Person making a retail transaction with an employee in a clothing boutique.
While returns can be costly for retailers, they can also result in added revenue. — Getty Images/RyanJLane

Why it matters:

  • Online shopping surged with the pandemic, but online purchases generate more returns—30% versus 8.9% for brick-and-mortar stores.
  • Consumers increasingly expect retailers to offer hassle-free returns.
  • Returns are costly for retailers, but when executed right, they can actually boost sales by increasing brand loyalty and creating more interactions with consumers.

In May, Zara in the UK announced that it would start charging customers £1.95 ($2.43) for online returns. That move ran counter to how retailers have been approaching returns in recent years, with brands offering generous return policies. For some observers, the fashion brand’s announcement is an indication of how burdensome returns have become for retailers, especially when it comes to e-commerce, and how they’re working to do something about them.

E-commerce exploded in the wake of pandemic, as consumers shifted their shopping to online channels. Regular deliveries of goods to consumer doorsteps became a lifeline when brick-and-mortar stores were largely closed in the early days of COVID-19. In 2020, e-commerce sales surged by 32%, the U.S. Census Bureau reported.

Purchases made online result in more returns. It’s hard to know how something will fit and whether you’ll like it until you’re able to hold it in your hands. In fact, 30% of all products bought online are returned compared to just 8.89% purchased in a physical store, according to Invesp. When shopping online, consumers regularly engage in “bracketing,” the practice of purchasing multiple versions of the same item to decide which one to keep, Guy Courtin, Vice President of Industry and Advanced Technology with supply chain management tech firm Tecsys, told CO—. “Consumers basically want the showroom to be in their house,” Courtin says.

Returns are costly for retailers. According to Pitney Bowes, returns cost online retailers 21% of the value of each order. And while most retailers acknowledge these costs, many believe they must maintain flexible return policies in order to compete in a crowded market.

According to Invesp, 92% of consumers are more likely to buy again from retailer if there is a flexible return policy. In fact, more than two-thirds of consumers check the return policy before making an online purchase.

Returns can also be a revenue generator. They can drive consumers to make additional purchases.

“People who are returning are often some of your best customers, so you want to use returns to build a relationship with them,” Mark Mathews, Vice President of Research Development and industry analyst at the National Retail Federation, told CO—. “And that’s really hard to do because we have so many options at our fingertips.”

The key to winning the online return game is minimizing preventable returns, while still offering flexibility. Here are five steps retailers can take.

Offer accurate product descriptions via tools like a size recommender

Most returns happen because customers receive items that didn’t meet their expectations. Take sizing, which can be inconsistent from brand to brand.

“Use something like a size recommender,” suggests Sucharita, VP and Principal Analyst with Forrester. “Any kind of tool that can help you pick the right size will reduce bracketing.”

The same can be true for colors. All computer monitors are different and may show colors differently. In addition, there may be colors that consistently get returned.

So, “If I’m finding that one color is the most returned color, maybe I remove it from my product assortment,” said Oded Benyo, Chief Executive Officer of Returnalyze, a Boston-based company that helps retailers understand returns.

[Read: Big Brands’ Inventory Management Partners Share Top Tips to Slay Supply Chain Snarls]

People who are returning are often some of your best customers, so you want to use returns to build a relationship with them.

Mark Mathews, Vice President of Research Development, National Retail Federation

Include videos to demonstrate how an item moves and looks in a dynamic environment

Unlike a static photo, video provides consumers the opportunity to see how an item of clothing moves or how a sofa looks when kids and dogs are jumping all over it.

The downside is the cost. Brands with a large number of SKUs might be challenged to figure out which items to highlight as it may be cost-prohibitive to produce videos of their full inventory.

Virtual reality can also help consumers make better buying decisions. For example, “Warby Parker will superimpose a set of glasses on your face using your phone’s camera so you can virtually see what they will look like,” Courtin says.

Focus on logistics to reduce shipping errors

Another big category of returns stems from consumers receiving the wrong item, said Benyo.

One client of Returnalyze had noticed a high rate of returns of one particular item. When Benyo’s company looked further into why, they realized that that item sat on a shelf next to a similar item in the company’s warehouse.

“They separated them in the warehouse and that reduced the returns,” Benyo says. “It was a small adjustment, but it made a huge difference.”

[Read: Why Top Brands Are Using These Pricing Strategies to Drive Business in a Challenging Environment]

Encourage buy online, return in-store transactions: ‘It’s an opportunity for the customer and the brand to interact again’

When customers buy online and return in store, it reduces retailers’ shipping costs, creating a cost savings. In addition, customers are also more likely to make additional purchases when they come into the store, says Courtin.

You want to incentivize people to come into the store and create that physical touchpoint,” Courtin says. “It’s an opportunity for the customer and the brand to interact again.”

Kodali of Forrester recommends that retailers identify their most lucrative customers and offer them additional incentives or bonuses to make a return in the store.

Of course, this strategy is only available to retailers that have both an online presence and a physical location.

Tap order tracking to offer shoppers transparency on when their online order will arrive

Between supply chain disruptions and shipping delays, some items are taking longer to reach consumers than in the past. Customers may be ordering an item for a special occasion and won’t be able to use it if it arrives too late.

Be transparent with shoppers on when their order will arrive.

Tap sophisticated tracking software to offer customers frequent, real-time updates about where their item is and when it’s expected to land on their doorstep, Benyo said.

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Published June 13, 2022