many retailers simply haven’t understood the unit economics of how returns (and the often-negative consumer experience that comes with it) plays out to their overall bottom line, and that the lack of education on the process continues to hold them back. This problem only gets worse as more returns shift online, especially in apparel, where more opportunities to resell are being missed.


“When stores were open prior to the pandemic, a lot of retailers were accepting more returns in store, and they could keep that inventory local in the stores,” Sharma said. “That actually used to be a draw for consumers to go and look at that sales rack or discount section and say, ‘Hey can I get a ‘deal.’ Now, because the returns are not happening in the stores as much, they’re going back in the warehouse. That means you have to still process, pick, pack, fulfill it and ship it, and now you’re incurring more costs to get any value out of it.”


Given that the resale category continues to grow at a feverish pace, there is the double benefit of not only minimizing returns and their related costs, but picking up new revenue when a garment is sold again.


Body scanning tech takes aim at returns

Haniff Brown, CEO and founder of Fit:Match, a 3D body scanning platform located in select Brookfield malls that helps shoppers find garments that fit, believes his startup can alleviate many issues with in-store returns. Some store staff simply spend too much time dealing with returns, which becomes a bottleneck for more important tasks, he said.


“If you’re a store staff member, you’re not even spending 80 percent of your time selling,” Brown said. “You’re spending a majority of your time handling the operational complexities around returns.”


Fit:Match claims it captures 150 data points in 10 seconds to recommend well-fitting styles with 95 percent fit-predictive accuracy, based on measurements collected from garments across brand partners. Today’s shoppers might especially appreciate the contact-free experience.


Plus, Brown says many brands still rely on outdated shopper fit data that’s as much as eight years old, preventing many from accurately gauging true consumers preferences, and only exacerbating the returns issues as shopping shifts online. In the coming months, Fit:Match plans to launch a SaaS platform integrating its recommendation engine into partner websites.


“We see ourselves almost as an enabler for brands who are trying to decide whether they want a virtual fitting room, whether they want a 3D mobile app, whether they want an in-store solution in that infrastructure and our platform can agnostically sort of plug into any one of those solutions for the brand,” Brown said. “Based on our data, we see no reason why return rates should be going up, because technology has never been better. We just think that the disconnect in the industry seems to always lie around, ‘Is the solution appealing enough for shoppers to use?’


‘Bracketing’ bogs down returns

This year’s e-commerce surge and the practice of “bracketing” only amplify apparel’s returns problem. Whereas in 2017, 40 percent of consumers said they bought multiple versions of an item only to return those that didn’t fit, that number jumped to 62 percent, according to Narvar’s 2020 State of Returns survey.


Shoppers who bracket blame various reasons for this: 41 percent cite weight fluctuations that obscure their current accurate size, according to Narvar. And 31 percent typically try new clothes in a store, but haven’t been able to with the closure of fitting rooms. Narvar also points out that 21 percent are trying out new retailers whose sizing might be unfamiliar.


Unlike returns updates that involve partnerships or platform integrations, retailers can take immediate steps by communicating clearly with consumers.


“Often consumers now say that they feel they have to actually look at the FAQ section of a retail website even before they buy,” Sharma said. “If you don’t offer an easy-to-follow returns process, customers won’t even buy. You have to create an awareness about your logistics process so that you can actually drive top-line sales. Whenever we work with retailers, we have seen through cohort analysis that sales actually improve is you fix and streamline your returns process.”


In a recent Coresight Research webinar, Navjit Bhasin, founder and CEO of retail logistics optimization firm Newmine, estimated that 65 percent of returns can be controlled by the retailer. But finding the source of the problem will not necessarily do retailers any good if the season’s already mostly over by the time they act. “Being proactive is really the name of the game over here,” Bhasin added.


Sometimes product descriptions fail to meet consumer expectations.


“The description and the copy of the product is critical, and it’s still a task that most brands relegate to some interns that just write up what that product is—maybe without knowledge. How many times do [we need to] see product dimensions?” Graziano de Boni, the former CEO of Valentino USA, Prada Americas and Armani Americas, said during the webinar.


Consumers need better visuals

De Boni stressed the need for consistent sizing. While he gave credit to activewear brands, which he said have made improvements on this front, “many other businesses have yet to learn how to be consistent,” he said. As a consequence, consumers—including De Boni himself, he admitted—have often resorted to buying three sizes of the same product with the intent to return the two that don’t fit. Creating consistent sizing so that buyers don’t feel the need to rely on this system of overbuying and returning would not only help the environment, but the consumer, he said. “She doesn’t like to go back to UPS or FedEx… It’s a waste of time,” he said.


Simply improving the information provided to consumers could also mitigate returns, De Boni added. Many brands, he said, simply relegate description writing to interns, who may not even know the product. “I was really astonished a couple days ago I was buying something online, something large, and they did not have the dimensions of the product,” he said. Additionally, De Boni advised adding more model pictures so that consumers have a better idea garments fit on their body. “I welcome the day that brands are going to have pictures of all the different sizes so that I can look at the fit of that garment on my size,” he said.


Bracketing is pushing returns rates higher. Last year, 41 percent of shoppers surveyed by Voxware returned an item due to retailer error, meaning it was an incorrect size, color or the wrong item altogether, up from 30 percent in 2018.


As inaccurate or unreliable visuals continue to be a problem, apparel retailers must find a way to bring streamline the e-commerce experience. One online recommendation and visualization platform, Perfitly, was specifically built to tackle the returns problem, using retailers’ digital tech packs and patterns to e-stitch smart 3D garments that create an “e-replica” of each SKU.


Reported at 99 percent accuracy, the virtual garments include fabric properties from density, weight, stiffness, stretch and friction, so that when customers enter their measurements or take a few photos on their app to create a 3D avatar, they will get a recommended, fully visualized size.


To date, Perfitly has reduced returns at one of its longest-tenured apparel clients by 64 percent, according to co-founding CEO Dave Sharma. The company aims to trim returns by at least 30 percent, and boost conversions by 20 percent.


“It’s been a great jumpstart. One of the things that’s come out of the pandemic is that consumers are looking for more engagement out of their e-commerce channels, and if you can make things fun, if you can make it easy and still meet business goals, it’s a win-win,” Perfitly’s Sharma said. “And that’s where I think AR solutions help, because for the shopper, it’s something new. It builds confidence in the purchase and for the brands it reduces returns and boost conversion.”


Take it to the C-Suite

Although retailers struggling with returns won’t be able to immediately reverse their fortunes, returns “need to take a different seat at the table of a business,” according to de Boni.


Brown pointed to Nike as an example of retail’s new consumer-direct future, adjusting its corporate personnel to account for not just the evolving buying trends, but the way margin structures have drastically shifted as shoppers move to e-commerce.


“When a lot of companies are just really trying to get through the season, especially because they don’t really know how to structure the organization around the fact that their margins are basically degraded, that in itself will create more disruption as the holiday season comes to an end,” Fit:Match’s Brown said. “As they think about hiring, employment and so forth, they have to realize it might have to become a different company altogether because of the channel distribution shift that’s happening.”


Even if retailers think they are nailing the fulfillment part of the equation, they have to prepare for all outcomes. For example, Voxware noted that in 2019, 26 percent of consumers returned an item simply because it was delivered later than promised, up 10 percent year over year.


“Returns have a triple effect,” de Boni said. “They have an economic effect on the top line and the bottom line, they have an environmental impact on the business and society in general and there is also an emotional impact in terms of managing the consumer expectations. Once she buys online, she gets the package at home with nobody there from the brand or from the retailer watching or assisting and helping them. Businesses are going to have to enhance attention and maybe even give higher organizational responsibilities when it comes to something that affect 25 percent of your business.”


Newmine’s Bhasin says the executive suite must accommodate retail’s new reality.


“None of the retailers have somebody called a chief returns officer,” Bhasin said. “The returns are maybe 20 to 30 percent, which could be hundreds of millions of returns, and there is no one owner accountable to manage it well.”


“There is a seat at that executive table for somebody to oversee returns when they really represent 20 percent of the volume that you generate,” De Boni added. It’s not just about lost sales and cost management, he noted, but also “there is a loyalty problem, an emotional problem with your customers, that affects future business in a substantial way.”


Guy Hipwell, a Newmine advisory board member and co-founder of Brezilliant, a firm focused on helping teams operate more effectively, encouraged retailers to dig into the why items are being returned. “There are so many things that may have led to a misunderstanding,” he said. Whether if something has changed with the supplier or manufacturer, “if you don’t dig into this information, you’ll never really understand why it’s starting to come back,” he said.


“Everybody wants to be a data-driven organization, but by just saying ‘data-driven’ doesn’t mean you’re able to get to taking action, getting the insights and all of the above,” Bhasin said. “It’s really about can you get to the insight in the right time to take an action and that’s what’s really going to make a difference at the end of the day, that’s what’s going to create financial benefits for the retailer.”


Additional reporting by Chuck Dobrosielski.


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