For retail leaders, the customer relationships are shifting

This year’s Retail Industry Leadership Association (RILA) Conference provided a great opportunity to re-connect with retail industry leaders and solution providers in the supply-chain realm.  As we wrap up the activities from the conference, several key trends stick out in our minds from some of the great sessions and discussions. 

The conference provided valuable insight on the state of the supply chain, and on strategic considerations from retailers about which aspects of consumer expectations are fungible and which are underpinned by a permanent shift in behaviors. 

Returns are costly, and the customer is now picking up part of the tab

During her presentation, Nordstrom’s Chief Supply Chain Officer, Alexis DePree, stressed that returns are a crucial joint in the retail value-chain, challenging retailers to maintain high levels of customer service while managing costs. A retailer’s approach to handling returns needs to be an extension of the experience offered during the sales process. 

The average cost of an online return is approximately 21% of the order’s value, per a Pitney Bowes survey of 168 retailers, and returns fraud can eat into retailer’s bottom lines. Having moved to deliver fast and free delivery, retailers are pushing back on the costs of reverse logistics, with some now charging for returns or getting more creative on reverse logistics flow. 

During one of the breakout sessions, Liquidity Services revealed some interesting outcomes from a recent survey: Part of the challenge for retailers in sorting returns volume is that resale is not realistic. Of over 100 supply-chain representatives at Fortune 1000 companies who completed a survey for Liquidity Services, 30% said some returns go to bulk liquidation in the secondary market, and 23% said some are resold to discount merchandisers. Thirty-six percent cited a “cumbersome” sales process as an impediment to salvaging cost on returns. A majority (60%) had plans in the next six months to improve returns disposition to gain efficiencies.

Customer expectations may not be as fixed as thought

Selling customers on the necessity to help offset returns ran adjacent a broader discussion around how and when to revisit the consumer expectations. Retailers are finding that in many situations the consumer don’t care as much about speed as they do receiving what was promised, and being informed about progress. That means delivering on communication and offering consistency in execution.

As the race to deliver at speed hits a limit, some retailers are having trouble justifying the additional cost associated with trying to make their entire catalog available for same-day or next-day service. AlixPartners’ 2023 Home Delivery Survey found that free delivery is critical factor in 96% of purchasing decisions, and customers expect on average a 3.3-day delivery window, suggesting diminishing returns for warp-speed logistics built off costly last-mile distribution centers and round-the-clock staffing.

The bottom line in our view is that it’s critical for retailers to understand consumer expectations and respond quickly to trends, whether than means reallocating inventory or changing policies. There was some talk at the conference around leveraging machine learning and AI to get improve on this facet, but most companies still seem to be in early stages of testing out this technology.

The era of whatever you want as soon as you want may be over

As retailers face bloated inventories, several sessions focused on inventory levels and inventory allocation, acknowledging the way decisions here are a key lever whether the market is on an upswing or downswing. While some sales will be forfeited if an item is not immediately available, the costs of overstock need to be balanced.

Given the increased cost of capital, carrying too much inventory can be significant drag on performance. 

The executive vice president of supply chain at Advance Auto Parts, Steve Szilagyi, talked about how the company is using predictive analytics to gain a detailed understanding of the lifecycle of replacement parts for specific vehicles at a very granular level. 

Customer satisfaction and loyalty depends on culture

Finally, RILA was notable for engagement from female leaders, especially as retailers focused on the need to engage, develop, and diversify their talent stream. Some retailers use tools like Butterfly.ai to facilitate feedback and get buy-in from employees, but all were focused on culture at a time when customer satisfaction and informed decision-making rest on the soft skills of those at each touchpoint through the retail lifecycle.