RFID Report Finds Retail Returns a Key Challenge

By Claire Swedberg

A retail brand is testing an SML solution designed to lower the cost of tracking returned goods, and the tech company has released a report describing the expense of managing such products.

A retail brand in the United States is the first to deploy an SML Group Clarity-based solution for returns management that, according to the technology company, is aimed at reducing the manual efforts and resources that are otherwise expended when stores return goods. The brand piloting the returns-management solution has asked to remain unnamed. The deployment is underway as SML has recently released a retail report focused on returns management and the customer experience. The commissioned report analyzed current trends and challenges around returned goods, based on surveys of 500 senior decision makers in the United States and the United Kingdom.

The SML RFID State of Retail Insight Report 2023

SML's "RFID State of Retail Insight Report 2023"

Dean Frew

Dean Frew

Part one of the "SML RFID State of Retail Insight Report 2023," released earlier this year (see Retailers View Out-of-Stocks as Greatest Challenge), described the issues retailers faced post-pandemic, including order fulfillment and in-store experiences, as shoppers returned to stores. Part two is focused on an emerging issue faced by retailers when it comes to returns. SML finds that RFID provides a solution with which brands, retailers and third-party returns logistics companies can manage the flow of goods that come back from customers or stores. You can download both part one and part two from RFID Journal's white paper library.

The volume of goods being returned, including apparel, has been growing exponentially. SML's study cites a statistic from the National Retail Foundation (NRF), which finds that $761 billion worth of goods were returned to retailers in 2021, amounting to 16.6 percent of all U.S. sales. This was up from 10.6 percent the year prior, and the numbers are rising beyond that. In fact, the report found that surveyed companies indicated 30 percent of their goods sold last year ended up being returned. More than half of those goods are then either sold at a reduced price or not resold at all.

Manually receiving returned goods has an exhaustive impact on retail resources, SML notes. According to the report, 32 percent of respondents found themselves spending too much manual time processing returned goods, while 26 percent said they lacked sufficient personnel to get that work done. The solution is multifold but may include RFID technology, which can bring visibility to goods as they are sold, but also as they return and are processed in the reverse supply chain. SML has built returns management into its Clarity software platform to enable this feature.

Two Avenues for Returned Goods

There are two different models by which returned goods are received: products are either brought back to stores, then are shipped in volume to brands, or else customers return products to brands, or to sellers, based on omnichannel purchases. Once goods are received back, the question becomes how to classify each item to determine what to do with it. Some can be sold again as new items, but others are classified as secondary products sold at a discount, and others are simply discarded.

While RFID labels on garments can track unsold inventory at stores, "There's a significant gap in technology at the DC [distribution center]," says Dean Frew, SML Group's CTO and senior VP of RFID solutions. SML's Clarity returns feature, the company explains, is intended to reduce the number of touches by half for each item, by storing and providing automated access to each product's classification. Since goods have RFID tags attached to them, the first thing warehouse staff members must do is verify that each RFID tag and corresponding barcode match, using an RFID reader. Users would then classify the product's second life as either resold or discarded.

SML has built returns management into its Clarity software platform.

SML has built returns management into its Clarity software platform.

As products are moved along their journey through repackaging, restocking or discarding, the tags help to ensure that they travel along the appropriate channels. For instance, as goods are packed and shipped for retailers, an RFID reader captures tag data and confirms that all items for a given order are correct. If an item is incorrectly packed, such as a used sweater intended to be sold at a discount being discovered with new products, the Clarity software can identify the discrepancy and alert the individual using the system.

The collected data not only reduces manual checks and potentially improves accuracy, Frew reports, but it can also be used for billing purposes. When a store returns goods, for instance, "There's always a financial settlement" that must take place, he says. Stores and brands often sign a service-level agreement related to how many units of a specific item can be returned. If the retailer sends back more than the agreed-upon quantity, it may not be paid for them.

Without RFID, it can be difficult for both brands and retailers to identify whether the volume of goods being returned is accurate. If a retailer is contracted to return only 15 percent of a specific product, for example, yet the number of RFID-tagged goods exceeds that limit based on tag reads, the brand can identify that issue. For retailers, the reading of tagged items returned to the brand provides automated proof of delivery and can speed up the payment process. In addition, Clarity allows brands to apply new tags to untagged, returned items, either at a store or at a receiving warehouse.

Reducing Returns Fraud

Some retailers retag returned products and put them back on display for sale, as long as they are in "like new" condition. If they are using the Clarity software, they can retag each product and add it into their software as though it were new. For goods being returned directly from buyers to a brand or retailer online, Frew says, the process is the same.

"Imagine if you bought three blouses and you sent two back," Frew explains. "You're getting credit for them, and there's still a financial settlement," which could be expedited. With RFID tags on goods being returned by consumers, the brand has an opportunity to provide a more automated response. If a tag is read when the item to which it is attached is received, the software could push a notification to the customer that their product has been received, and their refund could then be applied.

Clarity allows brands to apply new tags to untagged, returned items, either at a store or at a receiving warehouse.

Clarity allows brands to apply new tags to untagged, returned items, either at a store or at a receiving warehouse.

"I anticipate that we're going to see brands offer these kinds of services as a differentiator," Frew states. Because RFID enables such automation, he predicts that third-party return services companies may become more commonplace, conducting returns management at a brand's own site. "We're going to see more and more automation take place in that returns process," he adds, "and RFID is a key technology component of that automation."

Another application for managing returns with RFID is theft reduction. At the retailer level, the technology may provide a solution to prevent shrinkage. By uniquely identifying each product, RFID tags can help a store identify when someone is attempting to return an item that was not properly purchased. Such returns fraud has been on the upswing around the world, with thieves removing products from shelves, taking them directly to the store's returns section and receiving a refund on a product, or credit for purchases at the same location.

Retailers often refuse to issue cash refunds without a purchase receipt. In many cases, however, store credit is the perpetrator's key objective, especially at stores that sell alcohol or food. "It's a multi-million-dollar, multi-million-pound, multi-million-euro problem," Frew states. While barcodes can identify a product's stock-keeping unit, he notes, only RFID can identify a specific product and provide its history. "This is where loss prevention and returns overlap, and that's probably the biggest ROI [return on investment] in that space today."


Key Takeaways:

  • SML says companies can reduce manual labor costs related to processing returned goods if they leverage the RFID tags already applied to those products.
  • The technology can provide shrink prevention for retailers as well, by identifying whether goods have been purchased when they are returned for a refund.