Introduction

Consumer Research

How is MetaPack helping retailers?

From the Gartner Files: Returns — The Ticking Time Bomb of Multi-channel Retailing

Summary

About Us

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Issue 1

Featuring research from

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Returns – The New Battle Ground for Retail

Introduction

Returns are now increasingly being seen by retailers as a strategic part of the complex world of global commerce delivery. The growth in online sales and consumers using the home as a changing room has fundamentally changed the way that consumers view returns and retailers must develop their reverse logistics to respond to this. By optimising your returns strategy you can ensure that the process is as cost-effective and integrated as possible, whilst ensuring that when your customers do want to return an order, it is as convenient and seamless as possible. Combining these approaches will allow retailers to introduce new revenue opportunities and increase consumer loyalty and conversion through returns.

Response from the retail community has been slow to adopt multiple options for returns. Micros’ survey in April 2014 looked at the returns options offered by UK digital retailers annually from 2009 to 2013. Retailers offering only a single option of a postal return has consistently been top of the chart ranging from 41.0% in 2009 to only slightly lower in 2013 at 36.4%. The rise of Collect+ as a viable returns option in the PUDO market (pick-up and drop-off) has experienced a noticeable increase from 0% in 2009, to being offered in different combinations in over 25% of retailers in 2013, this option is often marketed as a free alternative for the consumer. What is most telling though, is that only 1.0% of retailers offer a combination of post, carrier and carrier parcel shop (PUDO) returns options. This shows the opportunity that retailers still have to offer an increase in flexibility and convenience for their consumers.

The digital environment is constantly changing – and fast. Consumer requirements and behaviours are evolving too. We not only offer you the tools to keep up, but in this report we’re lifting the lid on what your customers want, both now and in the future. Delivering Consumer Choice >>

Getting a parcel to your customer is only half the challenge. Today consumers want a returns process that’s simple and painless, too. Our returns portal – branded to your look and feel – links to all outbound delivery records. MetaPack Returns >>

Introducing the journey of a parcel, from the click of the customer’s mouse to delivery and beyond. There’s more to it than vans and boxes. Follow our interactive website as we take you through the life of an order in the MetaPack system. Inside Delivery: The MetaPack Guide >>

Source: MetaPack

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Consumer Research

MetaPack commissioned consumer research to understand what people really thought about the returns processes that are currently on offer from retailers across Europe.

MetaPack’s research shows that over a quarter of consumers find it difficult or frustrating to return items that they have bought online. The reasons for this are that it is not free (58%), it is too complicated (51%) and it is not convenient to drop off the parcel (46%). Consumers are being educated about price, ease of use and convenience during the outbound delivery experience and are now increasingly expecting the same to be true for a return.

Returns can provide a compelling competitive advantage in the crowded market and act as a lever to drive additional sales. When asked, (during the same survey), if consumers would shop more at a retailer that made the returns process easy, an overwhelming majority of 83% said they would. However, unlike many trends

emerging in deliveries, the response was the same regardless if it was the 18-24 age category or over 55’s and also if the shopper was a light, medium or heavy user.

It is clear that the link between returns and repeat purchase transcends the barriers of age and shopping habits, and therefore can be applicable to any retailer, sector or vertical. This means that retailers outside of classically high return rate verticals, such as apparel, will also need to invest in their returns process to maximise the potential of their customers.

Consumers now expect to have flexibility and convenience when it comes to the returns process. They are becoming increasingly demanding as the explosion of different outbound delivery methods (that are entering the market), raises their expectations to anticipate the same level of options available when returning a parcel.

Source: MetaPack

Over 25% of consumers return online goods more

than 10% of the time

Don't want to pay for a return

Find dropping off a parcel inconvenient

58%46%51%30%Think the returns

process is too complicatedOf shoppers find it difficult to return goods purchased

online

Big o’ Mart

24% would like to return to a post office

12% would like to return to retailer’s store

38% would like the delivery company to collect from my home

17% would like to return to a convenience store

of Multichannel Retailing

TheTICKING

TIME BOMBTIME BOMBTheTICKING

83% of consumers

would shop more at a retailer that made the returns process easier

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How is MetaPack helping retailers?

Global returns platform

MetaPack are providing retailers with a fully branded and white label consumer platform that can be used globally, in multiple languages and due to a responsive web design on all desktop and mobile platforms.

Source: MetaPack

Visibility

In addition to the consumer portal to raise and process returns, MetaPack also provides retailers with a management portal that allows full visibility on all returns raised and processed. In addition to the returns volume, it also reports on the reason for the returns, providing the merchandising and web teams with valuable insights.

Source: MetaPack

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Rules

The complexity of returns policies globally can be difficult to administer in a consistent and fair way. MetaPack’s portal allows retailers to automatically configure a number of variables to automate the processing of consumer returns:

• local language reason codes for all markets

• configure distance selling return limits by country

• blacklist non-returnable items (perishable or earrings for example)

• chargeable returns - this can be configured as either to charge for a return or not based on the reason code entered or the product being returned

Source: MetaPack

Source: MetaPack

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Approval

For high-value items it is possible to configure the system to request approval from the customer service team on the specific transaction. The level at which this can be set is completely configurable by the retailer and allows for a balance to be created between self-service by the consumer and protecting the operation from potentially suspect or fraudulent activity.

All approvals are processed in the management portal and can be accessed anywhere in the world via a browser and will notify all parties in real-time.

Source: MetaPack

Source: MetaPack

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Data Capture

The consumer portal allows for the full capture of product and item level detail, ensuring that the full reporting can be generated. In addition to item level detail the portal also supports:

• multiple reason codes per item

• pictures to be uploaded against damaged items

• quantities of items to be returned

Payment providers can also be additionally integrated to take a discrete payment for a premium returns option.

Notifications

The portal supports fully branded retailer communications at all points along the journey and will also email the carrier label and tracking link directly to the consumer upon completing the return transaction.

Additionally, it is possible to send all notifications in the local language of the consumer.

Management Information

The only way to manage returns on a global level, with all of the additional information generated by the portal, is to have the ability to pull out the trends from the data and take the necessary actions, whether that is removing items from sale, amending the product listing or changing the packaging. All of the data from the portal is fully accessible by the retailer, in real-time, giving access to insights into the real data rather than relying on out of date information and feelings about what is happening.

Source: MetaPack

Source: MetaPack

Carrier Integration

The days of simply pre-printing a free post returns slip and placing it within the outbound parcel are over. Consumers expect to select the most convenient option at the point that they raise the return and this may be totally different to the option selected the last time they returned an item.

MetaPack’s returns portal dynamically queries the retailer’s account for available returns options uniquely for each consumer and only presents which options are viable at that date, time and geography. All major methods of returning are supported (postal, carrier collection, drop off, return to store and locker) and combined with the largest global label library it offers retailers unparalleled options for their customers.

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Research from Gartner

Returns — The Ticking Time Bomb of Multichannel Retailing

Analysis

A new Gartner global research study into the multichannel fulfillment and returns practices of 300 multichannel companies across a wide variety of retail sectors indicated that these companies only resold at full price 48% of the products that consumers returned. The study also revealed that 70% of respondents believe their returns volumes will increase as their online sales grow. These two statistics suggest some significant deficiencies within the supply chain operations of these companies; they also provide an indication of a future threat to profitability.

A related concern lies in the findings of numerous studies into consumer shopping behavior, as reported by the Baymard Institute. These findings indicated that up to 70% of online purchasing transactions are abandoned before completion, with the main reason being unacceptable shipping or returns policies.1 Furthermore, the “2014 UPS Pulse of the Online Shopper” study found that, when faced with having to pay for return shipping, 55% of consumers would not complete the transaction.

When these studies are linked, we see that retailers can convert more customers by making returns easier; however, then, retailers risk losing profit by being unable to resell enough of these returned products at full price.

While it may seem counterintuitive to resolve a returns issue by making returns easier. Potentially creating a scenario in which returns volumes could increase is the outcome of doing what is necessary to achieve higher sales. These will result from reducing the instances of basket abandonment and lost sales, but it must be counterbalanced by improving reverse logistics processes. The alternative is to continue with the approach used by most retailers — that is, making returns more difficult, underinvesting in reverse logistics capabilities and losing potential customers in the process.

Multichannel retailers are sitting on a ticking time bomb. Sales growth will increase the volumes of returned product, requiring improved returns management capabilities to be put in place. This research advises heads of supply chains on how to manage this balancing act and make more profit.

Impacts

• The pursuit of multichannel growth, coupled with historical underinvestment in returns management processes, leaves retailers with returns volumes that adversely impact their route to market supply chain operations.

• The product returns policies offered by many multichannel retailers are one of the main reasons why shoppers abandon their intended online purchases, causing significant lost sales for retailers.

• Most retailers have not sufficiently integrated their reverse logistics supply chain processes with their open to buy (OTB) processes, leading to excess inventory being brought into their businesses.

Recommendations

Heads of supply chains:

• Invest in reverse logistics capabilities to support multichannel growth objectives so that increased volumes of returned merchandise can be managed independently to the route-to-market supply chain.

• Introduce free or lower-cost shipping and returns policies in order to increase online revenue and reduce instances of basket abandonment.

• Reduce the capital invested in excess inventory by improving the linkage between the volumes being brought into the business and the volumes of returned product that are already in your reverse logistics supply chain.

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In the face of growing competition and increasingly demanding consumers, retailers must drive improvements into their multichannel selling activities by developing ways for customers to engage with them across their existing and new selling channels. Higher sales will be dependent on greater conversion rates, which, in turn, are dependent on providing more attractive returns processes and policies.

The ticking time bomb emerges when retailers pursue strategies that lead to increasing returns volumes, while operating supply chains that lack the ability to cope with the increase that is generated.

This research recommends improvements that heads of supply chains can adopt to cope with increasing returns (see Figure 1 and Figure 2).

Retailers need to make returns policies more

attractive …

… so as to increase in conversion and sales.

This is likely to increase the volume of returns.

The reverse logistics supply chain becomes unable to cope with the

volume of returns.

However, current reverse logistics

supply chains already have three key deficiencies:

This research shows retailers how to defuse the

ticking time bomb.

OTB is not integrated with returns.

Returns forecasts are not in place.

There is low full-price resale of returns.

Source: Gartner (September 2014)

FIGURE 1 The Ticking Time Bomb of Multichannel Retailing

Impacts Top Recommendations

The product returns policies offered by many multichannel retailers are one of the main reasons why shoppers abandon their intended online purchases, causing significant lost sales for retailers.

• Introduce free or lower-cost shipping and returns policies in order to increase online revenue and reduce instances of basket abandonment.

The pursuit of multichannel growth, coupled with historical underinvestment in returns management processes, leaves retailers with returns volumes that adversely impact their route to market supply chain operations.

• Invest in reverse logistics capabilities to support multichannel growth objectives so that increased volumes of returned merchandise can be managed independently on the route to the market supply chain.

Most retailers have not sufficiently integrated their reverse logistics supply chain processes with their open-to-buy processes, leading to excess inventory being brought into their businesses.

• Reduce the capital invested in excess inventory by improving the linkage between the volumes being brought into the business and the volumes of returned product that are already in your reverse logistics supply chain.

Source: Gartner (September 2014)

FIGURE 2 Impacts and Top Recommendations for Heads of Supply Chains

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Impacts and Recommendations

The pursuit of multichannel growth, coupled with historical underinvestment in returns management processes, leaves retailers with returns volumes that adversely impact their route to market supply chain operations

Companies don’t get into the retailing business so they can manage returns processes. However, with the growth of multichannel trading and the “buy anywhere, return anywhere” mantra being communicated to customers, companies can no longer simply focus on launching new product, keeping high availability levels and marketing their brands.

Many retail supply chains have not been designed to cope with the volume of product returns coming back through the supply chain, so retailers need to re-envision their supply chains as operating in a circular series, not as a predominantly one-way pipeline to market.

The impact of todays’ volumes is causing blockages, leaks and delays; ultimately, this will impact the designed outbound flow at a considerably increased cost. This is unsustainable in a multichannel world, and the balance between outbound and inbound flow is shifting and jeopardizing profitability.

Respondents to our “Multichannel Fulfillment and Returns” survey (to be published later in 2014) told us the following:

• Fifty-five percent rated “improving the efficiency of the return process and technology” as very or extremely important, while only 42% believed that they do this well or extremely well.

• Only 38% stated that they have the infrastructure in place to deal with an expected increase in returns volumes.

This leaves the majority of retailers ill-prepared to deal with escalating volumes of returns as their online sales grow.

Recommendation

• Invest in reverse logistics capabilities to support multichannel growth objectives so that increased volumes of returned merchandise can be managed independently to the route-to-market supply chain.

Products returned to stores need to be systematically added to the store inventory file at the time of receipt so that they are visible on systems of record, and so they can kick-start the return journey as quickly as possible. This must be controlled by a time-bound key performance indicator (KPI) and by supporting processes.

Capabilities to label, scan, track and process returns with the same level of efficiency as the outbound supply chain path must be implemented within the reverse logistics process. Only with a combination of KPIs, systems, processes and governance will a retailer avoid the frequent scenarios of returned products languishing in store stockrooms, distribution centers (DCs) and other bottleneck locations, with little inertia available to make them available for an expedient resale opportunity.

In designing an efficient reverse logistics supply chain, it is important to recognize that the same capabilities used in the forward supply chain can’t simply be used in reverse to manage returns. Reverse logistics requires different processes, technologies, capabilities and expertise. The process needs to be managed through dedicated resources supported by a holistic and integrated set of KPIs.

To do this, merchandising and supply chain executives in multichannel retailers must have:

• Clearly identified process steps and owners in the returns path.

• Efficient systems to track and value the flow of product, especially where integration with a third-party provider is a necessity.

• KPIs to alert decision makers as to the remaining shelf life or selling period of a product, relative to its lead time in being available for resale. This is particularly important for short-shelf-life products.

Leading retailers are consolidating their outbound and inbound DC activities to the same geographic location, with separate and focused operations on the route to market and reverse logistics operations. This helps to join activities in a seamless manner, and improves the speed to resale. Where an outsourced provider plays a role in returns processing, relevant systems are integrated to ensure that product visibility, KPI management and reporting are all effectively in place.

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Recommendation

• Implement capabilities to analyze and forecast the timing, methods and occurrence of returns.

Within the Gartner demand-driven value network’s supply chain models, more mature retailers are integrating demand forecasting into their supply chain operations. Typically, they generate forecasts at item/channel/location/week levels so that they can understand a granular view of demand for supply chain use. However, from conversations Gartner has had with more than 100 retailers, only a handful of them apply the same approach to forecasting when products will be returned to the business.

For the majority of retailers, returns by volume represent the largest supplier to their businesses, delivering product like no other supplier, with higher levels of variability and unpredictability, and through multiple routes.

The absence of returns forecasting puts retailers into reactive mode, uncertain as to when returns will occur, where the product will be returned and which products will re-enter their supply chains. This is not a sustainable way to manage increasing levels of returns. Retailers must analyze returns patterns across these channels and enact capabilities methods to inform the supply chain as to the future pattern of returns. These methods must extend beyond statistical forecasting to include predictive analytics in order to understand the causes of returns, rather than simply forecasting their future occurrence.

Retailers must utilize this analysis to determine a level of granularity that allows them to anticipate returns, and to align people and processes to manage them, while also looking at how they can reduce returns volumes by understanding root causes across channels, products, and customer segments.

The product returns policies offered by many multichannel retailers are one of the main reasons why shoppers abandon their intended online purchases, causing significant lost sales for retailers

Retailers’ returns policies are typically listed on their websites, usually in an inconsistent manner and in sections entitled “Terms and Conditions,” “Customer Service,” “How to Order” and so on. Some retailers only display their returns policies at the point where the consumer is about to complete his or her online transaction.

The one consistency in this varied consumer experience is that returns policies universally consist of four components:

• Method: The process of returning the product, and through which channels

• Cost: The extent to which the consumer is liable for return shipping and taxes, and entitled to any shipping refund on the original purchase

• Lead time: The window of time after the original purchase during which the consumer can return the product and receive a full refund

• Refund: The length of elapsed time after the return during which the consumer must wait to receive his or her refund

The variation of the services offered within each of these elements, from one retailer to the next, adds to consumer confusion and dissatisfaction, resulting in the abandonment of online purchases.

Adding to the confusion is that it is often impossible to categorize overall policies as attractive or unattractive to consumers, because most retailers have policies containing a mixture of elements. Some, for example, will charge for return shipping, but offer quick refunds, while others may have free shipping, but unattractively short time periods in which to return merchandise after the initial purchase. To illustrate this impact, Gartner surveyed the policies offered by 15 leading global retailers across grocery, apparel and homeware, and found the following:

• All retailers allowed customers to make returns to a store or by mail, but only half made pickups from the consumer’s home, and only four offered the option to make returns to a remote location. Only three offered a free returns policy to their consumers.

• The length of time during which the customer could return the product ranged from seven days to 90 days, with an average of 35 days.

• The delay in refunds also had a wide range, with consumers having to wait as little as three days to as much as two months.

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This inconsistency impacts the consumer’s desire to complete the online transaction — a point highlighted by the “2014 UPS Pulse of the Online Shopper” survey. This also revealed that 82% of respondents would be likely to complete a sale if they could return to the store or ship for free using a prepaid label; in addition, 67% said they would still complete the transaction even if they couldn’t return to the store, as long as they could obtain free return shipping.

Recommendation

• Introduce free or lower-cost shipping and returns policies in order to increase online revenue and reduce instances of basket abandonment.

Retailing is a unique industry because all supply chain policymakers in retail companies are also shoppers at various other retailers. Thus, it does not require much of a mindset change to go from thinking like a policymaker to thinking like a shopping consumer. It is, therefore, surprising that so many return policies feel like they have not been developed with the consumer’s needs as the main driver, especially when the consumer is the sole judge as to the appeal of these policies and how they relate to his or her intent to purchase.

In order to improve returns policies, reduce basket abandonment and convert more would-be shoppers into actual consumers, supply chain leaders need to assess these policies against their competitors’ offers and, more importantly, what is acceptable to consumers.

To do so, the four components of returns policies must be looked at individually and then packaged together to form a compelling policy. Some of these components will need to be tailored to suit specific retail sectors, because what may be appropriate for grocery may not be so for consumer electronics; likewise, fast-fashion retailers’ need to limit return lead times is not so acceptable for products with longer selling periods. Nevertheless, some components should be generic across all sectors if there is no justifiable reason for differentiation.

Thus, the recommendations for developing a compelling returns policy are as follows:

• Method: Leading retailers are following a “buy anywhere, return anywhere” mantra across their multichannel operations. In practice, this means that consumers should be able to return product through any retail channel, regardless of the channel through which they made the purchase. Most retailers allow for a product that was purchased online to be returned in the store, and this is now established in the minds of consumers as a basic offering. Additional returns options are now becoming more prevalent, and, for example, include the ability to return to a location that is remote to the store (such as refrigerated or ambient lockers), or to a third-party collection provider (such as new service offerings, recently established in the U.K., through companies like CollectPlus or Doddle). These options extend the retailer’s supply chain by an additional node, and also add complexity; but as return services, they provide value to the consumer and, thus, are important recommendations for retailers to pursue. Increasingly, retailers need to be aware that the consumer does not distinguish between the stores that retailers own and stores they don’t (such as concessions, independent retailers and franchisees). In our recent Multichannel Fulfillment and Returns survey, one-quarter of respondents said they do not allow products to be returned to a different store format than the one in which the product was purchased. Consumers just don’t understand this restriction, because they see themselves shopping with a retail “brand,” not a retail “format.” These restrictions, which are potentially justifiable from the standpoint of an internal franchise agreement model, must be removed in order to open up returns opportunities and retain consumer loyalty. This is particularly relevant for retailers that trade internationally, and represents something of a holy grail in order for them to be viewed as true global multichannel retailers.

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• Cost: It is difficult to look at the cost of returns separately from the cost of shipping, because the consumer views them together as the total potential cost of placing an order with a retailer. The “2014 UPS Pulse of the Online Shopper” survey stated that 93% of online shoppers take action to qualify for free shipping, with 58% increasing their spend amount to reach free shipping thresholds. While the latter is clearly good news for retailers, consumers will also factor potential returns costs into their decision to purchase in the first place. Retailers, therefore, need to ensure that the subsequent cost of returning a product will not prohibitively impact the consumer’s original decision to purchase. It is entirely reasonable for retailers to try to recover the cost of returns from their consumers. However, most tend to approach this decision in one of two ways — either offering free returns or not doing so — usually based on an off-putting calculation (to them) of the return cost per item. However, a more subtle approach is required to more closely meet consumer requirements, and also to factor in the likely impact of the chosen policy on profitability. Essentially, this means looking beyond the return cost per item for the retailer, and looking toward factoring in returns volumes in order to arrive at an overall cost to the supply chain. By doing so, the retailer moves from viewing the supply chain as a cost to be controlled to viewing the supply chain operation as a driver of value to the customer and the business. The 2014 study by IMRG and the consultancy Clear Returns2 concluded that:

• Up to 50% of retailers’ returns are caused by 10% of their assortments.

• About 0.5% of customers are responsible for around 10% of returns costs.

There are two focus points to work on in order to minimize the likely increase in returns that a free service can produce. Retailers can offer free returns to all consumers, while working to reduce the volume of returns from the section of the assortment that generates the most returns in the first place. Equally, attention must be given to managing those consumers who order large volumes, but have no intention of keeping all the items. Perhaps all customers could be offered free returns up to a cumulative threshold, beyond which they

will be charged for incremental items — for example, each consumer is entitled to five free returns per year. Retailers could also reward loyal consumers with free shipping and returns when their cumulative spend per year reaches a specific threshold. These recommended approaches allow retailers to offer an attractive returns process, supported by analysis of consumer shopping behaviors and designed to encourage and reward continued purchases.

• Lead time: The length of time after the original purchase in which retailers allow consumers to return products is an area in which consumers and retailers have differing motivations. Consumers want a time frame that allows them to return at their nearest convenience, while the retailer, looking to reduce returns and lengthen the resale window of opportunity, would prefer weeks rather than months.

According to an “E-Fulfilment Survey” of 31 retailers, carried out by Prolog in 2013, the range between the shortest and longest time taken to return a product was between seven and 30 days. Tellingly, the average amount of time taken was 28.8 days, which shows that most consumers took about four weeks. If we accept that this figure is a good working average around which to build a returns policy, then the challenge for the retailer is to try offering this as an average while building in flexibility to protect its original investment in the inventory. In doing so, the retailer must not shy away from offering different lead times for different product categories, since, of all the components of the returns policy, lead time will be the one for which consumers will be most understanding.

The lead-time component, therefore, needs to be appropriate to the product category, which is summarized into three main areas:

• Fresh grocery product: The perishable nature of the product drives the consumer to want to return it quickly, probably on the day of purchase or the day after. With faulty product rather than change of mind being the primary reason for return, the product’s subsequent waste means retailers don’t have to impose quick returns windows.

• Fast-fashion apparel and highly seasonal merchandise: This is potentially the most contentious category, driving high volumes of returns of up to 30% globally. With limited time to resell, retailers should be looking to offer a 14-day maximum.

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• Seasonal and continuity hardlines and softlines: These are areas that allow for longer reselling opportunities; thus, they should have longer lead times, with 30 days being an acceptable maximum for most products (although a category such as homeware and furniture could be extended to 60 days). We do see retailers offering longer terms, and, in our survey of the policies of 15 leading global retailers, three (two of which were homeware retailers) offered 90 days.

It is important to strike a balance between the consumer’s desires and the retailer’s reselling opportunity. A short lead time that is inappropriate to the product category will impact the initial purchase, whereas a 90-day lead time, for example, is more than the consumer needs, and will reduce the retailer’s reselling opportunities.

• Refund: As shoppers, when a transaction has been reversed by returning the product, we want our return to be processed quickly; however, many retailers can take up to 30 (and, in some cases, 60) days. Such policies are extremely unattractive; this is supported by the findings of the “2014 UPS Pulse of the Online Shopper” survey, which showed that:

• Thirty-four percent of shoppers would not recommend a retailer to others due to delayed refunds.

• Thirty-seven percent of shoppers would not recommend a retailer to others if they could get only a credit, not a full refund.

• Forty-seven percent of shoppers said they would recommend a retailer to others if the refund was “within days.”

This is clearly a sensitive area of engagement, and retailers need to err on the side of generosity to retain customer loyalty. Accepting that there will be different procedures for debit and credit card transactions, there must be no consumer experience differentiation between the channels through which the customer returns merchandise.

All retailers should follow the leaders in this area and offer instant refunds, unless constrained by legislation or security issues. Retaining consumers’ money until internal processes engage to process refunds is unacceptable behavior, as the survey results above concluded.

Most retailers have not sufficiently integrated their reverse logistics supply chain processes with their OTB processes, leading to excess inventory being brought into their businesses

Many multichannel retailers still operate siloed internal organizational structures by channel.

Symptoms that have evolved from this structure include buying and merchandising functions that still operate in the same manner as they did some years ago, when returns volumes were much lower across the industry than they are today.

This impacts the business by creating a disconnect between OTB — the available money to spend on bringing product into the business — and the value of product that consumers have returned to the business. We know that most retailers’ reverse logistics processes are underdeveloped; so, as these returns make their way back up through the reverse supply chain, the buying and merchandising teams lack visibility of this merchandise, and, in many cases, will bring volumes of new inventory into the business that have not been netted-off by the amount of returns already within the reverse supply chain. This will lead to increased inventories, higher obsolescence, lower stock turns and reduced cash flow.

Our Multichannel Fulfillment and Returns survey showed that only 32% of respondents have systematically and fully integrated their OTB processes with their reverse logistics operations; 55% said they had some form of manual integration; and 13% said they had no integration at all.

Since full integration is the benchmark, then nearly seven in 10 companies will bring volumes of stock (which are not needed to achieve their sales targets) into the business. This shows another dimension of the ticking time bomb, wherein a lack of integration between buying and returns causes excessive inventory for the retailer.

Recommendation

• Reduce the capital invested in excess inventory by improving the linkage between the volumes being brought into the business and the volumes of returned product that are already in your reverse logistics supply chain.

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Retailers include their current inventory holding volumes and values as input into their OTB calculations, producing on OTB value that is based on a comparison between their targeted inventory position and their forecast position. Where the latter is lower than the former, an OTB value is suggested as an indication of how much stock needs to be brought into the business.

While OTB calculations such as these have been part of buying and merchandising practices for many years, they must be updated and improved to ensure that returns volumes are adequately included. This needs to happen in two ways:

• First, the forecast calculation uses the actual inventory position as primary input. This needs to include all returned stock that is currently within the retailer’s supply chain. The 32% of respondents who have fully integrated solutions add returns to their systematic stockholding records when those products re-enter the supply chain — typically at a store or DC. We know from our research that 43% of retailers receive returned inventory at more than one of their DCs, which introduces the risk of inconsistent processing and inventory record updating across the network. It is important to realize that OTB is typically calculated at the

enterprise level, so any DC that does not add returns to its inventory immediately on receipt will be contributing to the excess inventory position and creating artificially high levels of OTB.

Similarly, at the store level, where store inventory is not updated at the point of receipt, those returns are effectively “off system” and will create higher-than-required OTB.

• Second, in forecasting future inventory levels for OTB purposes, retailers must forecast returns volumes and include them in this calculation to derive an OTB value that has been calculated by deducting forecast returns volumes — that is, net of returns. By failing to do so, they would effectively be ignoring the fact that returns happen, as well as investing their capital in inventory that they do not require.

Evidence1 “27 Cart Abandonment Rate Statistics,” Baymard Institute, 25 March 2014.

2 “Quarterly Fashion Returns Review,” Clear Returns/IMRG, 14 February 2014.

Source: Gartner RAS Core Research Note G00267240, Tom Enright, 17 September 2014

Returns – The New Battle Ground for Retail is published by MetaPack. Editorial content supplied by MetaPack is independent of Gartner analysis. All Gartner research is used with Gartner’s permission, and was originally published as part of Gartner’s syndicated research service available to all entitled Gartner clients. © 2015 Gartner, Inc. and/or its affiliates. All rights reserved. The use of Gartner research in this publication does not indicate Gartner’s endorsement of MetaPack’s products and/or strategies. Reproduction or distribution of this publication in any form without Gartner’s prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner’s Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see “Guiding Principles on Independence and Objectivity” on its website, http://www.gartner.com/technology/about/ombudsman/omb_guide2.jsp.

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Summary

Returns clearly present an opportunity for retailers to focus on, as many of them have optimised their outbound and home delivery offering already. Fortunately, the management of a consistent and repeatable global returns process has been hugely simplified through the technology that MetaPack has introduced to the market. The use of modern web technologies, combined with access to the full product level information, means that retailers can benefit from introducing a global platform with relative ease.

In the `big data’ age it comes as no surprise that the portal gives you access to granular information about all of your returns in real-time. This allows your teams to focus on making data driven decisions about all of your returns.

MetaPack Returns allows you, as a retailer, to have the visibility and data to continue to expand domestically and globally whilst protecting profit margins. Additionally, it provides the technology to allow you to take advantage of an increased sales opportunity, with a returns process that is consistent for all of your customers, regardless of where they are.

Contact Us

If any of the information has raised questions for you about growing your business through an optimised returns process, and you’d like to discuss the findings with one of our team. Please contact us on 0207 843 6720 or email info@metapack.com.

About Us

At MetaPack, we aim to extend greater flexibility and choice to consumers while making it easier for retailers to delight their customers with exceptional delivery services. We’re constantly driving the industry forward, striving to discover new ways to provide an outstanding customer experience and to give eCommerce shoppers on-time deliveries, every time.

Our suite of solutions spans the entire delivery ecosystem. With this end-to-end approach, we enable businesses to maximise their data, gain a holistic view of all delivery operations and unlock their potential for service excellence. MetaPack’s mission is to make eCommerce delivery more cost effective, convenient and enjoyable, wherever an order is made, wherever stock is held and wherever the delivery is required.

Backed by Index Ventures and former Tesco CEO Sir Terry Leahy, the MetaPack Group works with 80% of the UK’s leading retailers, including Marks & Spencer, John Lewis, House of Fraser, ASOS and B&Q. The company was recently featured in the Sunday Times Hiscox Tech Track 100 list of fastest growing British companies which have achieved remarkable success in their chosen industry. In September 2014 MetaPack announced the acquisition of US shipping vendor ABOL Software in order to provide enhanced Control Tower functionality to their growing global customer base across the world.

www.metapack.com