Co-Author: ToolsGroup
Returns are a fact of life for retailers. enVista’s partner, ToolsGroup, asserts that in the North American market, the relaxed return policies and high prevalence of ecommerce and in-store returns have led to skyrocketing return rates and put a great strain on size runs in industries like apparel and footwear. NRF support this claim with its findings in a study showing that 16.3 percent of all purchases were returned in 2024, equating to $890B in returns.
Returns are not going away anytime soon, which means that retailers will need to find a way to rebalance their inventory after a return to maintain optimal levels and maximize profitability.
The Current State of Returns
The current story of a return goes something like this:
The Customer – A customer visits a retailer’s ecommerce website to buy a pair of jeans. To increase the likelihood of receiving a size that fits without the inconvenience of visiting the store, the customer will order the size they anticipate fitting, plus one size up and one size down. The customer then tries on the jeans at home, picks the one they want and returns the others for a refund.
The Retailer – Once the customer returns the unwanted items, the first hurdle is that there is no guarantee that those products, if shipped from store, will be returned to the store they shipped from. The second hurdle is that, even if returned to the correct store, that store now faces an out-of-balance size run and two bonus sizes that don’t fit in. When this happens, the returned items are often sent to the back room to either be distributed to an outlet store or a liquidator. The question remains: how does the retailer make back its money and rebalance its inventory after this event?
Rebalancing Inventory for Profitability
For retailers, the grass is greener on the other side of the commonplace returns process. While AI-powered inventory management tools are introducing themselves as the way of the future for profitably managing returns, many organizations may not have the funds or resources to purchase the software and navigate a complex implementation. This is where AI as a Service comes in. Retailers can leverage an AI software provider in addition to a third-party consultant to reap the benefits of the AI as a service, without a costly implementation.
There are many scenarios when AI-enabled inventory rebalancing can optimize a retailer’s inventory for increased profitability. The two main groups of scenarios involve either a time-phased approach or an event-based approach.
Event-Based Approach
An event-based approach means rebalancing your inventory before or after a major event. Major events could be:
- A large sale, after which returns will be expected to increase.
- A floor set change. If one store doesn’t have a planogram spot for a particular SKU, it could be re-routed to another store that does.
- Peak season. Not only do returns increase after a peak season, but initial inventory planning will look different to plan for increased demand. Rebalancing inventory both before and after peak season can significantly improve profitability surrounding these seasons.
Time-Phased Approach
While returns are a huge area of opportunity for AI-powered inventory rebalancing, they aren’t the only use case. Setting periodical times throughout the year to rebalance inventory can be particularly useful for maintaining high profitability year-round.
- Repositioning long tail inventory. For slow-selling inventory, periodical repositioning can ensure the inventory is in the most profitable location while it waits to sell.
- Proactive rebalancing. Optimizing inventory before it gets out of balance can save retailers time and money. Focusing on regularly scheduled rebalancing rather than waiting for a major event can improve business outcomes in the long run.
- End of season rebalancing. At the end of a season, when some groups of SKUs will have less demand, rebalancing can assist with transferring these items from full price to outlet stores and ensure they’re in the right place to contribute to the highest possible profitability.
Leveraging AI-powered inventory rebalancing tools can make a vast impact on profitability and using them as a service further increases their accessibility. enVista partners with the leading provider of retail and supply chain planning solutions, ToolsGroup, to provide RebalanceAI as a Service to retailers.
Whether it’s ditching the tedious Excel sheets, integrating with a warehouse management system or enterprise resource planning system, reducing overstocks and stockouts or any other of the numerous benefits of RebalanceAI as a Service, AI is paving the way for a more profitable future for retailers.
Want to learn more about how enVista and ToolsGroup can bring RebalanceAI as a Service to your retail organization? Let’s Have a Conversation.®
