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Retailers’ Attempts To Dissuade Returns May Impact Brand Loyalty
The tension between retailers and shoppers is growing, and it’s because of returns.
Shippo, a leading shipping platform for growing e-commerce businesses, has come out with a 2023 Benchmarks Report that “takes a comprehensive look at how mid-market e-commerce merchants are measuring up when it comes to key shipping and fulfillment data points.” One chapter in Shippo’s report focuses on the dilemma of e-commerce returns.
According to Shippo and a consumer survey conducted by The Harris Poll in June, “21% of Americans who have made online purchase returns in the past 12 months expect those returns to increase in the next 12 months.”
With the popularity of online shopping, consumers see returns as part of their regular e-commerce experience, which may explain why many shoppers are expecting to increase the number of items they return. At the same time, many brands are attempting to limit e-commerce returns. As the National Retail Federation stated, online return rates in 2022 accounted for “approximately $212 billion,” which is 16.5% of all online sales.
The rate of return retailers experience might vary based on what they sell. For instance, apparel typically sees the highest rates of returns, as indicated in a report by Shippo’s partner Loop. Accessories and footwear also experience high return rates.
But what’s different about these items in particular? For people buying products online, they have to try them on to make sure they fit as expected. Shoppers may also buy multiple sizes of the same product to decide what looks and fits best. This leads to potentially high return rates, but it’s an important part of the online shopping experience.
“Some estimates peg the cost of returns to the seller at 66% of the original item’s price,” Shippo stated in the report. And this cost, combined with the high return rates, has led some companies to believe that dissuading returns is the best solution in order to save money, but “that strategy may be a mistake.”
More and more shoppers are starting to notice that brands are making changes to their return policies, and they’re not happy about it.
According to the Shippo/Harris Poll survey, “Nearly three in four Americans who have made online purchase returns in the past 12 months (72%) have noticed retailers making online purchase returns more difficult over that time span, and more than half (54%) have felt blindsided by a retailer changing their online purchase return policy.”
Here are a few ways Shippo’s report notes that policies are changing:
- Allowing exchanges or offering store credit only
- Charging a fee to return products
- Shrinking the return window
- Allowing only in-person returns
Shoppers aren’t just noticing these policy changes, either — they’re speaking out and taking action. The survey states that “four out of five Americans (80%) say if an online retailer they regularly purchase from made their return policy more difficult, they would purchase from a different retailer with a more favorable return policy instead.”
“One bad return experience can result in complete consumer abandonment,” said Loop’s president, Aaron Schwartz. “Today’s economic and market uncertainty means consumers are paying close attention to retailers’ return policies and if brands aren’t considering the customer journey beyond the point of purchase, they’re missing out on critical opportunities to build trust and boost customer retention.”
It’s about brand loyalty in the end. Companies may think that losing out on money because of returns is a huge problem, but they might end up doing more damage to their reputation by making hasty changes.
Discussion Questions
DISCUSSION QUESTIONS: Do you think retailers have a valid reason for attempting to dissuade returns in order to save costs? Or do you believe they should prioritize customer satisfaction and loyalty over minimizing returns?
Poll
Loading …BrainTrust
The costs are real, and consumers have to face the unpleasant reality that all the “free” activities like bracketing or unlimited returns are going to have to come to an end. However, it’s a competitive world out there and some retailers may choose to take what is ultimately a margin hit by offering a looser returns policy compared to their competitors. However, I think a blanket approach to returns policies is a mistake. You have to have allowances for high value customers to avoid losing them to exactly that kind of competition. High tier loyalty members should have an easier time with returns vs. a one-time customer or a lower-tier serial returner. But the reason why most retailers don’t offer this kind of differentiation is because they don’t know – they don’t know each customer’s lifetime value, or how much each customer is costing them in returns, and they don’t have the training or empowerment of frontline employees to use discretion to keep a valuable customer or cut off a costly customer. So – blanket returns policies that do nothing to attract new shoppers, and risk alienating your most valuable customers and may put in better immediate cost controls, but at what cost in the long term?
Managing online returns comes down to a strategic choice between the “carrot” and the “stick.” As this post articulates, consumers see returns as part of the online shopping experience. Policies that punish people (for returning online purchases with fees, store credit-only policies, etc. (the “stick” approach) are counterproductive to conversions and damaging to the brand. Instead, I would recommend we invest more in tools that help minimize returns prior to purchase and that we incentivize in-store returns after the purchase. Customers will always respond much better to these “carrots” than they will to any “sticks.”
Retailers must always prioritize customer experience and customer satisfaction. That being said, operating at a deficit isn’t a sustainable proposition. Understanding the overall profitability of ‘habitual returners’ is a task most retailers are loath to explore versus adding blanket, potentially negative return policies. Retailers must get better about personalization and understanding Customer Lifetime Value.
The eCommerce industry has made it’s bed and now it wants to change the rules? Not so fast, as the potential loss of customers that switch to a different retailer is too high. They may be lost forever, and trying to get them back may cost more than the cost of dealing with returns, especially from those customers that have been loyal to the brand/retailer.
That “bed” of easy returns is one of the reasons e-commerce is a $10 trillion business and growing. If returns carried friction from the begging, would customers have become frustrated from the beginning and minimized their interaction with e-commerce? I contend we will never have seen the phenomenal growth we have seen. E-commerce is all about convenience, convenience, convenience. No convenience…no e-commerce.
Here we go again. Is this the #1 topic on RetailWire?
In our household, if any merchant has any friction in returns, we eliminate them from our shopping list. Recently, my wife bought a coffee grinder from a first-time vendor. It didn’t work properly. She decided just to throw it away because the hoops they required us to go through were so difficult. She then went to Amazon and bought one confidently.
For us, if the returns aren’t free and easy, we don’t do business with them.
The second question, “…should [retailers] prioritize satisfaction and loyalty over minimizing returns?” My answer is only if they want to have a vibrant business.
Before someone tells me that returns are too expensive, please tell me how the ZAPPOS business model has been successful for over 20 years. You can’t beat their mantra, Delivering happineass.”
Very true…Zappos got the party started. Buy 10 pairs and return 9.
Here we go again. Is this the #1 topic on RetailWire?
In our household, if any merchant has any friction in returns, we eliminate them from our shopping list. Recently, my wife bought a coffee grinder from a first-time vendor. It didn’t work properly. She decided just to throw it away because the hoops they required us to go through were so difficult. She then went to Amazon and bought one confidently.
For us, if the returns aren’t free and easy, we don’t do business with them.
The second question, “…should [retailers] prioritize satisfaction and loyalty over minimizing returns?” My answer is only if they want to have a vibrant business.
Before someone tells me that returns are too expensive, please tell me how the ZAPPOS business model has been successful for over 20 years. You can’t beat their mantra, Delivering happiness.
Gene. I love what you point out and that many ignore – your wife bought a product that didn’t work and didn’t meet expectations. Too many times the blame is put on the shopper for bracketing or wardrobing, but those aren’t the primary causes for returns. Retailers need to know why customers returns so they can make the necessary adjustments. That’s just good retailing. A bad coffee grinder, they should never have sold it. And if you did, rectify it. Was it a one time defective product or was it an issue will all of them. If all of them, go back to the vendor and get your allowance. If it was a one-time thing, save the sale and protect your customer. And for size/fit? What is a Medium size today? Who knows.
Interestingly enough, it was one of the top topics being addressed at all of The Lead Innovation Summit last week in NYC. The pandemic truly opened Pandora’s Box, it seems, in exposing how the logistics around online purchases (primarily) are built for one direction (out) but not the other (in). It’s created quite the conundrum for retailers, but — in doing so — has also created a vast opportunity for others to solve the problem, thus companies like Optoro are stepping up to the plate. It’s quite interesting. 🙂
Yep. Amazing how easy it is to buy from most merchants compared to how many hoops, steps, and extra costs the customer must endure to return or exchange something.
Zappos, Nordstrom, Bombas, LL Bean, even Costco are all great examples of how to earn long-term customer loyalty on both sides of the transaction. They’ve figured it out, while other merchants publicly complain about it or put it back on the customer.
Merchant leadership can either immerse themselves in cost recovery games on spreadsheets, or invest in programs and generous policies to create long-term customers.
There is a delicate balance between managing the costs of managing returns and driving outstanding customer experience. While the costs to serve are rising for retailers due to bracketing, buying alternate products, and rising return rates, this is an intrinsic part of the customer’s digital commerce experience. By enforcing or dissuading product returns and removing any flexibility customers seek, they have every right to drop your brand and seek other companies with more liberal return policies.
The bracketing phenomenon is real and challenging to mitigate, especially without digital right sizing tools, such as True Fit, to enable consumers to better understand the brand’s sizing. Every apparel item fits differently for every consumer. However, what True Fit and its competitors offer is a way to mitigate mass returns and bracketing and inspire consumer confidence.
This will help reduce but not eliminate product returns and the associated costs. However, every “free return” comes with a cost as it’s embedded within the item pricing. Prioritizing customer satisfaction and providing flexible return options are integral to any retail business.
Retailers do have valid reasons to fix these returns numbers, but they need to be careful with how they implement solutions. Returns are fraught with conflict, so the art is to make this a seamless experience. The last thing you need is to negatively impact lifetime value. Leveraging tools like RFID to institute drop and go returns and switching to User Generated Content to reduce bracketing for online fashion are just two solutions that will impact the experience.
Now, let’s not forget that brand loyalty is stronger for some brands than others. So, always take “what would you do?” survey results with a grain of salt. Eighty percent of truly brand-loyal shoppers would not abandon a specific beloved brand because of a change in return policy. They’re just saying they would, just as they’d say a price hike would make them switch brands.
Online shopping was built on convenience but any cost advantage of not operating brick & mortar stores has been proven elusive considering that ecomm still accounts for less than 20% of total global sales and the fact that returns for brick & mortar are considerably less. I believe that besides segmenting returns based on some customer dimension, all retailers must accept that “valid” returns are a necessary cost of doing business. Apparel presents the most interesting challenge because consumers are using returns as “fitting rooms” and that has proven understandably unsustainable. Unfortunately, if you want that business profitably then you must find a way to compete and returns will invariably be part of that equation.
We have agreed in previous discussions on the subject of return,s that reducing returns is a two-sided effort; consumers will have to shop more judiciously and manufacturers and retailers will have to provide more accurate information about each product sold online. Consequently, consumers will reorient their thinking when purchasing online from a “the devil may care” attitude to making more pointed decisions. There will be a period of relearning on both sides but not necessarily abandonment of online retailers by formerly loyal customers.
Investors have stopped giving a blank check to e-commerce merchants, so now that easy returns can’t be counted as goodwill on the balance sheet, online retailers’ policies are going to start converging as best practices for various product categories propagate. Any supposed strategic advantage a loose policy gives will be short-lived as margins run out (“I lose money on every sale but I make it up on volume!”), and a shopper can’t return a product when the merchant goes out of business.
The return policy/experience absolutely affects customer loyalty – especially when the policy is arbitrary. I have witnessed consumers significantly increase the cost of doing business by purchasing something for their kids to play with for a few days and when the kids are bored, they return the merchandise. Others might buy 2 items with the full intention of returning one. Only the retailer can know what the averages are in their target market, but since they must make a profit over the long-term, they have to adapt the prices charged to customer segments based on the anticipated costs (plus a little margin). If a retailer offers a generous return policy with no strings attached, then they need to sleep in the bed they make – and it is the retailers that must define their strategy and tactics because consumers en-mass are not going to become responsible and only return goods that are damaged; they will continue to return things simply because they don´t like them. My recommendation is to create a ‘reasonable’ return policy based on the type of goods sold and then make sure it is profitable based on observed customer behavior.
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Chuck, spot on recommendations!
We want customers to buy apparel and other products online but then want to punish them when they want to return items that don’t fit, don’t work, or aren’t working. Be very careful about that. Customer service still matters, and customers will notice when policies run counter their having a great experience with the brand. I do believe this debate will swing back and forth. Liberal return policies are an incentive, especially for high-value customers. If this becomes a trend in retail, we’ll see more companies use returns as a competitive marketing tactic.
The cost of doing business has many components. While returns can be a significant cost, placing obstacles in the way of returns can have a higher cost. Shoppers look at the cost of doing business with retailers, perhaps not discussed that way. If I have difficulty with a retailer’s consumer policies, that’s a cost of doing business for me with that retailer. Comparing costs for an item is easy in an online environment. The cost may include free shipping…or not. There are other examples of what consumers consider as they make their purchase choices. And all of these are part of retailers’ cost of doing business. So, the question becomes how does dissuading returns impact overall cost of doing business for retailers.
Returns have always been a “normal” part of the retail/customer relationship. E-commerce gave us a new normal. And “free” invited an abusive level of returns in some cases. “Free” might be a perfect customer acquisition and confidence building tool. That doesn’t mean it has to live forever. How about the first three returns are free? Give the customer the opportunity to Explore + Experiment as painlessly as possible. But retailers have no obligation to forever lose money on whimsical shopping behavior. And if the occasional customer leaves because of returns, good riddance. That’s not a backfire…that’s a profit contribution.
As consumers we all know have several stories of products not meeting our expectations – and I’m pretty sure we had the best intentions when we purchased.
For a retailer, nothing is worse than spending a lot of time and money to capture a new customer only to have them disappointed and never have them shop with you again. Retailers can “make it right” without having to bear the burden of returns – and it starts by knowing why customers return the items and then taking action in your processes to keep it from happening again. The reasons can cross products, customer behavior, carriers, vendors and shipping locations. But if we don’t start investigating these issues and identify the source quickly enough to make changes, then the problems persist within the retailers’ organization.
Most retailers don’t have the processes and technology for these things, but they exist, and some retailers have been making strides.
Excellent service providers in the return management sector like Loop Returns help clients manage this challenging customer satisfaction process/method. E-commerce sales have a more profitable margin because it is self-directed. In turn, satisfying online buyers with easy return policies is essential to retention metric success. You can’t have one without the other. Varying the policy during the year or year to year is a bad practice. Be consistent and gain customer loyalty, lift satisfaction and referral. Offering differentiated terms based on customer/loyalty member tier status is a solid program design feature.
I do think that retailers have a valid reason for attempting to dissuade returns. It’s expensive. From a consumer perspective it’s also annoying to have to order three sizes in order to findone that fits, so retailers need to fix this problem, too.
If a shopper knows the policy going in then it’s not an issue, it’s when the retailer changes horses mid-stream that’s the issue. Who wouldn’t be mortified to receive a note from a favorite retailer stating your return privileges are revoked? Retailers can’t have it both ways: if the product has an issue that requires the customer to make multiple purchases before choosing one that works then the retailer has to be willing to deal with returns or potentially lose that customer.
Shippers who now have to tighten their return policies did this to themselves. They competed by (in part) promising an easy experience, which typically includes a liberal return policy. Scaling that back could cause customers to look elsewhere.
Remember that customers will pay more for convenience, including a liberal return policy. You don’t have to be the lowest price if you provide value in other areas (like returns).
Several insights based on my published and ongoing academic research in this area:
1) Consumers value different return policy dimensions differently, with the restocking fees and store credit only policies being disliked most,
2) Restrictive changes to long-established lenient return policies decrease consumer trust toward the retailer, purchase and positive word-of-mouth intentions,
3) Managerial transparency – officially communicating the decision rationale for the restrictive change – results in a less negative reaction than when restrictive changes are made silently (and noticed by consumers, which is the case for most such changes).
4) A decision rationale that focuses either on operational cost of handling returns or abusive consumers are similarly effective in reducing the negative consumer reactions to the policy changes.
retailers have to operate with profit margins. All the customer service technology and education doesn’t help when the customer orders things in 3 sizes knowing they will return 2 for free just because they can. Loyalty is supposed to mean repeat profitable business, but loyalty from repeat unprofitable customers is not sustainable with high cost of capital and inflation.
Ultimately retailers have to be willing to sacrifice some customer satisfaction measurements and lose unprofitable customers online in order to survive.
ZAPPOS works. What do they know that others don’t?
In retail, the customer experience is critical. With omnichannel, the experience has to be seamless or you will lose loyalty. However, there needs to be a balance. It’s up to the retailer to find the sweet spot that provides flexibility for the customer, profitability for the retailer and promotes sustainability for everyone. I hate dealing with returns, so I typically donate them to a non-profit that provides free, new clothing to foster children. Creating a policy that promotes these types of actions is another giving back strategy that many retailers haven’t tapped into yet.
Return windows are reasonable. Even a gift card/credit isn’t so bad. But to require customers to return to a physical store, or charge a fee? Creating more steps, hassle, and cost for the customer is essentially a punishment hedge, measured by profit outcomes in a vacuum and on a spreadsheet.
What retailers and brands should be doing, is first providing the necessary tools and information to help customers shop with greater confidence toward a purchase. Educate them, help them understand sizing and measurement, increase personalization tools toward their liking and fit. Yes, this requires work to sort out and launch.
This is one of those situations where retailers are a victim of their own success. After years of driving customers to e-commerce channels as a way of reducing friction in shopping, we are now in a situation where the costs due to returns are skyrocketing. However, creating disincentives to reduce these and changing return policies to be stricter and.or more difficult wil lonely lead to adverse effects with most shoppers. Survey after survey repeatedly tell us that consumers want return convenience. They won’t accept paying fees or being forced into a store if they don’t have to be there. These actions are sure-fire methods to cause your customer to become another retailer’s customer instead of your own. So where does that leave retailers?
This is one area where AI-based solutions will help. There are a number of factors at work here. First, retailers should look to new AI-based technologies that analyze their customer purchase data and identify trends in returns that they can take action against to either prevent them happening in the first place, or find operational ways to mitigate them. Sometimes it’s as simple as modifying product pages with better descriptions, more photos, etc. to cause a consumer who wasn’t sure about the item to think twice before buying. Is that a lost sale? No – it’s a prevented return!
Then there is the fit issue in apparel. Apparel purchases generate significant returns volume. The only way to prevent these returns is to improve how the apparel industry handles fit in a way that satisfies consumers. The lack of consistency across brands and even within a brand in their sizing is a massive issue. Again, we’re seeing new technologies coming that can help with this. But until the industry can find a way to eliminate most fit issues, this will be a tough one to overcome.
Yes! There will always be a balancing act between focus on driving the ideal CX and mitigating margin-crushers. But, it doesn’t have to be an either or choice. The most innovative retailers are thinking about returns creatively — and offering hyper-convenient options like Home Pick-ups, instant exchanges, or free returns to loyalty members. While charging for returns may seem like a way to balance the scales, it will inevitably deter some customers from returning (pun intended) to these retailers.
When a customer decides to buy something, they buy it with a desire to get the best use out of that product. If a product fails to meet their expectations, it is only logical and well within their rights to return it. Retailers also bear a certain level of responsibility to ensure justice for customers seeking genuine returns. Customer satisfaction takes precedence, and retailers can engage in positive conversations with customers to comprehend their reasons for wanting to return a product.
In my opinion, the most plausible way to deal with returns is leveraging physical stores as pick-up/drop locations. By establishing a physical store network retailers can manage their returns efficiently with omnichannel initiatives like Buy Online Pick-Up In Store (BOPIS) and Buy Online Return In Store (BORIS).
Retailers are actively promoting the option for customers to conveniently pick up or return their items directly at the store, allowing retailers to provide alternative choices from the available in-store inventory in case a customer is not satisfied with the product. This way customers can have the satisfaction of getting the best item that suits their needs and retailers too would be able to save a valuable sale. Since the benefits of having a physical store are undeniably appealing, even the digital-first brands start investing in them, the moment their business grows.