COVID-19 has had a substantial impact on all industries, and retailers, in particular, are still struggling to make sense of changing consumer dynamics and new shopping realities. This article is not about this societal crisis, but another more slow-moving threat that has yet to receive widespread attention.
Before we discuss this, allow me to set up the situation we find ourselves in as a result of the pandemic.
From my perspective, COVID-19 did not start any new trends; instead, it accelerated one that had already begun, which is, that people were starting to do more and more of their shopping online than at brick-and-mortar establishments.
Consumers are five times as likely to return an item purchased online compared to in-store.
Not only was there acceleration in those who were already comfortable in buying online, but something even more interesting happened. People who were not used to shopping online were forced to do so due to the various lockdown policies implemented by government. They quickly got comfortable with online shopping and started to embrace its ease and convenience, even if it came at an additional cost. Now, as COVID case numbers continue to ebb and flow, shoppers are returning to brick-and-mortar stores, but not at the levels we’ve seen prior to the pandemic. Some of those “forced” behaviors have stuck; from my own experience I never thought I’d see the day when my parents ordered groceries online, but now after having been forced to do it, they realize how much easier and more convenient it is and it is now their primary way of shopping.
The next crises for the retail industry could very well be profitability and sustainability and the delicate balance of trading one off against the other.
While this situation may seem like a boon to online retailers, it also comes with some unprecedented challenges. For one thing, there is extra risk built into the buying process as consumers can’t see, touch, or try on items before they purchase, leading to much higher return rates. Our research at Appriss® Retail has shown that consumers are five times as likely to return an item purchased online compared to in-store.
If you take these two trends together – the migration to more online shopping combined with higher return rates – and both conditions continue into the future, the next crises for the retail industry could very well be profitability and sustainability and the delicate balance of trading one off against the other.
Sustainability issues are likely to manifest in many areas within the retail industry as we learn to live with COVID, including:
Let’s compare the carbon footprint left between a store purchase and online purchase of a pair of jeans.
In a store sale, a shopper walks (or drives) to a store, tries on a pair of jeans, pays for them, and receives a plastic bag with the jeans to take home. The carbon footprint consists of a plastic bag and any nominal gas that might be used for the drive to the store and back, discounting all the impacts of the manufacture and primary distribution of the jeans.
In an online sale, that same shopper browses the jeans online, places four different styles and sizes in their cart, pays with a credit card, and waits for their delivery. Those four items might follow this journey:
All this for just one transaction. And chances are the required shipping materials aren’t reused; there is a new box and packing material used every time.
The understandable but still disturbing reality is: Retailers have been encouraging consumers to shop this way; for example, by offering free return shipping – in order to make the transition to online shopping easier so they can make up for lost store sales. However, not all retailers are thinking about the impact on profitability of this journey let alone that of the environment, which can be quite dramatic relative to an in-store purchase.
Now, let’s tweak the scenario above to look at things another way.
One of the metrics retailers live and die by is availability, that is to have the products the consumer wants in stock when they want to buy. So, they have started overproducing more popular items with the knowledge that some consumers will make a purchase online and if it’s unwanted, ultimately keep it without paying for it, since neither the consumer nor the retailer wants to pay for the return.
Without overproduction, there won’t be inventory available for other shoppers who genuinely want the item. So, the retailer must have enough of the item in stock to account not just for legitimate demand, but also for the attrition rate due to the free returns policy. Even if retailers choose to absorb the return shipping fee or the consumer is willing to pay it, the item might still sit in the consumer’s hallway until it is shipped back, taking it out of the supply chain during which time someone else could have purchased it.
Conditioning consumers to expect free return shipping and then trying to walk them back from that expectation is a new challenge for retailers.
On the other hand, if those items do come back, but there is not enough demand for them, another sustainability issue arises as these overstocked items often end up in landfills or are sold to the secondary market where they are packaged again, adding further complexity to the issue.
Traditional omnichannel retailers, in an attempt to rival the ease and convenience of ecommerce behemoths, have inadvertently created a situation that is unsustainable from an environmental perspective. When you factor in the costs of shipping and returns and the desire to offer competitive online pricing, the model becomes unsustainable from a profitability perspective as well.
Conditioning consumers to expect free return shipping and then trying to walk them back from that expectation is a new challenge for retailers.
So, how can retailers ease these sustainability problems before they truly reach crisis proportions?
How can you strike a balance between consumer expectations and the environmental and profitability impacts of the new purchasing patterns? Use data to find a way to make continued online sales sustainable for everyone by changing the way that your consumers shop – and return – in real time and on a shopper-by-shopper basis. In particular, younger generations are saying: Yes, I want to easily obtain goods and services, but not at the expense of the planet.
Using predictive analytics, retailers can reduce returns by 8 percent, while still preserving the customer experience. Other technologies can be applied to improve sizing, product descriptions, and delivery timing to further reduce returns.
As we move forward as an industry continuing to navigate the impact of the pandemic and changing shopping behaviors, addressing issues surrounding all forms of sustainability need to be front and center.
Truly understanding your consumers is key to changing their expectations and dialing down the negative environmental and profitability impacts resulting from the new shopping normal. As we move forward as an industry continuing to navigate the impact of the pandemic and changing shopping behaviors, addressing issues surrounding all forms of sustainability need to be front and center.