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The New 3 Rs for Retail Focus on Consumer Preference

For some of us, the ‘3Rs’ represent elementary school table stakes—reading, writing and arithmetic. But don’t worry, there will be no math on this test. Instead, we are going to look at a new set of 3Rs that are quickly becoming table stakes for retailers that cater to consumers far more mindful of the impact of their buying behavior.

Sustainability is no longer just fodder for environmental activists; while they have been sounding the alarm for ages, the rest of us are finally paying attention. This is a mainstream imperative, and greenwashing isn’t going to cut it. Retail’s 3Rs are focused on ensuring our retail supply chains are on track to be more environmentally conscious.

According to Capgemini, 79% of consumers will change where they spend based on the environmental impact. The same study discussed that many executives (close to 80%) see the positive impact that being sustainable has on their company.

Similarly, according to Accenture, 81% of consumers are planning on buying more sustainable products over the next five years. Ensuring sustainability is a key part of your long-term strategy has become a permanent fixture; if you are not thinking green, your business might not be suited to an evolving consumer mindset.

So, what’s a retailer or brand to do? Let’s look at the 3Rs and dive in: returns, re-commerce and recycling.


R 1: Returns

According to a new survey from NRF and Appriss Retail, the retail rate of return jumped from 10.6% in 2020 to 16.6% for 2021. It’s a staggering and expensive statistic, and with online returns even higher at 20.8%, one that is unlikely to trend downwards as retail’s omnichannel mix bends towards digital channels. Returns can no longer be viewed as just a cost or a necessary evil for retailers, but rather a strategic lever in the customer experience.

To put this return proliferation into perspective, NRF reports that in 2020 the U.S. retail market saw $428b of returned merchandise. Using that figure as proxy for revenue, and the returns market in the U.S. would be the second largest retailer behind Walmart.

This represents 10% of overall retail sales. Those figures are even larger when we look at global markets like Germany where return and payment policies encourage consumers to order more, keep a few and return inventory.

Retailers must change their mindset when it comes to returns. Yes, focus on reducing returns; especially where they can be controlled—packaging, sending the right item, ensuring descriptions match the reality of the item and timely delivery. At the same time, realize that many consumer behaviors have been learned recently, and those are not changing.

Consumers will continue to bracket orders (order multiple sizes and colors with the plan to return some items). Work with your supply chain to prepare for the eventuality that your customer will return products. Work with your partners and get the right systems in place to better prepare your supply chain for when returns are initiated.

How well your supply chain is set up to handle those return flows should not be an afterthought; organizationally, your business needs to acknowledge the reality of returns and understand there is an opportunity with returns, and not simply a burden.


R 2: Re-commerce

So now your business’ attitude towards returns has changed, contemplate on how to maximize this opportunity. This is where the ability to find a second life for your inventory is key. The ability to offer re-commerce as an option for consumers will become a vital tool for retailers.

The business value of reselling was the cornerstone of eBay’s success when it burst on the scene in 1995; this organization harnessed the power of the internet to allow the reseller market to emerge from their niche of flea markets and secondhand stores, and became a global platform for re-commerce.

But eBay is not the only kid in the playground anymore. We have seen these types of platforms grow from the mega players like Amazon, Facebook and Shopify, each of which has added their flavor to the reseller ecosystem.

In parallel, there is a growing stable of pureplay platforms: Tradesy, The RealReal, Poshmark, thredUP, to name a few. Retailers and brands should not be left on the sidelines of this re-commerce explosion, and are well advised to explore how they can take more control of their re-commerce market.

For example, Adidas and Nike are both offering their own branded re-commercing platforms. Nike’s offering provides a refurbishing service for gently worn sneakers, granted they must be returned within a tight window. Adidas’ Give Back platform offers a more generous re-commercing platform that accepts both Adidas and non-Adidas goods.

Furniture giant Ikea offers clients the ability to purchase gently used Ikea furniture in their stores. Not only does that allow for customers to save some money, but the furniture is already assembled!

How can retailers start offering similar services? Look to your supply chain to determine what is possible. Can your existing systems, infrastructure, technology and labor pivot and offer such services? Are your warehouses or stores capable of ingesting returns and making them available for resale? Do you need to train your labor with this added service component?

And do you have the proper technology to manage the process? Mapping out and executing your re-commerce strategy has the potential to develop and nurture new revenue streams and elongate the life of your products. This channel will not only open up new commercial opportunities, but also enhance your sustainability efforts.


R 3: Recycling

What happens when you have improved your return policy and process, are leaning  on re-commercing strategies, but you still have returned inventory that is not moving? Work on your recycling. Think beyond putting recyclable items into the green or blue containers. Can you proactively work with recycling organizations to have your recyclable items expedited? Are your returned goods candidates to have their parts broken down into more recyclable items?

The retailer Madewell is a great example of taking a product — in their case, denim—and recycling the material into home insulation. Electronics retailers Apple and Best Buy both offer recycle programs to process electronics and ensure they are properly recycled and avoid cluttering landfills for decades.

Staples financially rewards its loyalty members when they recycle their ink cartridges through their recycling services. These retailers and brands are demonstrating how to leverage their infrastructure and services to properly dispose of a wide range of products that would otherwise litter our landfills, from denim to laptops to ink cartridges, and in so doing, are driving traffic to their consumer channels.

As a retailer and brand, it is time to start discussing how you can leverage your infrastructure to offer similar services. If you have a private delivery fleet, might you take back items that are recyclable on your delivery routes? We see these types of services offered by Lowe’s and Home Depot to haul away your old refrigerator or rangetop when they are installing a new one.

But what if you just offered such a service because your delivery vehicle was in the area? Leaning on your order management software, rather than printing a label for a damaged t-shirt that is unfit for re-commerce, what if you could you have it deliverable directly to a recycling center? Retailers and brands need to empower their customers to have better access to recycling options. Leverage your network, technology and reach to become the conduit for conscious consumerism.


The 3 Rs are a valuable paradigm shift

Consumers looking to return and exchange merchandise is nothing new. It is the volume of returns, the retained value in those products, and the perceived waste that they represent that have grown and put a spotlight on it.

Too often, retailers have turned their noses to this part of their business, viewing it strictly as a necessity and a cost center. As this channel continues to evolve, it is high time to figure out your strategy, to streamline it, and ultimately to uncover new methods to capture value and enhance customer relationships.