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Are Retailers Getting Returns Under Control?

A study finds 69 percent of retailers treat returns as a cost of doing business, with only 19 percent having a strategic returns program in place.

The study from Incisiv found most retailers lack clearly defined metrics to measure their returns performance. Retailers are also failing to leverage tech solutions that could reduce returns, such as providing feedback on attributes like size and fit or improving customer satisfaction with the returns process, by enabling shoppers to schedule return pickup or track return/refund status.

On a more positive read, Insider Intelligence sees growth in returns moderating on the heels of spikes in 2020 and 2021 that resulted from pandemic-fueled online shopping and liberal return policies. Online return rates are seen sliding to 19.3 percent of sales last year from 21.7 percent in 2021, then 18.2 percent this year and 14.7 percent by 2026.

“This is partly due to people returning to stores to shop,” said Wendy Louie-Lam, forecasting analyst at Insider Intelligence, in a statement. “The other reason is retailers are implementing new policies or AI tech to minimize returns. Many online apparel retailers have implemented or are planning to implement new AI technology that should help with sizing to eliminate bracketing (people buying more than one size). Also, some online retailers are charging for returns.”

The National Retail Federation’s “2022 Consumer Returns in the Retail Industry” report found online return rates decreased over the last year and are now on par with in-store return rates. NRF’s study, however, still found overall return rates at retail remained sharply elevated in 2022 compared to 2020 due to quick rollouts of omnichannel practices such as BORIS and BOPIS, as well as return fraud.

In a recent blog entry, David Johnston, NRF’s VP, asset protection and retail operations, suggested collecting data to understand why returns are happening, collaborating with vendors, studying how returns impact sustainability efforts and exploring stricter return policies.

“Returns should not be viewed as a total loss,” wrote Mr. Johnston. “A shift in mindset can present opportunities to decrease return rates and loss by leveraging data, increasing communication with manufacturers and thinking about sustainability.”

BrainTrust

"For returns, surrender is not an option."

Ken Morris

Managing Partner Cambridge Retail Advisors


"AI and other technologies can help, but ultimately it comes down to the focus the retailer applies and commitment to viewing returns as a strategic effort."

Mark Ryski

Founder, CEO & Author, HeadCount Corporation


"Investing in more online and in-store tools to allow shoppers to make more informed purchases should be a major focus for the industry."

DeAnn Campbell

Head of Retail Insights, AAG Consulting Group


Discussion Questions

Discussion questions: Should most retailers view returns as a cost of doing business? How confident are you that artificial intelligence and other technologies and processes will notably reduce return rates in the years ahead?

Poll

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Mark Ryski
Noble Member
1 year ago

Returns are a cost of doing business, and that’s how most retailers look at it. And while it’s encouraging to see some retailers start to rein in their returns expense, many others continue to maintain sloppy returns processes that exacerbate the returns problem and financial impact. AI and other technologies can help, but ultimately it comes down to the focus the retailer applies and commitment to viewing returns as a strategic effort.

Neil Saunders
Famed Member
1 year ago

Returns are moderating compared to 2020 and 2021, but that’s only because those years were massive for online and spending in general and we are now seeing a moderation in the amount consumers buy. Overall, returns remain a huge issue for the industry and, in a much tighter margin environment, the cost of managing them deteriorates the bottom line. I am sure AI can help in some ways, especially sizing – although simple solutions like better pictures, more detail on fabrics, and better recommendations are also vital. Making consumers absorb some of the costs of making returns is contentious, but it encourages more considered purchases and brings some realism to the cost of buying online.

Ken Morris
Trusted Member
1 year ago

For returns, surrender is not an option. There are good solutions for online size and fit, for instance, including a new one that uses social media and user-generated content (UGC) to reduce returns dramatically. And let’s not forget serialized inventory. Part of the returns disaster is from fraud. Serialized inventory, using RFID, puts honesty back in the equation for returns. Retailers shouldn’t be throwing their hands up with returns. They should be using them to research available solutions or to call for help.

Dave Bruno
Active Member
1 year ago

Returns are certainly a cost of doing business, but that doesn’t mean we shouldn’t pay attention to that cost and do everything we can to manage it. I am not suggesting charging customers return fees, but rather investing in minimizing returns, reducing fraudulent returns, streamlining the operational and logistics expenses, and encouraging store returns where we have a better chance to incentivize shoppers to buy more while they are in the store.

Jeff Sward
Noble Member
1 year ago

Retailers have spent a lot of time and energy absolutely spoiling customers with liberal (free) return policies. That’s a learned behavior that is going to be very difficult to change. Digital and AI tools will certainly help moderate returns, but apparel is still very much a tactile, fit, feeling kind of experience. Modest charges for returns will at least give customers pause for thought while sitting at their couch with their bracketing mindset.

And after everything we’ve been through, only 19 percent have a strategic returns program in place? What will it take for the other 81 percent to implement some kind of initiative?

John Lietsch
Active Member
1 year ago

Yes, online retailers should view returns as a cost of doing business when they made the strategic decision to offer liberal return policies in order to grow the channel. However, viewing it as a cost of doing business does not exempt anyone, digital or physical retail, from also making the strategic decision to lower all costs and be as profitable as possible. There’s a likely a tradeoff requiring an executive decision that could benefit from data analytics (now called AI). Physical retail has not had the return problem online retail has had and understanding the root causes of returns for each channel is critical before deciding how to solve it.

David Weinand
Active Member
1 year ago

We did a separate study prior to the one you referenced in this article that showed retailers have far more control over the number and impact of returns. In fact, over 70% of returns occur due to a retailer controllable action. That includes product quality, size, fit, wrong item sent. This is not just a ‘cost of doing business’ Retailers can impact margins by doing a better job of reducing returns vs. just improving the mitigation of the returns process.

Gene Detroyer
Noble Member
Reply to  David Weinand
1 year ago

You confirm what I think. Everyone seems to want customers to accept the responsibility for returns. How often is “M” different even in a retailer’s same product category? Why do size “34” slacks come too big or too small?

David Naumann
Active Member
Reply to  David Weinand
1 year ago

Great points Dave! Retailers shouldn’t just accept the high cost of returns and should focus on what they can do to minimize the impact. It starts from before the customer makes a purchase and even after items are returned. There are many decisions that impact the cost of returns, including return policies, website product representation, quality control in packing the right items, efficient return processes and proper choices on what happens to the returned products.

Bob Amster
Trusted Member
1 year ago

If returns are a cost of doing business, then retailers have to increase prices in order to stay profitable. However, that move finishes those customers who do not abuse returns, or maybe return anything. As opposed to AI as a solution, I favor stricter yet reasonable returns policies and (as my colleagues have said) a more realistic representation of the products sold online i.e. sizes, colors, and maybe even the online equivalent of magic mirrors.

Gene Detroyer
Noble Member
Reply to  Bob Amster
1 year ago

If a retailer has not considered pricing in returns, the retailer needs a new CFO.

Allison McCabe
Active Member
1 year ago

Retailers have a handle on what drives returns on their products. If it is a big ticket purchase, other than failure of the product to perform, returns are minimal. If a retailer is dealing with buyer’s remorse as a major component of returned merchandise, I’m not sure how effective AI and processes will ever be at reducing a psychological impulse. Long response for a short statement: It depends on the product.

David Spear
Active Member
1 year ago

Returns are definitely a cost of doing business, but there are so many good practices and new digital tools to limit exposure. I’ve recently purchased many items online and have used a variety of “sizing” tools, including sizing reviews from previous buyers who provide detailed information on fit. Then, there are analytics that can and should be applied to all return products. These insights turn into patterns that shape and inform future decisions for return policies and programs.

Gary Sankary
Noble Member
1 year ago

Return policies have a significant impact on how customers perceive a retailer. They are most definitely a cost of doing business. AI may be able to provide insights into the reasons customers return products and may help identify the bad actors who are abusing return policies quickly so stores can take appropriate action.

DeAnn Campbell
Active Member
1 year ago

As long as retailers continue to push free shipping and fail to promote ways for shoppers to view, test or try on products before purchasing them returns will be a significant margin killer for retailers. Even a small fee for return shipping will reduce multi-size purchases or even returns abuse. Investing in more online and in-store tools to allow shoppers to make more informed purchases should be a major focus for the industry, not only because of the financial losses that returns generate, but their environmental impact as well.

Brandon Rael
Active Member
1 year ago

Product returns and reverse logistics are a fundamental part of the retail business and, simultaneously, the cause of most customer experience friction points. Retailers have taken the necessary steps to help mitigate the number of returns by getting ahead of the bracketing phenomenon, where customers buy multiple sizes of a product in the digital platform and return the items that don’t fit.

Right-sizing technologies, AR, VR, and leaders such as True Fit have provided solutions for retailers to offer a more seamless e-commerce experience, which has led to a reduced rate of returns. However product returns will never truly go away. The process must be clear, transparent, and intuitive for both customers and store associates, as it’s an intrinsic part of the retail experience.

Richard Hernandez
Active Member
1 year ago

Returns are definitely a part of doing business and each retailer has to set rules on, and implement technology to, handle them. I am very curious to see how Target’s drive up returns will work. It’s an interesting take and a possible model for other retailers.

Gene Detroyer
Noble Member
1 year ago

Do retailers track returns on an item basis? If a particular t-shirt generates 35 percent returns while another generates 3 percent returns, it is not a cost of doing business–it is a cost of poor operations.

If Dave Weinand’s Incisiv research is correct, then targeting the customer for return problems is just an excuse.

Ron Margulis
Member
1 year ago

Retailers are still spending too much effort on handling returns and not enough on preventing them. By collecting data on returns early in a sales cycle, for instance, you can not only address root causes for the next cycle but also dramatically reduce returns in the current one.

Melissa Minkow
Active Member
1 year ago

I love the idea of not thinking of returns as a total loss, especially if retailers use them as an opportunity to collect additional data on the customer/item mismatch. I see technology and 1:1 product creation as great enablers to return reduction.

Kenneth Leung
Active Member
1 year ago

Returns is a cost that needs to be actively managed, especially if you have stores. Getting people to return to stores saves postage and processing and also gives you an opportunity to find out what the problem is and maybe turn it into an exchange.

James Tenser
Active Member
1 year ago

Liberal return policies have been used as an incentive by retailers for years to encourage shoppers to risk more at each trip. This tactic reached its apex, I think, with the Zappos online shoe business, which set the bar for many other digital retailers.

So returns are sometimes more than just a “cost of doing business.” Liberal practices can be a business stratagem, the advantages of which must be weighed against the costs.

In that context, “getting returns under control” takes on a more nuanced meaning, with direct costs considered against customer lifetime value and competitive objectives. Perhaps “optimizing returns” would be a subtler way to express this equation. AI decision-support might play a role.

Allison McGuire
Member
1 year ago

You don’t have to use AI to reduce your return rate. Start asking the questions through a list of dropdowns during the online return process. You can then start to pinpoint if returns are due to image or product description inaccuracies, size or color issues, or just plain customer error. I agree a lot of customers overbuy planning to return some items, but many just aren’t having a positive buying experience. That is fixable.

Christina Cooley
1 year ago

Retailers should view returns as a cost of doing business, but also see it as an opportunity to build trust and loyalty with customers. By offering a fair and easy returns process, retailers can create a positive customer experience that encourages repeat business. In addition, returns gives the retailer options to provide store credit (when appropriate) as well as to identify patterns that may require the retailer to look into a product issue. It is a fine balance between the costs associated with returns and the potential upside, but definitely an opportunity for retailers to differentiate themselves. Costco, Amazon, and Nordstrom are three examples of retailers that have been extremely successful in doing so.

Oliver Guy
Member
1 year ago

Full disclosure – I work for Microsoft. Returns need to be thought of from 2 sides – firstly reducing the quantity and secondly by streamlining the process when returns do happen. Technology has a huge part to play on both sides.
AI and data science based approaches can help choosing the right size of product but it can also predict likelihood of a customer returning an item – and offer incentives or advice to minimise the likelihood of a return.
When it comes to dealing with a return, getting the product back into stock quickly is critical to allow it to be re-sold – again technology can automate and streamline this process – with computer vision for example being used for product inspection as well as process automation to update inventory when the product is available. Minimising the amount of human touchpoints will aid this dramatically.

Anil Patel
Member
1 year ago

Returns should be viewed positively by retailers and must be treated as feedback in order to determine why they are occurring. However, some customers make unexplainable returns after purchasing the products, which ultimately harms the business.

In my opinion, the dilemma around returns is an industry gap that can be bridged with new-generation return management systems. These systems can identify and blacklist “serial-returners” based on the past shopping history of customers, helping retailers to avoid returns fraud.

On the other hand, the return processes should be made simple for genuine customers. Opening new stores in areas where there are more customers will help retailers to offer a convenient shopping experience with strategies like “Buy Online Pick-Up In-Store”. At the same time, new physical stores will also allow easy returns for customers with strategies like “Buy Online Return In Store”. With the “BORIS” customers can return their orders directly at the nearest store for free, as well as retailers can save costs associated with reverse logistics!

Morgan Linton
1 year ago

Returns as a cost of business is a way to look at it, but utilizing the data that comes from returns is an opportunity for retailers to improve their product. For apparel retailers specifically, the challenge is bridging the gap between customers finding their preferred fit the first time with AI size recommendations and utilizing the purchase and returns data to inform product and design teams.

Body data enables an understanding of how customers who loved their purchase look, as well as of those who return an item – so brands can address the root of the problem by updating designs and utilizing upfront sizing recommendations to create more personalized and positive customer experiences – ultimately reducing the “cost of business”.

Natalie Walkley
9 months ago

Should retailers focus on reducing return rates – yes. Some modern returns management software can even provide strategic information (like SKUs with higher-than-average return rates) to customers prior to purchase.

If retailers merely view returns as a loss, they miss out on the creative ways to save the sale, encourage exchanges, enhance their customer experience, and increase repurchase rates. Given the market and economic condition, returns should be a critical part of retailers’ strategy.