Returns unboxed: navigating the pathway to “zero returns”

In 2024, the rate of online returns experienced by UK retailers surged to a record high, with the total value of goods returned during the year exceeding £27bn. This figure reflected a 33% increase in returns across various categories – luxury, beauty, home, fashion – and is projected to rise by a further 16.7% by 2027.

It isn’t hard to see why return rates are on the up: today’s consumers regard the ability to return goods as a free service that’s part and parcel of their online shopping experience.  But as more and more returned goods re-enter the supply chain or end up in landfills, the upward trend in returns presents retailers with financial, operational, and environmental challenges – and imposes significant costs across transportation, packaging, processing, and replacements.

So, faced with this rising tide of returns, what should retailers do? In our view, it’s imperative that they act to minimise returns and improve the returns experience – with a view to turning negative shopping and returns interactions into positive ones.

Many retailers have already taken steps in response to rising returns.  Major players including Zara, Boohoo and Uniqlo have begun charging for online returns or allowing customers to keep low-price items when the cost of return shipping exceeds the item's value. However, measures like these, risk impacting the long-term customer experience. Meanwhile,  Amazon, Shein and Temu have adopted a different approach, by offering a “returnless refund” on selected products.

Mapping out the pain points: retailers’ “return woes”

Before we explore how retailers can rise to the challenges created by rising returns, let’s drill down into what those challenges are. In our experience, they primarily arise in the following areas:

• Managing reverse supply chains: Returned products must be transported to the returns center for inspection, sorting, and disposition. There is no single optimal strategy for a reverse supply chain network: it needs to be customized to each retailer's category of goods, such as fashion, beauty, apparel, grocery, home or automotive. This results in significant overheads.
• Poor use of store space with returns: Managing return parcels within a retailer’s physical stores without overloading the available capacity is a significant challenge.
• Inspection and disposition: To streamline operations, labor-intensive and time-consuming inspection and disposition decisions need to be made early in the returns process.
• Uncollected parcel returns: Both on regular trading days and – more especially – during peak events like Black Friday, uncollected parcels are a major burden for retailers. They can lead to frustration for customers, lost opportunities for advocacy, increased costs for restocking and reprocessing, and potential brand damage due to negative reviews.
• Cost impacts: Returns have a significant effect on retail businesses’ profitability and sustainability. Each returned item not only represents lost revenue – but also imposes additional costs related to logistics, operations, storage, and depreciating product value.

Addressing the challenges

To lighten the burden of returns while keeping customers happy, it’s vital to optimize the revers supply chain process: studies consistently show that a seamless returns process has a positive influence on repeat purchases. And when creating such a process, improving returns management is key. Here are six leading practices that can help retailers get their returns process right:

1. Blueprint the journey for returns in the same way as for fulfillment: Many retailers lack a clear blueprint for the returns journey of the type they have for fulfillment – a mismatch that can lead to operational problems and higher return costs. So developing an effective returns process similar to the fulfillment journey should be an urgent priority.
2. Invest in technology to enable virtual product experiences: Augmented reality (AR) tools can help customers make more informed purchases. Retailers such as Asos are successfully reducing returns by providing “virtual try-ons”, while Ikea and Amazon enable customers to visualize items of furniture in their homes, leading to higher satisfaction and fewer returns.
3. Offer multiple return options and simplify the returns customer journey: Retailers can  enhance convenience for customers and reduce dwell-time by offering a variety of return options and expanding the number of drop-off locations. Measures like providing instant refunds based on product type, cost and customer history can speed up processing and ensure items are returned to inventory more quickly.
4. Enable tracking and communications: Effective actions here include providing customers with real-time tracking and updates on the returns process and guiding them to drop-off points based on store capacity. Further steps may involve offering improved reminders for uncollected parcels and applying strategies to reduce the impacts of the reverse supply chain.
5. Utilise artificial intelligence (AI): By enabling retailers to analyze customer data for personalized recommendations, AI can help to manage returns more effectively. Fashion retailers like Lookiero send curated selections, encouraging returns to enable them to capture feedback and suggest better fits. Similarly, Amazon’s "try before you buy" model improves order accuracy and reduces returns.
6. Implement a transparent returns policy: To enhance customers’ satisfaction and avoid frustration, it’s important to provide a clear outline of the returns policy online, ensuring it’s concise and easy to understand. Offering free shipping and reasonable return timelines can also help.     

Embarking on the journey – one step at a time

While the long-term goal is to completely minimize returns, not every action to achieve this needs to be taken at once. A useful first step is to simplify the returns supply chain process, making the customer's journey simpler and ensuring they have an easy way to return products. This is a quick win in the short-term – one that can significantly reduce reverse supply chain costs, cut returns processing time by 35% to 40%, and generate tangible operational improvements. 

One customer return option that’s being deployed by a growing number of retailers is the use of QR codes to enable paperless returns. This method increases convenience and engagement by removing the need for customers to print labels, making it easier for them to drop off parcels at nearby locations. However, some retailers and small shops struggle to implement this model due to a lack of onsite printers or a return portal to provide QR codes. Our teams at Cognizant have collaborated with a number of major UK retailers to develop new solutions for managing returns, helping them transition to a QR code-based paperless system.

It's good to talk!

Thanks for reading. If you have any feedback on anything we’ve said in this blog, or would like to know more about how your retail business can progress towards “zero returns”, please reach out. We’d love to hear from you!

References:

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