In a study, researchers delved into the strategic importance of a new practice known as return partnerships, wherein online retailers collaborate with brick-and-mortar stores to facilitate the return of online purchases. The study, conducted by researchers from Carnegie Mellon University and the University of Washington, underscores how this strategy can significantly benefit both online retailers and physical stores, with the caveat that careful partner selection is paramount.

The shift towards return partnerships arises from consumer preferences, as many online shoppers prefer returning items to physical stores rather than through mail. This trend prompted online giants like Amazon to forge alliances with store chains such as Kohl’s, enabling customers to drop off their returns conveniently. Importantly, these partnerships typically do not involve direct retail transactions. Instead, store retailers benefit from increased foot traffic and potential additional purchases, while online retailers save on shipping costs associated with individual mail-in returns.

The researchers constructed a model to assess the incentives for both types of retailers in such partnerships. They compared the anticipated profitability before and after implementing a return partnership, identifying scenarios where mutual benefits could be maximised. Key findings include the advantage for online retailers in utilising a cost-effective return channel and the benefit for store retailers in attracting more visitors to their physical locations.

Crucially, the success of these partnerships hinges on aligning incentives that influence consumer behaviour rather than direct financial transactions. Partnerships can vary widely, from collaborations with small-scale store networks offering similar products to large chains with diverse offerings. The study underscores that online retailers with flexible return policies are better positioned to leverage return partnerships effectively. Conversely, those with stringent policies risk increased return rates, potentially impacting profitability.

Selecting the right partner is pivotal. For instance, partnerships between online and store retailers offering comparable products may thrive with a moderate number of stores. This balance prevents cannibalising online sales by enticing consumers to return items in-store, potentially leading to additional purchases. Understanding consumer decision-making in purchasing and returning goods is essential, as it informs strategic decisions for retailers aiming to maximise the benefits of return partnerships.

Leela Nageswaran, Assistant Professor of Operations Management at UW’s Foster School of Business, emphasises the need for return partnerships to strategically focus on enhancing customer retention and sales growth. This approach provides critical insights into the types of online retailers best suited for such collaborations. Additionally, Elina Hwang, Associate Professor of Information Systems at UW’s Foster School of Business, underscores the importance of this strategic focus in the success of return partnerships.

The study illuminates the potential of return partnerships to not just benefit individual retailers, but to reshape the entire retail landscape. By aligning online convenience with the physical presence of brick-and-mortar stores, these partnerships have the power to significantly alter how consumers interact with retail. Understanding and capitalising on consumer preferences and retailer incentives can lead to the creation of effective partnerships that enhance customer satisfaction and operational efficiency across both online and offline platforms.

More information: Leela Nageswaran et al, Offline Returns for Online Retailers via Partnership, Management Science. DOI: 10.1287/mnsc.2023.01291

Journal information: Management Science Provided by Carnegie Mellon University