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September 27, 2024
Are Stricter Return Policies Worth It?
Blue Yonder’s 2024 Consumer Retail Returns Survey found that tighter return policies are starting to deter consumers from making purchases, particularly younger ones.
Among the findings from the survey of more than 1,000 U.S. consumers taken in July:
- Of all respondents, 91% acknowledged that a lenient returns policy influences their buying decisions, up from 71% in the 2023 survey.
- Of consumers who are aware of stricter return policies, 69% said that tighter policies are deterring them from making purchases, up from 59% in 2023. Among Gen Zers and millennials, 76% and 74%, respectively, indicated that tighter policies deterred purchases.
- When asked about tighter policies, 51% of all respondents felt restrictions on returns are either inconvenient or unfair, while 37% found them fair and understandable.
The stricter policies are far from only impacting serial returners, or consumers who deliberately over-purchase to take advantage of free delivery and returns. Of the respondents to the survey, over half (56%) reported making a return only once or twice a year or less. Meanwhile, 22% of respondents said they make a return every few months, 6% once a month, and 6% every couple of weeks or more. Only 10% have never returned an item.
Retailers in recent years have been taking additional measures to tackle escalating return costs partly tied to e-commerce growth. According to NRF and Appriss Retail, total returns for U.S. retail amounted to $743 billion in 2023, or 14.5% of overall sales. Return rates for online purchases were 17.6% versus 10% for in-store purchases.
Return costs can include shipping, restocking, and reprocessing fees, along with the possibility of having to significantly discount or fully write off the item, depending on the timing and condition in which it is returned. Blue Yonder’s survey found that 72% of consumers have been told to keep unwanted items to help the retailer avoid the high cost of reverse logistics.
Steps being taken to reduce the cost of returns include charging for mailed returns while enabling free in-store drop-off, increasing free shipping thresholds, shortening return windows, partnering with return aggregation services like Happy Returns and Narvar, and using fit technology to reduce sizing errors.
“Where the goal is to mitigate the cost of returns, retailers should be looking for ways to do more than tightening their policies to reduce returns rates,” said Tim Robinson, corporate vice president of returns for Blue Yonder, in a statement.
Other findings in the Blue Yonder survey:
- Return causes: Consistent with last year’s survey, 75% of respondents cite the most common reason for returns is incorrect sizing. Other reasons include item damage, 68%; changing one’s mind or disliking the item, 49%; and receiving the wrong product, 47%.
- Return fees: About a third (32%) said they would not return an item if there was a fee. Among the remainder, 27% said they’d pay a fee of $1 to $5 to return an item, 10% said they would pay $6 to $10, 15% would pay $11 to $15, 13% would pay $16-$20, and 3% would pay more than $20.
- Third-party returns: When asked what factors would make them use a third-party returns service (i.e., drop-off location, drop-off mailing service), 62% said lower or no shipping fees, 60% said the convenience of drop-off locations, 47% said faster refund processing, 39% said assurance of hassle-free returns, and 38% said reliable tracking and confirmation of returned items.
- Sustainability: A slight majority (55%) are very or somewhat concerned about the environmental impact of returns. When asked what action they would take if they knew their returned item would go to a landfill, 36% would seek an alternative, eco-friendly disposal method, 35% would attempt to resell the item, and 27% would continue with the returns process as planned.
Discussion Questions
Do you see better ways for retailers to protect their margins from the costs of reverse logistics while maintaining a customer-friendly returns experience?
Have the stricter return policies become too much of a drag on the shopper experience?
Poll
Loading …BrainTrust
Jenn McMillen
Chief Accelerant at Incendio & Forbes Contributing Writer
Jeff Sward
Founding Partner, Merchandising Metrics
Neil Saunders
Managing Director, GlobalData
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In some ways, returns are part and parcel of doing business online; and, for years, customers have been trained to expect them for free. That’s why introducing charges jars so much and can deter customers from purchasing. One of the added issues is that returns are sometimes made because of mistakes a retailer makes – such as being unclear about sizing or products not looking like the photos shown online. Having to pay for this is particularly irksome. Ideally, retailers would tailor their response by customer, charging only those who are serial returners or who make too few purchases to justify the expense. However, this is not always possible, so a blanket policy is what materializes.
Neil Saunders, you have stolen my thunder. I agree completely on all counts. In all cases, reasonable stricter policies will increase profitability. In some cases,They will increase foot traffic in stores. in some cases, the worst offenders will be lost customers who probably only contributed to the losses and not to any profit. There is a balance to be struck between the two. (We lose a dollar on every transaction with this rogue customer, but we make it up in volume with her.) I particularly like the idea of ‘punishing’ (treating) different customers differently. Lending institutions research their borrowers before writing a check, why can’t retailers track consistent offenders and charge for returns accordingly. There are plenty of options available to keep retailers profitable without offending good customers, while culling out the drags on profits.
When retailers make returns more difficult than their competitors do, they will suffer from having less customers, less love, and actually, make less profits.
Returns are a realistic part of holiday shopping, and whereas I do not expect retailers to accept returns without a proof of purchase, I firmly believe, and encourage them, to keep the rules very easy and basic.
I just wrapped a webinar on this very subject. Amazon and Walmart’s generous returns policies have kind of ruined it for everyone (especially those whose businesses are far less diversified). The bar has been raised and shoppers don’t take kindly to punitive returns policies popping up out of nowhere. The good news is there are a slew of third-party solution providers that are attacking the opportunity with AI-based tech that personalizes the returns process based on consumer patterns and preferences. In other words, the excuses for one-size-fits-all policies that punish the many for the sins of a few are running out.
The returns issue in DTC has been around forever. Don’t blame Amazon or Walmart…there’s no fitting room. What do you think is gonna happen? A DTC return rate of 25%was considered great 30 years ago and still is.
be careful what you wish for. I understand the allure of e-commerce, but, No fitting room = many more returns. Always has, always will
Speaking as a consumer, if a store’s return policy is strict I may buy something there if I can’t get it anywhere else. Given the the choice, however, I am always going to choose the retailer with the more customer-friendly policy.
Where, really, is the data to intelligently answer either of these questions? Presumably the goal of a business is to maximize its profits, not its “customer friendliness” nor even its sales. So self-evident findings like “customers are less likely to return items if they have to pay for it” don’t tell me much: are they less likely to buy, or just buy more carefully? As is alluded to a number of times, it’s far better to fix the reasons people return things in the first place, rather than fetish over how easy – or hard – it is to do so.
More online buying will mean more returns. Retailers have to leverage AI and other technology to ensure that they’re passing as little of returns costs onto consumers because consumers have come to expect free returns thanks to the many retailers that can maintain this golden standard.
Most retailers have enough flexibility in their return policies to tighten them up a little as well as creating additional efficiencies. As the accuracy and consistency of fashion sizes increases the number of returns should decrease. resulting in improved margins for retailers placing less pressure on legitimate returns. Many retailers are spending their energy on reducing returns by increasing accuracy and efficiencies in the process that drive some returns.
Policies seem to be moving in the opposite direction. Walmart even offers to schedule a pickup for your return. Amazon has slightly tightened policies however the majority that I see are loosening in the hopes to grow sales. This also includes retailers like Kohl’s, Staples, and Forever21 that accept returns from other retailers to drive traffic. There is no easy fix to this problem as it is inherent in e-commerce. Until the consumer is more educated and eco-conscious is a priority, increasing friction for returns will continue to be a risk for sales prevention.
Some of the retailers, historically, with the best return policies are Amazon, Nordstrom, Costco and Target. There’s a lot of customer love for these businesses, perhaps because it’s clear they have a customer-first focus. Apple, on the other hand, has one of the worst return policies out there–you have a mere 14 days–but that hasn’t diminished customer adoration. So which way to go? Every business must find its happy medium–maximize profits and sales whilst minimizing returns and customer ire, so there is no easy formula here.
Where’s the data to quantify whether restricted return policies ultimately result in higher or lower net sales?? Would expect it depends on the many factors including price and category of product. Without that, its speculation.
Galatians 6:7-9.
You reap what you sow. Retailers both physical and online brought this one themselves. Trying to roll this back will be extremely difficult but it needs to be done. It needs to be rolled out slowly, but it needs to happen. Just go to a WalMart. Any WM-and look at the poor individuals behind the counter trying to take back stuff that probably should have never been purchased.
Return policies are really a marketing and customer retention tactics. There’s no reason any company has to offer returns at all, and there are some that don’t. This is a “free market’ issue, in my opinion. If consumers decide a company’s return policies are too onerous, they won’t shop there. If a competitor offers more liberal returns and writes off the expense as a marketing expense, I’d bet there would be a reaction, just like a price cut or new service.
Of course stricter returns are a drag on the shopper experience…for some people. Of course customers want free returns…forever. Of course it’s less convenient…for serial returners. But let’s see a little more math, please. What was the return rate before tightening the policy? What is the return rate after tightening the policy? (And therefore what was the craaaaazy return rate on the lost sales?) What’s the gross margin $$$ contribution before and after? Processing ecommerce returns has to be one of the biggest profit drains in the business. And of course a certain amount of returns is to be expected and can be modeled accordingly. But it’s crazy to keep it open ended. Free returns as a customer acquisition tool make abundant sense. Offer a loose return policy for the first 3 purchases. Help the customer get acquainted with fit and quality. After that, nominal fees make abundant sense.
Retailers have contributed to the problem of high return rates by making it easier or more economical for consumers to return items. When a few retailers offered free shipping on returns a few years ago, others had to follow. This exasperated the high returns problem. Ideally, retailers should be doing things to reduce or discourage returns like better online product information, sizing tools, and discounts for items exchanged instead of refunded.
With the high margin impact of returns, retailers are resorting to stricter return policies, which can reduce revenues. It is a balancing act. Another option is to limit free returns to loyal customers or some other metric that measures that customers deserve the perk. Limiting returns to X amount in a year may also help prevent frequent abusers of free returns.
Returns are key to the shopping experience. The consumer shouldn’t bear the costs, or have to manage any part of the return process, if possible. The easier that this is for the consumer, the more positive the shopping experience becomes. Happy customers grow business!
Instead of making stricter return policies, how about finding the root cause of why people are returning? I wrote an article last year for Retail Wire where I shared that I was weighing whether or not to return a storage rack because I discovered when I got it home that DIY installation was beyond my skill level. I didn’t know where to begin to hire someone. Like they were reading my mind, the retailer reached out and told me they had a guy for a nominal fee. They stopped a return, I got the extra storage I needed, and the retailer won a customer for life. This is the outcome of a smart retailer paying attention and figuring out the root cause of returns and not only “saving the sale”, but building brand love and increasing customer lifetime value in the process.
Retailers need to find a better balance. Stricter return policies are becoming too much of a burden on the customer experience, especially for younger shoppers. While I understand the need to cut reverse logistics costs, simply tightening policies isn’t enough.
Charging fees for returns or limiting windows only frustrates customers and pushes them away. I think the most plausible way to deal with returns is by establishing a physical store network so that customers can exchange or return their purchased items in-store, regardless of whether the original purchase was made online.
Protecting margins is important, but alienating your core shoppers in the process is a mistake that could hurt long-term loyalty.