Woman in a clothing store checking out with the employee at a cash register.
According to the National Retail Federation, an estimated $761 billion worth of products sold by retailers last year was returned, or an average of 16.6% of total retail sales. — Getty Images/SolStock

Why it matters:

  • Merchandise totaling $761 billion in sales was returned by consumers last year, according to the National Retail Federation.
  • As rising e-commerce purchases increase product return volumes, retailers are seeking to make their processes more efficient and reduce the need for consumers to return goods.
  • The tips suggested by experts include providing detailed product description pages, monitoring customer feedback to adjust merchandising strategies, and encouraging customers to exchange items rather than ask for refunds.

The increasing popularity of e-commerce and the ease with which products bought online can be returned have led companies to tap technology solutions to make the return process more efficient.

Companies are deploying automated systems that can help them both minimize the costs of product returns and optimize customer retention.

Retailers are looking at end-to-end return management systems that help coordinate the entire returns process to create efficiencies, said Gaurav Saran, CEO of ReverseLogix, which works with brands such as Wilson Sporting Goods, Cole Haan, and Samsonite on their returns programs.

When companies had lower product return rates — in the 5% to 10% range — there was less incentive to take aggressive action to minimize their costs, he said. Now that return rates have soared, and other costs, such as labor and supply chain, are also rising, companies are taking a closer look at opportunities to make their product-return systems more efficient.

“There are so many of these factors that are almost forcing the hands of companies to invest in the right technology,” said Saran.

Slaying the $761 billion product return issue

According to the National Retail Federation, an estimated $761 billion worth of products sold by retailers last year was returned, or an average of 16.6% of total retail sales.

“Retailers must rethink [of] returns as a key part of their business strategy,” said Steve Prebble, CEO of Appriss Retail, a technology provider that released the report with the NRF. “Retail is dealing with an influx of returned items. Now is the time to stop thinking of returns as a cost of doing business and begin to view them as a time to truly engage with your consumers.”

Hannah Bravo, Chief Operating Officer of Loop, which offers product-return solutions for companies such as Allbirds and FIGS, agreed that merchants, especially those that generate significant sales through e-commerce, are putting their return processes “under a microscope.”

“Once you’ve paid for the acquisition of a customer, and they have decided to buy with your brand, the most cost-efficient thing you can do is everything possible to keep that customer coming back,” she said. “And the post-purchase experience is a really critical part of that.”

[Read: 5 Recession-Fighting Marketing Strategies From Walmart to McCormick Spices All Businesses Should Watch]

Reducing returns via online info and product views ‘equivalent to a fitting room’

Perhaps the best strategies for reducing return rates, however, involve preventing them in the first place, Bravo said.

One key tactic is to invest heavily in the product description pages that e-commerce customers examine before they make a buying decision. In the case of apparel, for example, these pages are “like the equivalent of a fitting room,” she said.

Offering 360-degree product views, sizing guides, access to customer reviews, and other content that can give consumers confidence that the product will look and fit as expected can help reduce returns, Bravo said.

In addition, retailers should study the reasons consumers are returning products, so that merchandising adjustments can be made to remedy customer concerns.

“If they can improve the product itself and make it less likely to be returned, that can be really impactful,” Bravo said.

Artificial intelligence and machine learning are playing increasingly important roles in these processes, she said.

Saran agreed that problem solving with customers is a key way merchants are minimizing return costs. In the case of electronics, often a little troubleshooting with a customer who wants to return an item can eliminate the need for a return, he explained.

“When the customer is creating the return request on the portal [on a customer’s ReverseLogix platform], if it's a laptop, for example, we can say, ‘Before you send the return, have you tried to do some troubleshooting?’” he said. “Sometimes it’s as simple as they didn’t know how to turn it on.”

[Read: 6 Winning (and Adaptable) Customer Acquisition Strategies From Growing Brands]

Offering 360-degree product views, sizing guides, access to customer reviews, and other content that can give consumers confidence that the product will look and fit as expected can help reduce returns, Bravo said.

Encouraging in-store returns plus potential add-on sales

Another area of focus is reducing return shipping costs, such as by encouraging customers to return products to stores, if possible. This also gives the retailer the opportunity to make incremental sales, Bravo pointed out.

Loop, for example, has been working with apparel and footwear retailer Allbirds on a returns strategy that seeks to direct customers to that company’s physical storefronts, which can be both cost-efficient and more sustainable than repackaging products for shipping.

“They have really leaned into leveraging those stores to give customers a more convenient, label-free, box-free path that's cheaper to Allbirds and ultimately gives them the opportunity to convert the customer [to spend more],” said Bravo.

Sustainability is an increasingly important factor in merchants’ approach to returns, Saran agreed. Using technology to direct consumers to return products to nearby return centers, for example, rather than sending them long distances — tapping into customers’ environmentally conscious instincts — is another way brands are approaching this challenge.

Brands are also increasingly looking for ways to salvage returned items that can’t be put directly back into inventory, Saran said, either by repairing them or reselling them as used items at a discount.

Recapturing sales by converting product returns into exchanges

For direct-to-consumer companies, there may also be opportunities to “save” some sales online by encouraging customers who are returning products to opt for exchanges rather than refunds, Bravo said.

“If you can shift some of those refunds into exchanges or into store credit, that's a really meaningful way for a retailer to improve the impact on their bottom line,” she said.

Loop’s goal when it works with merchants, she said, is to make the return process “more like a delightful shopping experience” for consumers.

“It's great for the customer, because they end up with something they love instead of a disappointment, and it's great for the brand because they can turn that into a customer for life,” said Bravo.

Offering immediate reimbursement for returns in order to help salvage sales and please customers is also the goal of Returnly, a return technology company acquired in 2021 by payment platform Affirm.

“Returnly settles orders in real time and takes on product return risk by paying for repurchases up front and in full, making returns and exchanges seamless and helping merchants drive higher return-to repurchase rates, increased revenue from returns, and higher customer satisfaction,” an Affirm spokesperson told CO—.

The Returnly platform, used by such retailers as UNTUCKit and Outdoor Voices, also offers other resources to help retailers improve the return process, including the capturing of relevant return information to inform merchandising, and automated return processes to reduce labor and improve efficiency.

“Returns are inherently a friction-filled experience,” the Affirm spokesperson said. “The consumer has bought something that they don’t want and are counting on the retailer to make it right.”

Tapping data for fast and efficient product returns during the holiday selling season

Companies are also leveraging data to process returned products more quickly and efficiently once they arrive back at a store or distribution center, which is especially important during peak return times around the holiday selling season, said Saran.

The faster that returned products can be returned into inventory, the faster they can be resold, said Saran. Leveraging technology to monitor how many returns are coming in on any given day allows brands to staff accordingly to better manage that flow.

Another cost-saving strategy that some brands are leveraging is to consider the resale value of each product that customers seek to return. If a seasonal product has already been discounted for clearance, for example, it might make more sense for the merchant to have the customer keep it and get a refund rather than incur the expense of processing the return.

Technology can help retailers execute those processes, Saran said.

“If they put the right processes and technology in place, they will be in a better position to deal with the tsunami of returns,” he said. “You don't want to be in a situation where you don't have the space or the labor or the technology to process those returns very quickly.”

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Published December 12, 2022