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Returns Reimagined: How Tech Can Help

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Despite a successful holiday shopping season, retailers face numerous hurdles in the year ahead. As stores try to balance protecting profit margins while delivering a unified customer experience, the escalating cost of returns has reached a breaking point. According to the NRF,  U.S. returns reached a staggering $743 billion in 2023, representing over 14.5% of retail sales, and, worryingly, 13.7% of these transactions are fraudulent. The return rate is higher for online (17.6%) rather than in-store purchases (10.02%), which, coupled with the continuing growth in digital commerce, creates a perfect storm for more returns.

As a result of this burgeoning problem, retailers have started to incorporate return fees. However, with consumer sentiment low and economic concerns still front of mind, this approach could backfire. More importantly, it doesn’t address the key drivers of returns: poor fit, defects or damage, wrong item delivered, wardrobing or fraud. With the constant pressure on revenue and profitability, retailers need to rethink their returns strategies to protect their margins while providing a frictionless experience for consumers.

Here are a few ways innovative technologies can help in the quest to reduce retail returns.

1. Immersive experiences.
AR and VR can eliminate poor fit, a key driver of returns, by creating a 3D rendering of an outfit or object so that people can see exactly how it fits on them or in their home before purchasing. Virtual fitting technologies help consumers make the right selection the first time. This is critical with clothing, where sizing is inconsistent across the industry and poor fit drives most returns. Using an app on your cell, a 3D body scan of an individual ensures that sizing is accurate, and in addition the software can suggest other similar items that might be a better fit. Increasing a customer’s confidence in sizing reduces the need to bracket, where shoppers order multiple sizes, ensuring that returns are baked into the purchase.

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However, it’s not just apparel purchases that benefit. Think about buying furniture as AR and mixed reality become more commonplace. Consumers can recreate their physical rooms and try out various options to experience exactly how the items look and feel when they interact with them. Reducing returns in this area is critical due to the high cost and the impact on sustainability.

As VR and AR applications are adopted, this will usher in a new era of personalization where you can truly try before you buy, ensuring that every item delights, and by reducing friction, it will help increase conversion rates.

2. Personalized approach.
AI enables retailers to better understand customers and predict their behavior, including returns. The algorithm can analyze data from multiple sources in real time, and then retailers can treat shoppers differently. For example, loyal individuals who don’t have a high return rate can be rewarded with discounts and promotions to encourage them to continue on this path. And for those who are habitual returners, a fee can be added to discourage this happening or, conversely, provide a discount for future purchases if they return the items to the store, which is less costly for the retailer and often results in additional purchases.

The ability to aggregate data across every channel in real time and predict behavior enables stores to deploy a more dynamic and personalized approach. By incorporating AI, retailers can reduce the volume of returns while improving the shopping experience for their customers.

3. Inventory optimization.
Another way AI can assist is with inventory management solutions, with it recommending the most efficient way to manage a return. For example, by analyzing the various data streams, it can determine immediately if the item should be restocked, discounted, liquidated, or if the shopper should dispose of it. This intelligence helps stores deliver operational efficiencies.

4. Agile fulfillment.
As the algorithm learns, the predictive capabilities can improve various parts of the fulfillment process, helping reduce the likelihood of the item being sent back. For example, it can identify the type of packing that reduces the possibility of damage occurring, along with ways to streamline and automate the process, which can reduce the number and cost of returns.

As these strategies become more common, they will drive down the volume of returns, helping reduce the losses from fraud. With fewer returns, this presents less opportunity for fraud.

As retailers grapple with the growing returns burden, technology offers an opportunity to get on the front foot. However, as more and more innovations are embedded, retailers must thoroughly test everything to ensure a consistent experience across every touch point and channel. Only then will technology reimagine returns in the omnichannel era.


Gareth Smith is GM, Software Test Automation at Keysight Technologies. Previously he was CTO at Eggplant, a pioneer in intelligent test automation, acquired by Keysight in June 2020. Smith has a rich history of innovation in software, serving in leadership roles at Software AG, Progress Software and Apama.

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