The retail industry is currently facing an epidemic. In the past, commentators weighed in on trends such as the death of the high street, how to obtain and retain brand loyalty and how to improve the customer experience. However, while the industry was debating these issues, another challenge began emerging: a challenge that could be costing retailers significant profits—the returns epidemic.
According to a report by the Financial Times, the average returned product passes through seven pairs of hands before it arrives back to a store. In the United Kingdom alone, it is estimated that returned items are costing retailers an average of £60 billion ($80 billion) a year.
It could be argued that the reason retailers are witnessing greater returns is down to changing consumer behavior. The article in the Financial Times suggests that a large number of consumers are hedge-spending, whereby they are buying items at full price with the knowledge that they can return them with ease if they are discounted at a later date.
Another argument for the noticeable increase in returns could simply be down to how straightforward retailers have made the process for customers. A recent survey by Barclaycard found that 30 percent of British shoppers admitted to over-ordering clothes with no intention of keeping items, yet 47 percent of those surveyed also said they would not over-order items if they had to pay to return them.
So how are product returns impacting retailers so significantly? The main factor influencing profits so much is that these products are becoming held up in processing through the supply chain. Companies around the world are struggling to manage volume of returns effectively. By the time a product arrives back in store and is put back on the shelf, the process has been so slow that the item is often out of season or no longer being sold in store, which means retailers either have to sell the product at a discounted price or send it back to the supplier. This leaves retailers in a position to reconsider their reverse supply chain in order to overcome this challenge.
Speeding Up the Reverse Supply Chain
In order to address the returns epidemic and ensure that retailers keep profit margins as high as possible, they need to make sure the returns process is much more efficient. A growing number of retailers are beginning to adopt game-changing technologies, such as item-level RFID, in order to simplify this process.
The use of RFID in retail stores is best known for successful projects like Tesco F&F, where inventory accuracy is impacting inventory levels and out-of-stocks. However, it can also be used to effectively trace inventory through the reverse supply chain, helping companies to more effectively manage customer returns, reducing the amount of time employees spend manually processing returns, and enabling products to get back in store at a much faster rate.
Already, a number of large retailers are looking at using RFID solutions to streamline their reverse supply chain processes and operations at their stores and distribution centers. RFID tags allow items to be read in bulk and be accepted into a processing queue, and to provide the ability to prioritize items to process and speed up the movements of those items back into a sellable status.
An Industry Working Together
With the evolution of technology and rise in online shopping, the apparel retail sector has seen a huge surge in growth and significant opportunities presented. For example, online-only fashion retailers such ASOS and Boohoo have both reported significant profits, at £1.75 billion ($2.3 billion) and £265 million ($352 million), respectively.
However, this growth may be hindered due to these companies’ free return policies, and they could see these profits hit by the amount of stock becoming held up in the reverse supply chain. With these opportunities also come challenges, and the returns epidemic is one that is swiftly becoming the most prominent.
Dean Frew is chief technology officer and senior VP of RFID solutions at SML Group. In this role, Dean leads SML’s overall technology and go-to-market strategy for RFID, including tags, software and deployment. He is a frequent speaker featured at many national and international events focused on supply chain, asset management and RFID technology.