1

Return Management
(Case Study 3 – Group 5 Report)

Indushan Illangovan (2217546)

Arya Patel (2226120)
Greeshma Sujitha (2211418)
Neena Nandakumar (2217147)
Bibek Paudel (2307740)
Ajith Akshath (2223863)

University Canada West

OPMT 620: Operations Management
Professor Amish Passi

December 3rd, 2023

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Table of Contents
Introduction......................................................................................................................................3
What type of returns management program exists..........................................................................4
Type 1: Cost Focus......................................................................................................................4
Type 2: Balancing Cost and Consumer Satisfaction...................................................................4
Type 3: Consumer Satisfaction Focus.........................................................................................4
What misunderstandings impede returns management effectiveness?............................................5
Developing an effective return management program....................................................................6
Return Volume Analysis for Walmart - Historical Trends and Seasonal Variations......................7
Historical Trends.........................................................................................................................8
Return Rates.................................................................................................................................8
Patterns and Seasonal Variations.................................................................................................8
Comparison of Return Rates........................................................................................................9
Critical Analysis..........................................................................................................................9
Optimizing Walmart Operation.......................................................................................................9
Quality Control............................................................................................................................9
Return Processing......................................................................................................................10
Inventory Impact........................................................................................................................11
Walmart and Data Analytics......................................................................................................11
Conclusion.....................................................................................................................................12
Reference.......................................................................................................................................13
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Introduction

In the ever-changing world of retail, how companies handle product returns can greatly
impact their success. This report takes a close look at three main ways companies manage
returns: Type 1, which focuses on cutting costs; Type 2, which tries to balance cost savings and
keeping customers happy; and Type 3, which puts customer satisfaction first. These approaches
involve finding the right mix of efficient operations, customer loyalty, and financial stability.
Walmart, a major player in retail, follows a Type 3 strategy, emphasizing a friendly return policy
and thinking about the long-term value of each customer. The report not only explores these
strategies but also talks about common misunderstandings that can hurt how well returns are
managed. It also provides smart ideas for creating a solid returns program. Additionally, it looks
at how Walmart handles quality control, processes returns, and deals with changes in its
inventory. The report ends by pointing out how Walmart uses data analysis to understand
customer habits, improve product quality, and run its operations better. By going through all of
this, the report aims to give helpful insights into the various ways companies handle returns,
using Walmart as an example in today's ever-evolving retail world.
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Types of returns management program exist.

Return Management Programs can be categorized into 3 types:
 Type 1: Cost Focus
 Type 2: Balancing Cost and Consumer Satisfaction
 Type 3: Consumer Satisfaction Focus
Type 1: Cost Focus
Cost Focus programs create a complicated and costly process for customers to return
items. Usually adopted by small shops and specialty retailers, this program sees returns as a cost
that needs to be minimized. Customers are discouraged to return items due to the inconvenient
and expensive process due to which the company is at risk of paying a higher price to acquire
customers (Röllecke et al., 2017, p. 6-8).
Type 2: Balancing Cost and Consumer Satisfaction
This program is aimed at increasing customer satisfaction while minimizing cost and
volume of returns. Customers who are at fault for their returns, are discouraged and often face a
complicated process for returning an item. On the other hand, the process is smooth when the
company is at fault and the products are not as per standard. Companies are providing creative
options to satisfy customer returns while reducing their related costs. For example, giving
incentives to encourage them to opt for store credit and closing accounts of customers with high
return activity. To create a company tailored program, data analytics and continuous testing is
required along with a high-level commitment from the management (Röllecke et al., 2017, p. 8-
9).
Type 3: Consumer Satisfaction Focus
The company believes in Customer Lifetime Value (CVL) which in this context, means
that that by providing flexible return options to customers, they will increase sales in the long run
and benefit from customer retention. The main objective here is not to reduce return costs but
instead, reduce customer acquisition costs.
Walmart adopts a type 3 return management program which means that they are flexible
in their return policy, customers can return almost anything with certain conditions and do not
charge any restocking or service fees from its customers ("Walmart, Return Policy," n.d.). A lot
of products that Walmart sells, are products that customers need to experience to decide on
whether to keep or return them and this is taken into consideration in their return policy. The low
cost of returns, simple process and high leniency from the return program, encourages customers
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to shop at Walmart more often and improves customer loyalty. To further improve customer
experience, Walmart launched a service called “Mobile Express Returns” through which
customers can make returns within 2 easy steps ("Walmart-Mobile Express Returns," n.d.).
Customers also have the option to make returns using the mobile app, website, or instore.

What misunderstandings impede returns management effectiveness?

Returns management effectiveness can be hindered when retailers misunderstand how their
leniency on return policies impact their customers return decisions. The misunderstanding that
lenient return policies will attract more customers, is not always true and it depends on the type
of company, its products and the different product specific policies. Further, companies that use
type 1 and 2 programs want to lower their return costs but do not realize that in the long run, it
can lead to lack of customer retention and cause dissatisfaction. In the process of saving return
costs, companies can lose customers slowly and without vocal complaints. Here are some other
misunderstandings that affect returns management effectiveness:
Information and Communication: Often, companies may believe that well-informed
customers will make less returns, but they do not focus on how to spread relevant information to
those customers. If inaccurate or irrelevant information is provided to the customer, it can lead to
misunderstanding of the product’s expectations which in turn leads to dissatisfaction and returns.
On the other hand, companies may reveal too much information which can change the
customer’s decision to purchase the product.
Flexibility: Different products may have different return conditions and complexities. For
example, Walmart provides a flexible return policy according to the different types of products
because they understand that not all products will have the same results. A rigid policy may
discourage customers from making future purchases.
Integration of Channels: Companies may fail to integrate their online channels, in-store
channels, inventory management system, logistics and other important systems that are crucial in
reverse logistics. Walmart uses an omni-channel system for reverse logistics and has a well-
integrated system which enables them to provide a smooth return experience to the customers.
Charging Return Fees: online shops that charge a fee on returning a product, expect the
return volumes to decrease. However, according to a study, only 26% of such online shops were
able to lower their return volumes.
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Feedback and Improvement: solely establishing a return management program is not

enough, the company needs to take into consideration the customer feedback and constantly
improve their processes.

Developing an effective return management program

1. Understanding the concept of Customer Lifetime Value (CLV): Acknowledge the

significance of Customer Lifetime Value (CLV) in influencing return management tactics.
Customer-centric Type III initiatives are designed to optimize customer satisfaction by
maximizing Customer Lifetime Value (CLV). This entails establishing a favourable purchasing
experience that fosters customer loyalty (Buxhoidt, 2023).
Walmart, as a prominent player in the retail industry, recognizes the importance of
consumer loyalty. The organization has a customer-centric strategy, facilitating hassle-free
returns through flexible regulations. Walmart's approach is around utilizing its enormous data
analytics capabilities to streamline the returns process, with the goal of improving customer
happiness and, as a result, customer lifetime value (CLV) (Buxhoidt, 2023).
2. Thorough Database and Data Analytics: Efficient return management depends on
the maintenance of a comprehensive and current database. Retailers may utilize this feature to
examine consumer behaviour, monitor return trends, and apply enhancements based on data
analysis (Buxhoidt, 2023). Walmart makes substantial investments in data analytics to gain a
comprehensive understanding of customer preferences and behaviours. Through the examination
of return data, Walmart may discern patterns, refine product offers, and augment the entire
consumer experience. The company's robust data capabilities enhance the efficacy of its return
management operations.
3.Type II programs strive to achieve a harmonious equilibrium between minimizing
expenses associated with returns and improving customer satisfaction. Retailers must
strategically devise and execute rules that prevent superfluous returns while upholding the
consumer experience (Buxhoidt, 2023). Walmart may choose to introduce Type II programs in
specific product categories, which would require customers to pay reasonable fees or meet
certain restrictions when returning non-defective products. Walmart's objective is to minimize
return expenses while ensuring consumers are still satisfied by achieving equilibrium.
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4.operational Efficiency and ongoing enhancement: Successful return management

necessitates a dedication to achieving high levels of operational proficiency. Retailers should
regularly enhance and optimize their products and procedures in response to competition,
investments, and expertise in handling returns. Walmart's operational competence is seen in their
highly efficient return procedure. The organization consistently endeavours to better the returns
experience by implementing simplified procedures, bolstering customer assistance, and
introducing innovative solutions, hence adding to overall operational efficiency.
5.Customer Education and Communication: Clearly communicating return policies to
clients is crucial in order to establish expectations and minimize misunderstandings. Providing
clients with information about the returns procedure, including any associated expenses or
requirements, aids in managing their expectations and can result in more knowledgeable
purchasing choices.
Walmart has a communication strategy that is both explicit and easily understood when it
comes to its regulations on returns. The firm use many channels, such as in-store signage,
internet information, and customer service, to educate customers about the return procedure,
therefore reducing confusion and improving the entire shopping experience (How Walmart Is
Making Omnichannel Returns a Competitive Advantage with Mobile Express Returns, n.d.).
6.flexible Return Choices: Providing customers with many choices for returning items,
such as in-store returns, return drop-off stations, or prepaid return labels, offers them flexibility.
This adaptability accommodates a wide range of client preferences and improves ease,
potentially decreasing the perceived inconvenience of returns.
Walmart's omnichannel strategy encompasses the practice of enabling customers to return
items purchased online at brick-and-mortar locations. Customers have the freedom to select the
most suitable way for returning items, which enhances their shopping experience and has the
potential to boost customer loyalty (How Walmart Is Making Omnichannel Returns a
Competitive Advantage with Mobile Express Returns, n.d.).
By integrating transparent communication and adaptable return alternatives into their
plans, businesses such as Walmart may effectively meet consumer expectations and preferences,
hence enhancing the efficiency of their return management programs.

Return Volume Analysis for Walmart - Historical Trends and Seasonal Variations
Walmart's returns management is a critical aspect of its business strategy, influencing
both customer satisfaction and operational efficiency. A comprehensive analysis of historical
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return volume data reveals trends and patterns that warrant careful consideration for strategic
decision-making (Macrotrends, 2023).
Historical Trends
Over the observed period from the first quarter of 2019 to the fourth quarter of 2022,
Walmart's return landscape has evolved significantly. Notably, the average return value has
shown a consistent upward trajectory, increasing from $2.664 billion to $4.757 billion. This
simultaneous growth in both average sales and return values reflects the expansion of Walmart's
customer base and market share (Macrotrends, 2023). Understanding this historical context is
vital for evaluating the effectiveness of the company's returns management initiatives (30+ Jaw-
Dropping Walmart Statistics [2022]: Facts about the Largest Retailer in the World – Zippia, n.d).
Return Rates
While the growth in return values is apparent, the corresponding return rates also require
attention. The return rate, representing the proportion of returns concerning total sales, has
increased from 2.150% in the first quarter of 2019 to 2.900% in the fourth quarter of 2022. This
rise suggests a higher incidence of returns relative to sales, emphasizing the need for a nuanced
examination of return management strategies (Walmart U.S.: Sales Share by Merchandise
Category 2020, n.d.).
Patterns and Seasonal Variations
Seasonal patterns are obvious in return volumes, with the fourth quarter consistently
exhibiting higher return rates. The surge in return rates during this period aligns with increased
consumer purchases during the holiday season, reflecting the common trend of gift returns. The
identification of these seasonal variations is crucial for predicting and effectively managing
fluctuations in return volumes (Clark, n.d.).
Comparison of Return Rates
Comparative analysis across quarters highlights the fourth quarter's consistent bump in
terms of return rates. While higher return rates during the holiday season are expected due to
increased gift-related purchases, this pattern underscores the significance of tailoring returns
management strategies to specific periods.
Critical Analysis
The upward trajectory in return rates prompts a critical examination of Walmart's returns
management effectiveness. While increased returns may indicate increased customer engagement
and trust, it also poses financial challenges. A deeper dive into the most returned products, such
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as Apparel and Footwear, Electronics, Toys and Games, and Seasonal Goods, reveals areas
where targeted interventions could be beneficial (Average Retail Return Rate (2023 Data):
ECommerce vs In-Store, n.d.).
Addressing common reasons for returns, including damaged or defective items and issues
related to sizing, emerges as a potential avenue for reducing return rates. A critical balance is
required between fostering a customer-friendly returns experience and mitigating the financial
implications of heightened return rates (Average Retail Return Rate (2023 Data): ECommerce vs
In-Store, n.d.).
So based on these observations and analysis, Walmart's return volume analysis
underscores the complexity of returns management in the superstore’s retail landscape. While the
company's growth is evident, the simultaneous rise in return rates necessitates strategic
adjustments. Identifying seasonal variations, common reasons for returns, and targeted
interventions can inform a more nuanced returns management strategy. Walmart's ability to
navigate this complexity will determine its success in fostering customer loyalty and maintaining
financial sustainability among evolving market dynamics.

Optimizing Walmart Operation

Quality Control
Walmart focuses on quality management using three tiers of quality standards. The
lowest tier represents the basic quality standards expected from most of its own products, such as
Great Value. The middle tier represents the average product quality in the market, while the
highest tier's quality surpasses the usual quality offered in most industries (Smithson, 2023).
Walmart has an agreement with its suppliers, emphasizing their responsibility for the
safety of the products they purchase. Suppliers must adhere to critical quality control points set
by the company, including disclosing manufacturing facilities, undergoing security inspections
for transportation, and complying with third-party inspections chosen by Walmart. In addition,
Walmart utilizes the Six Sigma method for quality control management (Team2walmart, 2009).
Through a rigorous inspection, Walmart ensures that returned products meet the
company's quality standards. This includes inspecting the goods for damage, confirming the
quality of the package, and determining whether the product may be resold or returned to
inventory. Every returned item is examined, cleaned, and tested by Walmart to make sure it
satisfies the company's policy. These returned items are then sorted based on their condition, like
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whether they are almost new, damaged, or defective, and later, they decide whether to put them
back on the shelves, refurbish them, or dispose of them (Walmart).
Return Processing
Customers can initiate the return on online or in-store items within 90 days of purchase
(Walmart, n.d.). The refund is issued as a gift card or to the original payment method (Walmart,
n.d.). Customers in the United States may return items for free up to 365 days from the date of
shipping. After receiving the returned item, Walmart inspects it and credits the amount to the
original payment method.
Some practices that Walmart follows for their return items are as follows:
Restocking: If the returned product is new and resalable with the original packaging, they
restock it and return it to the sales floor for reselling.
Liquidation: For some items, if the box is opened or cannot be returned to the sales floor or
resold at the total price, they are sent to liquidation, which involves selling the product to a third-
party liquidator at a discounted price. They then sell the items at auctions or online.
Donation: Walmart always promotes donations and better childcare. The items that are returned
and which cannot be resold due to store policies go towards assistance. They donate it to various
non-profit organizations and local community groups.
Refurbishing and repacking: When we check the Walmart website, we can find open boxes or
refurbished items in the electronics section. Customers returned these products that were not
brand new and involved cleaning, repacking, or repairs to resell the product.
Recycling: Walmart prioritizes recycling for items that cannot be refurbished or donated and are
not in good condition to be resold or reused.
Clearance: items they think cannot be sold at a total price but are in good condition, the things
that are usually broken a little bit or there is a slight damage or which was the last piece,
Walmart puts them on clearance where customers can buy it on a much lower price.
Inventory Impact
The impact on inventory depends on various factors like the product's condition, store
policies, and the product type. If the returned item is resalable, they restock it, add it to the
inventory, and take it to the floor for sale (Carrot, 2023). If there is damage or missing parts or an
open package, they have to refurbish it to return it to the sales floor, which will not be counted in
the inventory temporarily. Walmart generates revenue, even if the product is refurbished, but it
will not impact the inventory.
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If the items are unsuitable for resale, they go for recycling, and if the item needs to be
refurbished, the refurbished items will be added back to the inventory. To manage the returns,
Walmart uses analytics and a sophisticated system to track them. Analyzing the patterns and
understanding the reason for returns help optimize the inventory management process while
adjusting inventory strategies (CBS, 2022). However, returning seasonal merchandise will have a
different impact compared to others. So, seasonal factors also impact the inventory.
Walmart employs a strategy, or we can name it a smart plan called vendor-managed
inventory (VMI) to handle its goods (Flora, 2022). With VMI, the suppliers take care of their
stuff kept in Walmart's storage. This not only makes suppliers responsible for their things but
also makes the supply chain more organized, avoiding confusion. VMI lets suppliers keep an eye
on how much stuff they have in real-time using an electronic system (Flora, 2022). Despite its
advantages, dealing with returned items poses some challenges. Walmart and its suppliers face
issues because it's hard to see what's happening with returned products. Returning products can
also make things complicated in the supply chain, as they need to go back from the store to
where they came from. Sharing information about the products helps a lot in making things clear
and accurate.
Walmart and Data Analytics
Walmart uses data analytics for its retail, customer service, and supply chain operational
efficiency. Return management is also one of the domains where Walmart uses analytics.
Walmart has a state-of-the-art analytics hub called the Data Cafe, where a considerable volume
of transactional data is available. The company uses these data sources to analyze various
problems in return management, such as reasons for products being returned, possible ways to
improve quality and reduce returns, and retain customers to increase their loyalty (Marr, 2021)
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Conclusion
In wrapping up, this exploration into how Walmart manages product returns reveals some
crucial aspects of the retail game. We've seen that Walmart leans into a strategy that prioritizes
keeping customers happy, making returns easy, and thinking long-term. While it might seem
simple, this approach is quite smart, considering the potential for more sales and loyal customers.
We also learned about some common mistakes companies make in handling returns and found
out how important it is to get return policies right. The report touched on how Walmart checks
the quality of returned items and handles them afterward. We peeked into their inventory
practices and saw the impact of returns. Lastly, we took a look at how Walmart puts data
analysis to work, using information to understand customers, improve products, and run things
smoothly. All in all, this journey through Walmart's world of returns management sheds light on
practical approaches that any business can consider to succeed in the ever-changing retail
landscape.
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Reference
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(n.d.). https://www.walmart.ca/en/help/faq/returns/0c7462d4fca94a2ab2e195138ddb0258
/return-policy/99386abe450a48cfb2428271f8589585

Walmart-Mobile Express Returns. (n.d.).

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https://consumerreturns.wbresearch.com/blog/how-walmart-is-making-omnichannel-
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Appendix

AVERAGE RETURN VALUE $(B)

5.000
4.500
4.000
3.500
3.000
2.500
2.000
1.500
1.000
0.500
0.000
19 19 19 19 20 20 20 20 21 21 21 21 22 22 22 22
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
OF OF OF OF OF OF OF OF OF OF OF OF OF OF OF OF
E R E R ER ER E R E R ER ER E R E R ER ER E R E R ER ER
T T T T T T T T T T T T T T T T
U A R U A R U AR U AR U A R U A R U AR U AR U A R U A R U AR U AR U A R U A R U AR U AR
Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q
T d d h T d d h T d d h T d d h
1S 2n 3r 4t 1S 2n 3r 4t 1S 2n 3r 4t 1S 2n 3r 4t

AVERAGE SALES VALUE ($B)

180
160
140
120
100
80
60
40
20
0
19 19 19 19 20 20 20 20 21 21 21 21 22 22 22 22
20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
OF OF OF OF OF OF OF OF OF OF OF OF OF OF OF OF
E R E R ER ER E R E R ER ER E R E R ER ER E R E R ER ER
T T T T T T T T T T T T T T T T
U A R U A R U AR U AR U A R U A R U AR U AR U A R U A R U AR U AR U A R U A R U AR U AR
Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q
T d d h T d d h T d d h T d d h
1S 2n 3r 4t 1S 2n 3r 4t 1S 2n 3r 4t 1S 2n 3r 4t