Can Artificial Intelligence Solve The Returns And Overstock Crisis?

0aaaBen Whitaker B-Stock

As the amount of online spending continues to grow, there is a subsequent spike in e-Commerce returns, resulting in more excess stock than ever before. Upwards of 30% of online purchases are returns and close to 20% of consumers purchase items across different sizes, colors or styles with the intention of sending back the majority of the order. In many cases, what is returned to the retailer will not go back on primary shelves due to product obsolescence: this is often the case with fast fashion or tech products.

While 2019 has seen a rise in retailers cracking down on serial returners and implementing a more efficient and sustainable approach to the handling of returned and excess stock, the issue isn’t being solved at a fast enough rate. When you consider the value of returns will reach $550 billion by 2020 (not including restocking expenses or inventory losses), retailers should be looking to Artificial Intelligence (AI) and Augmented Reality (AR) as a way to forecast for and offset returns and overstock.

According to the National Retail Federation, two in five retailers are already using intelligent automation and predictive analytics to detect patterns, improve customer engagement and encourage a purchase. For example, retailers are using behavior analytics powered by AI-backed surveillance to study how customers act both online and in store. The system uses information about where customers look in the shop, which areas they buy from the most, which sales they buy from the most, etc.


So, what can be — or what is being — done when it comes to leveraging AI and/or AR to combat excess stock and volume of returns? Is technology the antidote?

In order to keep up with the unprecedented rate of returns retailers must adopt newer, more efficient, technology-driven programs to deal with the merchandise. Using automated analytics and AI, retailers can manage their returns and ensure that they are dealt with in the best way possible. With SaaS inventory management solutions, retailers can determine the best channel for an item once it returns to the warehouse, whether that is to re-shelve, refurbish, liquidate or scrap the item. This automated process allows retailers to quickly process, reroute, and track merchandise, boosting efficiency.

Automated apps that specialize in helping retailers manage online returns are also hitting the market. For example, Returnly is an app that facilitates the return of a product and provides an instant refund to the customer.

Using AI And AR To Offset The Return

Companies also should be investing in AI and AR so customers can accurately see what the item would look like in their environment before they order it. This concept started in the beauty industry, with AR mirrors to help customers discover and try on new products, and it is now playing a key role in the wider retail industry as retailers realize the benefits it could bring. The trend is moving beyond beauty, with homeware brands being among the latest to subscribe to virtual try-before-you-buy applications — the hope being to drive engagement and sales, and of course reduce returns.

As an example, Lowe’s currently offers two different AR apps called Measured and Envisioned, as a means to provide convenience to consumers when shopping for furniture. IKEA recently introduced an AR application, IKEA Place, where customers are able to drop virtual furniture into their own homes and view it through their smartphone camera. The company also plans to integrate more AI into its AR application in the future, giving users the option to select a budget and have an assistant suggest how they should furnish their room.

Shoppers also are now able to trigger animations, showing how complex products will work so that they are familiar with the product before they purchase it and are left with no surprises. Nespresso uses AR technology in its app, to enable customers to not only explore its range of products but also to customize them specifically for their home, helping customers to make well-informed purchasing decisions by empowering them to try the products before they buy them. When people have a clearer idea of size, color and style, it reduces the likelihood of buyer’s remorse and ultimately the item being returned.

With AI and AR, e-Commerce is evolving to serve time-stretched and more demanding shoppers that are used to having everything at their fingertips, including what something will look like specifically for them before they purchase the item. Technology is now smarter and more realistic and affordable than it has ever been, allowing these innovative ideas to become a reality for retailers worldwide. As technology advances in the future, the impact of AI and AR in the retail industry is sure to flourish.

A Step In The Right Direction, But Not The Whole Solution

However, even with Artificial Intelligence and Augmented Reality applications playing a key role in the retail industry both now and in the future, there will always be returns. It is almost impossible to predict the perfect order simply because there are so many varying factors that can lead a buyer to return an item. With this in mind, companies should have a plan in place for returns coming back, especially the merchandise that can’t go back on primary shelves and is slated for liquidation into the secondary market.

With returns having such an impact on the bottom line, many retailers are opting to leverage their own B2B marketplaces in order to auction bulk quantities of returned and excess merchandise directly to business buyers around the country. A robust buyer base exists for returned and excess inventory regardless of product category or condition; an online auction marketplace is a great way to tap into this buyer base. For the retailer, using an online auction channel sets up a dynamic where many buyers are competing for the inventory; this pushes prices up, allows for a faster sales cycle and reduces the cost of processing returns.

In addition to using this type of marketplace platform to sell their liquidation inventory, retailers should be sure to apply data to achieve their goals, be they recovery, velocity, brand control, etc.; the smallest adjustments can drive substantially better results. For example, auction lot optimization, low start prices, accurate manifests, targeted marketing and other strategies all contribute to better pricing.

As consumers shift from purchasing in-store to online, retailers also will need to shift gears in how they think about and approach returns. The best plans will combine pre- and post-return strategies. Retailers will need to work to prevent the return from happening, whether that is through the use of Artificial Intelligence and Augmented Reality solutions or automated analytics. They also need to have a process in place should returns happen, to offset the maximum amount of loss. This includes looking to liquidation as a viable option.


Ben Whitaker serves as B-Stock’s EMEA Director. In this role, Whitaker oversees B-Stock’s European-based team and is responsible for leading B-Stock through the opening phases of its new business operation in this area. Whitaker has worked in e-Commerce since the late 1990s as an investor, consultant and operator, with significant exposure to developing cross border e-Commerce marketplace solutions in Europe and Asia. He is an experienced Director with a demonstrated history of working in the e-Commerce, logistics and supply chain industry and is an experienced speaker, having spoken at conferences and roundtables around the world.

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