Edition 127, October 2023

The Evolution of Returns Management: Harnessing AI and Blockchain in the Modern Retail Landscape

By Larry Velman, goTRG


The retail sector is in the midst of a transformative phase, with returns management at its epicenter. As the dynamics of this landscape shift, the integration of Artificial Intelligence (AI) and Blockchain technology into specialized reverse logistics software is ushering in a new era of sophistication and optimization. This article delves into the transformative potential of these technologies, spotlighting the innovative market solutions that are revolutionizing the way retailers navigate their returns.

Historically, retailers have been laser-focused on forward fulfillment, emphasizing the sale of pristine, full-priced products and curating superior customer experiences. Yet, the realm of returns presents its own set of intricate challenges, demanding innovative technological solutions. Returned products are multifaceted, defined not just by their original attributes but also by their condition upon return. This introduces a plethora of variables, from minor cosmetic blemishes to significant functional issues. In a warehouse environment, a systematic approach to inspect, assess, refurbish, and repack each item is paramount. Once refurbished, the challenge pivots to cataloging these items for resale, determining their value based on both original attributes and current condition, and factoring in the seasonality and real-time market dynamics.

Moreover, the decision on where to resell these refurbished goods is crucial. Traditional retail platforms might not be equipped to handle items that deviate from brand-new condition. Thus, retailers must explore alternative channels, such as liquidation or wholesale, to maximize the recovery potential of their returned items.

For brands with a limited SKU range, orchestrating a streamlined reverse flow might be straightforward. However, for those grappling with thousands or millions of returned units annually, manual processes are untenable. Retailers have a clear need for a comprehensive platform that seamlessly manages the entire returns process, from initiation to final disposition. Central to this journey is dedicated returns software, adept at predicting the optimal path for each returned item, considering transportation logistics, processing strategies, and robust resale tactics.

Harnessing AI for Enhanced Forecasting in Returns Management

Traditional forecasting methods often fall short in predicting return rates with high accuracy. However, the integration of AI algorithms has revolutionized this aspect of returns management. These algorithms can analyze vast datasets, encompassing not just historical data and seasonal trends, but also nuanced factors like social media sentiment, product reviews, and regional purchasing behaviors. By tapping into these diverse data sources, AI provides a multi-dimensional view of potential returns, allowing retailers to anticipate return volumes with unprecedented precision. This enhanced forecasting not only aids in logistical planning but also helps in optimizing inventory management, reducing holding costs, and improving overall operational efficiency.

Furthermore, with the ability to adapt and learn from new data, these AI-driven forecasting tools become more refined and accurate over time, ensuring that retailers are always equipped with the most up-to-date insights. By harnessing this advanced technology, retailers can proactively address potential challenges, streamline their reverse logistics processes, and ultimately enhance the customer experience by ensuring efficient and timely handling of returns.

Intelligent Disposition Powered by AI: Navigating the Complexities of Return Decisions

The returns process involves myriad decisions. One of the most significant challenges is the unpredictability of the inbound products. Unlike forward sales, where retailers have a clear understanding of the inventory they're dispatching, returns bring with them an element of uncertainty. Retailers often grapple with questions about the volume, condition, and type of products that will arrive back at their warehouses. Enter Artificial Intelligence. AI plays a pivotal role in intelligently dispositioning returned products to the most profitable channels. By analyzing vast datasets, encompassing historical return patterns, product life cycles, and even customer behavior, AI can anticipate the nature and volume of inbound returns. This foresight allows retailers to automate decisions for those returns even before they physically arrive. For instance, a returned product, based on its predicted condition and market demand, might be best suited for immediate resale on a primary platform, or perhaps it's more profitable in a secondary market or bundled with other items.

Furthermore, AI can assist in devising processing and repricing strategies tailored to each product, ensuring that items are swiftly and efficiently prepared for their next lifecycle stage. AI transforms the once-reactive process of handling returns into a proactive, streamlined, and profit-maximizing operation, automating these decisions to ensure speed, consistency, and reduced human error.

AI-Driven Returns Management: Crafting Superior Customer Experiences in Retail

Recent industry reports underscore that retailers are increasingly charging for returns, tightening their return policies, and occasionally placing business imperatives above the once inviolable customer experience. This evolution stems from an urgent need for innovative solutions that address returns in a more efficient and cost-effective manner. By harnessing cutting-edge technology or optimizing existing systems, retailers are devising intelligent strategies to mitigate return-related expenses.

AI offers retailers the capability to craft return policies tailored to individual customer behaviors rather than one-size-fits-all approaches. By analyzing each customer's purchase and return history, AI can identify and reward loyal customers with more flexible return options. Moreover, AI can customize return reasons specific to product categories. For instance, a "missing button" might be a valid return reason for apparel but is irrelevant for a pair of Airpods. AI's predictive analytics further provide insights into the potential processing costs of each return, enabling retailers to suggest customers keep items that are uneconomical to return or to encourage exchanges, thus retaining the sale's value.

Furthermore, QR codes have emerged as a pivotal tool in refining returns management, aligning with sustainability objectives. A simple scan can equip customers with all the necessary return details, from labels to drop-off locations, enhancing user convenience while minimizing logistical hassles and paper consumption. The integration of QR codes into the returns process signifies a commitment to efficiency and environmental responsibility, marrying modern technological advancements with eco-friendly practices. This forward-thinking approach epitomizes the broader industry trend of leveraging technology to curate a seamless, value-driven experience for today's discerning consumer.

Collectively, these strategies not only protect the retailer's bottom line but also elevate the customer journey, harmonizing operational efficiency with unparalleled customer satisfaction.

Harnessing Blockchain for Transparent and Efficient Returns Management

Beyond the logistical challenges, returns have emerged as a crucial economic factor, with efficient management leading to cost savings, improved inventory management, and enhanced customer loyalty. Enter Blockchain technology, a trust enhancer in the realm of returns management. Its decentralized and immutable structure offers unparalleled transparency. Each return, when documented as a block on the chain, provides a comprehensive, traceable journey of the product, from its initial purchase to its return and final destination. This meticulous traceability not only curtails return fraud but also ensures that items are processed in line with their actual condition and value. Furthermore, Blockchain's consolidated ledger system offers finance and accounting departments a transparent, unified view of the entire reverse lifecycle cost. This comprehensive insight is invaluable for pinpointing inefficiencies and potential financial leakages. By harnessing the capabilities of Blockchain, retailers can physically and financially reconcile their entire reverse supply chain, optimizing processes, bolstering financial outcomes, and freeing up working capital. In an era of complex retail dynamics, the integration of Blockchain into returns management heralds a shift towards a more transparent, accountable, and data-driven approach.

The Future of Returns Management: A Glimpse into Tomorrow

Transformation within returns management is well-underway. In a recent survey, 70% of retailers revealed to goTRG that they utilize external partners for their returns management software or services. This shift is indicative of the industry's recognition of the inherent complexities associated with returns. The evolution of returns software will refine how businesses manage post-purchase customer interactions.

The amalgamation of AI, blockchain, QR codes, and other emerging technologies is setting the stage for a groundbreaking era in reverse logistics. As technology continues to evolve, we can expect even more sophisticated solutions to emerge. Virtual reality might play a role in reducing return rates by allowing customers to "try" products before purchasing. Advanced analytics could offer insights into why certain products have higher return rates, leading to better product design and marketing strategies. Retailers equipped with these tools will be best poised to tackle the challenges and capitalize on the opportunities that lie ahead. The future beckons with the promise of not just cost management but also strategic decision-making, driven by data and technology, to elevate the entire retail experience. The journey ahead is bright, with technology acting as the guiding light.

Larry Velman
Serving as the VP of Technology for goTRG, Larry Velman has been instrumental in positioning the company as a leading returns management solutions provider. With over two decades in the technology and SaaS space, Larry’s diverse background includes software development, product design, sales, and leadership. Before his tenure at goTRG, which began in 2015, Larry successfully ran a SaaS-based inventory management and e-commerce company for eight years. At goTRG, he has championed significant advancements in Reverse Logistics, always driving his teams with the philosophy that "effective innovation follows intuitive design". Under his leadership, this principle remains central to every endeavor, and with this focus, Larry proudly steers a team ever-inspired by creativity, dedication, and the resilience to redefine industry norms.