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Our Thought Provoking Insights

Returns - mitigating margin dilution

Against the backdrop of social and economic uncertainty, driving a profitable retail business is becoming steadily more challenging. Returns are part and parcel of online retailing. As online grows its share of overall sales, they increasingly eat into margins further. However, there is also a significant opportunity to materially strengthen trading economics by leveraging data and tools to improve returns management.

Integrating returns into planning processes and leveraging data science

Returns are overlooked in most retail businesses. They aren't properly factored into the plan yet they account for a huge amount of profit lost each year. Retailers must plan for returns better by embracing them as part of their strategy. To do this successfully, they'll need to utilize data science to support enhanced returns forecasting. 

Harnessing data science and analytics to generate critical insight will help businesses identify and learn from trends in returns - are certain products being returned due to quality, fit or style? This deeper analysis also allows them to focus on customer groups - how does customer age, location or climate affect return rates? Retailers can then use this critical information to inform future decisions on product. 

Embracing technology to reduce returns

Another way to get ahead in this space is to focus on aiming to reduce the returns by harnessing technology. We've already mentioned the huge benefits of data science but we are also seeing a growing number of retailers focusing on using 3D digital technology in their product development and selling channels.

Research suggests that 3D implementation results in a 40% average reduction in returns.

There are a number of powerful tools that enhance design and showcase realistic-looking garments on virtual avatars. These tools have been particularly popular with sports brands such as Nike and Adidas who have been leveraging this approach for a while.

Charging for returns

Until recently, the vast majority of retailers offered free returns but charging is now becoming the norm. With reports suggesting each customer return costs businesses an average of £20 to cover everything from shipping and storing to repackaging, this may well be the end of free returns. For brick-and-mortar, getting customers to bring returns to stores creates an opportunity to re-engage and potentially sell to your online customers. Whilst charging for returns might be frustrating for the customer, it is unlikely to be a complete deal-breaker as more businesses continue to put fees in place.

Returns are inevitable but costs can be mitigated

The social and economic climate of 2023 will be even tougher, as the cost of living crisis gains ground and disposable incomes are squeezed. Clearly, returns are a cost but very little has been done to leverage data to proactively manage the process. Better demand forecasting can help to produce and optimise relevance for customers, so their own selection processes improve. A better understanding of sizing, colours and styles all helps. Returns are a given, especially with the growth of online. Being able to plan for and manage those returns effectively is key to strengthening your business and boosting profitability.

This article is part of our 2023 "Crystal Ball" Trend Predictions report. Download the report here and discover more exciting topics we'll be exploring throughout the year!



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