Tom Rittman has some tips that can help retailers eliminate fraudulent returns while creating incremental sales
It’s no secret that the slumping economy is having an effect on consumer confidence and spending – a trend that will undoubtedly linger through this year’s holiday shopping season. And what sales boost that a retailer does get during the holidays may be overshadowed by the post-holiday challenge of managing returns.
In fact, a recent forecast by the National Retail Federation suggests that holiday sales may be at their slowest pace in six years—attributed primarily to consumer worry about employment, the housing and stock markets and rising gas and food prices. Now is the time the retail market needs to maximize the revenue and earnings potential from every customer transaction, and there is a light at the end of the seasonal shopping tunnel: Customer returns may hold the key to reducing retail revenue shortfall.
Return optimization
Some companies have come to realize that customer returns may hold the key to gaining incremental sales—reducing lost revenue—and have embraced the attitude of “If a customer is already here in the store and has return money in hand, waiting to be spent, why shouldn’t it be spent here?”
Retailers have a unique opportunity to reinvent the return desk by utilizing “return optimization,” turning the point of return into a profitable sale and boosting customer loyalty in the process by creating a positive return experience and incentive to continue shopping. Here, the prospect of helping to increase sales is overwhelming.
Return optimization is accomplished by first tracking all returns in a database and creating something similar to a credit score. If a customer falls significantly outside an average return transaction score, they get flagged as fraudulent or abusive. When a customer is making a “good return,” the system can be set up to offer a targeted, intelligent incentive. One example would be a 25% off coupon that’s good for one hour. Such a system can increase customer conversions while reducing fraud and abuse, resulting in incremental sales increases of more than 1%.
Overall, industry return rates average in the 7% to 12% range, so implementing a return optimization system could spell an increase of $10 million or more for, say, a $1 billion retailer. While it’s difficult to predict growth of new store traffic, return optimization has become a sought-after solution due to its proven ability to generate revenue from previously overlooked customer interactions—returns.
Dos and don’ts
There are also several other tips retailers should follow to successfully reinvent their return counter, thereby maximizing revenues and creating a positive customer experience all at the same time:
■ DON’T underestimate the importance of proper staff training. Make sure employees know company return policies and clearly communicate them to customers during purchases. A verbal reminder of policies, in addition to printing on each store receipt and well-placed signage, will prevent tension and misunderstanding post-holiday, when returns are at their highest.
■ DO supply return customers with a reason to keep shopping. Return optimization can facilitate significant incremental sales at the point of return and build customer loyalty by using a customer’s return information to instantly customize an incentive for that particular person, thus providing an immediate reason for the customer to continue shopping at the store. The program is an opportunity to offer a discount or special offer and recoup the initial sale.
■ DON’T overreact or ignore the impact of return policies on consumers. Be aware of how the processing of returns can impact relationships with customers. Long lines and cumbersome return policies do little to assuage crowd tensions, voiding out any positive first impressions made at the initial sale. VIP customers should always be handled with care—most easily accomplished by creating a special holiday returns line.
■ DO try to keep return policies lenient and flexible. With the help of special technology like Verify-1Ò Return Authorization retailers can identify a customer’s unique return behavior, tracking how frequently they return items and the dollar amounts of past returns. Since less than 2% of consumers are responsible for fraudulent or abusive return behavior, the software helps protect honest customers with more flexible return policies and reduced wait times for transactions.
■ DON’T forget to study the latest trends. By keeping abreast of the latest trends in retail fraud – whether related to organized retail crime rings targeting products or chains, or simply learning more about loss prevention software tools—retailers can do their part to prevent fraudulent and abusive returns, which total about $15.5 billion annually.
■ DON’T forget that returns are lost revenue (but more of it is recoverable than people think). Every return is a lost sale and a reduction to net sales; bad news and even worse in today’s holiday season. Returns have long been an expected part of the retail business model, but they don’t need to be a completely negative hit to sales. By analyzing returns, not simply accepting their fate, and focusing on the concepts listed above, you can unlock the value hidden in your return transactions.
With some strategic planning prior to the holiday shopping season, retailers can effectively drive revenues that not only enable them to make monthly comps, but also thrive long-term and year-round. Smart retailers can best maximize revenues by looking at all shoppers within the store—including those making returns. Any shopper within the store is an opportunity waiting to be captured, and retailers can follow these helpful tips to create an incremental sale right now at the place they expect it least: the post-holiday return counter.
Tom Rittman is vice president of marketing for The Retail Equation, the industry leader in retail transaction optimization solutions. The company’s applications use statistical modeling and analytics to predict consumer behavior, and its software-as-a-service delivery enables retailers to achieve significant and measurable return-on-investment. Its solutions are operating in over 12,000 stores in North America, supporting a diverse retail base of specialty, department, sporting goods, auto parts and more. For more information, visit www.theretailequation.com.
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