Why Apparel and Fashion Brands Need to Start Thinking Hard About Returns in 2024
Here at Capacity, we recently onboarded a number of new apparel and fashion brands. Unsurprisingly, these markets see return rates as high as 40 percent. That translates into tens of thousands of units per month that require sorting, grading and restocking (if resellable).
For these brands and their 3PLs, the struggle is real. And it’s only growing.
That’s why we’ve invested heavily in building out a robust, streamlined reverse logistics program to make return management as cost effective as possible. Part of that investment has gone towards creating strong partnerships and integrations with return management systems, or RMSs. One of those RMSs is Loop Returns.
Together, we have more than a dozen mutual customers that we’re helping optimize returns. Our go-to person at Loop is Nate Lesperance.
Our head of partnerships, Jason Depietropaolo, recently caught up with Nate to talk about the future of returns and what all brands – including fashion and retail – need to be paying attention to down the road.
Here’s the recap.
Gone are the Days of Growth at all Costs
Nate: From the pandemic you had so many VC-backed brands that put customer acquisition above everything else, it was growth at all costs. Now you’re really starting to see a lot of them change their focus. The focus is on revenue efficiency so they’re trying to reduce various costs. They’re trying to pull any lever they can.
Jason: And getting smart about returns is a big part of that.
Nate: Exactly. It’s going to be about figuring out how to optimize costs not just on outbound but on returns too. That’s where there’s a lot of opportunity to protect your margin.
Jason: And as we say goodbye to growth at all costs, we’re also saying goodbye to free returns. It’s just not going to be a reality with this level of P&L scrutiny.
Nate: You’re right.
Jason: But I think consumers are going to handle the end of free returns better than expected.
Nate: I agree. And I think we’re seeing that in the data. Industry-wide, about 60 percent of consumers check the return policy page before purchasing. That tells us something. And with the ability to leverage dynamic fees, merchants can turn a potentially net negative customer into a repeat one by incentivizing different outcomes. Just want to exchange? No charge for an exchange. OK with store credit? We’ll split the cost of shipping with you. Just want a refund? We’ll help you out a little bit. There are all sorts of things merchants can do.
Jason: I love the idea of incentivizing exchanges, especially in the apparel space, because more often than not, it’s just a sizing issue.
Nate: It’s interesting to think about what sort of impact this might have on bracketing, which is when a customer orders multiple items to try on, knowing most will be returned. Depending on how a merchant handles their dynamic fee structure, we might see less of it.
2024 is the Year Some Level of AI Makes a Dent in Return Fraud Prediction
Nate: I have no doubt that we’re going to see big moves as it relates to return fraud and abuse
Jason: I remember reading that all retailers combined lose upwards of $20 billion a year because of return fraud. I know that number is relative to total sales, but it’s not insignificant. And it’s only going to grow.
[Editor’s note: According to the NRF, the total amount of dollars lost to returns abuse and fraud in 2023 was $101 billion, up from $25.3 billion in 2020.]
Nate: We’re not far from merchants being able to identify and rein in serial return fraudsters. Having better returns data can show merchants who’s abusing return policies and then effectively put in almost personalized hurdles to make fraud abuse more difficult or even impossible for that specific customer.
Jason: Return fraud gets a lot harder when it starts becoming cost prohibitive to just the bad actors.
The Supply Chain Digitization Trend Presses On
Nate: It’s all about visibility. Because there’s now such an emphasis on margins and profitability instead of growth at all costs, brands are going to need to know every detail about the returns operation. What percent of returns make it back to stock? How long is a return going to take to get put back in stock? How should I think about returns in the context of inventory attrition? Do I need 100 units or can I get away with 90 because I’m certain 10 will make it back in resellable condition? I think that’s going to push the supply chain digitization trend even further and we’ll see a big impact on decision making for the tools these brands will purchase.
Jason: And that presents the question of how much of that does a merchant want their 3PL to handle.
Nate: Anything that’s going to help merchants figure out how to reduce costs on returns is going to be in high demand. If you’re a 3PL like Capacity that has that internal processing capabilities to make inventory more efficient and provide visibility and insights into what's going on with returns within the warehouse, merchants are going to find you.
Jason: Well said. Nate. This has been great. Appreciate the chat.