“It is not sustainable for DTC retailers and brands to continue to absorb the costs of returns. It’s … [+]
Not too long ago, easy, no-questions-asked return policies were table stakes for retailers and even more important when transactions were conducted online. It is estimated that about half of e-commerce retailers even paid for the privilege of having customers return their items.
But with costs rising across the board and margins shrinking, retailers are rethinking their return policies and hardening.
For example, Kohl’s no longer pays return shipping costs, and Bath and Body Works has limited its previously open return policy to 90 days and $250 per customer during that period. And LL Bean, Dillard’s, J. Crew, REI and Zara in the UK now deduct a fee for returns made by post, with H&M just announcing that it is testing a return fee for online orders in some markets.
Other retailers are considering opt out of the return process altogether and allowing customers to keep unwanted merchandise, giving a new definition to retail shrinkage. But these policies must be applied on a case-by-case basis and are frankly unsustainable as a business practice.
Steve Rop, COO of goTRG, a company that handles returns processing for Walmart, Sam’s Club, Target, Lowe’s, Home Depot, and more, sees the writing on the wall. “It is not sustainable for DTC retailers and brands to continue to absorb the costs of returns. It all comes down to economics.”
Return costs nearly doubled from 2020 to 2021
And the economic returns are staggering. the National Federation of Retailers and Appriss Retail Figure returns cost retailers $751 billion last year or 16.6% of total U.S. retail sales. That’s about 80% more than the $428 billion of returns during 2020, or 10, 6% of retail sales. Online return rates are even higher, accounting for $218 billion and 20.8% of sales in 2021.
However, NRF’s estimates may be underestimating the actual costs of returns. A survey of 117 retailers by Immersion in the supply chain and Optoro found that only about a third quantify the full costs associated with returns.
“There are packaging costs, shipping costs, sorting and processing. That cost could be anywhere from $10 to $15 to return an item to the retailer,” Rop explained.
“Easy returns with return shipping costs paid by the retailer were part of the early ‘land grab’ in online retail. Now the tide is turning and retailers are under pressure to find a better way.”
trained to return
Retailers know that customers pay attention to their return policies and this is even more important in e-commerce. It can make the difference between clicking the buy button or going somewhere else to make a purchase.
Some online retailers, such as Warby Parker, Stitch Fix, and Zappos, build returns into their business model, while others simply see it as a necessary cost of doing business online.
Unsurprisingly, customers favor free returns. It’s the second biggest factor after free shipping in influencing online shoppers, according to a survey of nearly 8,000 consumers by PowerReviews.
About 96% of consumers find free shipping important and 79% expect free returns from the other side, meaning the retailer pays for return shipping. Buy online, return in store is much less favoured, with just under half finding this option important.
And consumers’ expectation of free returns increases with income, from 75% for those with HHIs under $50,000 to 83% for HHIs over $100,000.
Caught between a rock and a hard place
Retailers are pretty much on their own when it comes to finding the right balance between the drive to make customers happy with free and easy return policies and the drive to lower the costs of returns.
“To date, there is little academic research that systematically breaks down and tests the business performance and consumer behavior implications of evolving product return policies,” wrote Thomas Robertson, director of the Jay H. Baker Retailing Center in Wharton, and his co-authors in a paper entitled “Many (un)happy returns?”
Robertson et al. they propose that retailers should consider returns as part of their customer journey model. Most of these models focus on the purchase as the “destination and everything after that is considered relevant only to the extent that it leads to another purchase.”
However, consumers are increasingly using returns strategically, grouping clothing purchases by size or ordering multiple colors, so that the “destination shopping status is eroded.”
The researchers suggest that returns should be considered part of a separate post-purchase stage in the journey. Returns can serve as a “conduit back to other stages of the journey,” the motivator for a new trip if an item is defective, or a step that leads to a different retail experience, such as an online purchase returned to the store.
goTRG Rop finds buying online and returning to the store a highly desirable alternative, as online retailers waive return fees for items returned to the store. Therefore, retailers incentivize shoppers to spend more face-to-face time in the store, where they have the opportunity to make another sale.
And buying online and returning to the store can have an added benefit. You can reduce future returns if “salespeople respond to returns with relationship-building behaviors,” Robertson et al. He suggested.
The researchers identified 20 returns-related topics that are ripe for further investigation. Beyond integrating product returns into retailers’ customer journey maps, more study is needed in the area of fraudulent returns, impacts on supply chains, logistics, retailer reputation and customer loyalty. client.
They also believe more research is needed into the ways retailers have trained customers to return more merchandise, and how customers can be retrained to return less.
“Easy returns change customer engagement levels. Purchases become temporary and decisions are no longer made in the store or on the website, but become fluid and intermediate, with the final determination moving to some point in the future when consumers make the final decision to keep or return an item already purchased. ” they wrote.
Returns ready for review
The assumptions underlying lenient return policies may no longer hold. “Returns have gone from being a serious logistics issue to a dynamic and often strategically important part of the retail business model,” Roberston et. Alabama. wrote.
“Customer expectations, norms and behavior have changed dramatically in a short period of time. While some retailers have identified (potential) opportunities in new product return strategies, the danger for retailers is real.”
And highlighting the danger is that many retailers “lack a consistent philosophy about where returns fit into their strategy and appear not to have built return rates into their business models at all,” they wrote.
Aaron Orendorfformer editor of Shopify Plus, put it succinctly: “Returns can be a disease: they aggressively attack profit margins, destroy conversion rates, and ultimately threaten your business.”
There’s no easy answer to returns, but one thing’s for sure, with the cost of returns nearly doubling year over year, more retailers will review their return policies. They need return policies that work best for their business, and as a result, customers may end up doing more of the heavy lifting.
