The Dollars and Cents of Retail Returns

Q&A with Retail Finance Expert Scott Glaser

According to the National Retail Federation, businesses expect around $816 billion of merchandise to be returned this year. Additionally, the rise of inflation and subsequent interest rate increases by the US Fed, consumers have been pulling back on spending. As a result, over 90% of retailers say that returns are outpacing revenue. While retailers have been changing policies and adding fees to mitigate the problem, there has been little evidence on their impact on returns.

We spoke with Scott Glaser, the former Chief Finance Officer of Lane Bryant and Catherines for Ascena Retail Group, to learn why he believes retailers need to think differently about returns.

Can you tell me a little bit about your retail background?

I started my career in consumer products, but I’ve spent the 25+ years in apparel retail at LBrands, Charming Shoppes and Ascena.  I was the longtime CFO at Lane Bryant, and I’ve spent the past 2 years consulting with retailers, retail service providers, and PE firms on finance, operations and strategy.

With 25+ years in retail, what has been your experience with returns and retail?

For most of my career, returns weren’t really a hot topic. Return rates were steady, and especially in fashion apparel, returns were kind of viewed as a “cost of doing business.” To the extent that we focused on them, it was mostly about how to make the return process as painless and friendly as possible for customers.

But then e-commerce sales became a bigger and bigger portion of our business, and return rates of digital purchases are 2-3x those from in-store purchases. So, returns started growing quickly for us and for everyone else, which is a real problem.

What kind of problems do returns cause retailers?

It costs a ton in sales and margin, and the reverse logistics expenses are significant. It also creates a big negative in our industry’s sustainability goals, given the incremental packaging and freight. And, it’s just not great for customer engagement. We were focusing on making returns easier, but the best kind of return is the one that never happens in the first place. So we all need to be more focused on actually reducing returns and not just on making them more efficient.

As a CFO, can you go into more detail on the financial implications of returns?

Returns have a huge impact on the P&L. Let’s say your return rate runs at 15%. That’s $150M for every $1B in sales. There’s at least $75M of margin connected with those sales.

Our industry has done a lot of research into the drivers of customer returns. They range from product and packaging quality issues to wrong size, bad product information on the website, and just consumers changing their minds. What we’ve learned, though, is that more than 70% of consumer returns are driven by factors that are controllable by the retailer. 70%!  

Let’s say we could solve just 1/4 of those controllable issues. That would mean we could shave at least 3 points off that return rate, from 15% to 12%. For a $1B retailer, that’s a $30M reduction in returns. Not to mention a big increase in customer satisfaction.  

That certainly gets MY attention as a CFO!

So knowing this, it sounds like retailers need to think differently about returns. What strategy do you think retailers should take?

We need to make reducing returns our top priority. It’s great that we’ve made the process more frictionless for consumers, and we’ve invested a lot in making the reverse logistics process more efficient and cost-effective. But, the goal is to actually bring the volume of returns down, and that’s achievable. It’s also worth a lot in sales and profit improvement.

What kinds of things can retailers do to strategically reduce returns?

Start by gaining visibility into how much returns are really costing you. P&Ls should very clearly be reporting both gross and net sales with a spotlight on returns. There needs to be detailed, exception based reporting and analysis by product/category, vendor, etc. on returns as well.

We also need to get much better information on the causes of returns. In our operational process in stores—when returns come back—there's a need to capture detailed, accurate reason coding in the POS.  Same at our websites for digital returns. And we need to leverage ratings and product reviews, social media, and other vehicles for consumer feedback to identify and address issues faster.

In order to do all this, we need to organize around it inside our companies. There needs to be a leader, likely reporting to the COO or the CFO, who’s in charge of returns and, specifically, returns reduction. And our company strategies need to prioritize this, given the size of the prize.

About Scott Glaser

Scott Glaser's career has been primarily rooted in finance and accounting, including a long retail career spanning LBrands, Charming Shoppes, and Ascena Retail Group, where he was SVP and CFO of the Lane Bryant and Catherines brands (combined $1.3B in sales). In that role he oversaw the finance, strategy, and e-commerce operations of those businesses. But he has deep operational background across many areas, including IT, supply chain, credit, planning & allocation, loss prevention, procurement, and real estate/store construction. He has navigated several mergers through both financial and operational transitions and has a track record of building engaged, high-performing teams that drive results. A somewhat non-traditional CFO, Scott’s focus – and what motivates him – has always been on adding value in strategy, analysis and insights, return on investment, and operational effectiveness. Visit his LinkedIn to learn more.

This Interview is Part of Our Advisor Q&A Series

Read the previous interview in the series with Rich McMahon, former Chief Strategy Officer of Bed Bath & Beyond.