Photo: RetailWire
Retailers tell their customers to keep their returns
Anyone who has ever tried to return an order from Chewy likely knows the drill. One of its representatives will tell you to keep the product and donate it to a local shelter or give the unwanted item to a friend whose pet could use it.
Chewy’s experience is growing less unusual by the day, however, as retailers looking to reduce costs and clear out warehouses and stores of excess inventory tell customers to just keep those unwanted purchases.
“It would be a smart strategic initiative,” said Burt Flickinger, managing director of retail consultancy Strategic Resource Group told CNN.
Mr. Flickinger said the math of returns shows it has more minuses than plusses for retailers.
“For every dollar in sales, a retailer’s net profit is between a cent to five cents. With returns, for every dollar in returned merchandise, it costs a retailer between 15 cents to 30 cents to handle it,” he said.
Returns have become an ongoing operational challenge for retailers that are already seeing margins squeezed as a result of delivering online orders to customers’ homes.
Merchandise in 2021 was returned to the tune of $761 billion, according to the National Retail Federation and Appriss Retail. The rate of total returns was 16.6 percent, up from 10.6 percent in 2020. The rate of online returns was 20.8 percent, which was in line with previous years.
Excess inventory means markdowns at retail to move merchandise. When more products are sold, a greater number are bound to be returned, as well. This leaves retailers deciding if it makes sense to process returns, which could cost between 20 percent and 65 percent of the cost of goods sold, according to UPS, or just tell customers to keep it.
Retailers are increasingly turning to technology to try and cut back on the number of items returned.
Amazon.com earlier this month debuted its Virtual Try-On for Shoes, which uses augmented reality technology to help customers visualize how they will look in footwear from a variety of angles.
Walmart in March rolled out its own try-on technology for clothing. The technology came to the retailer following its acquisition last year of Zeekit, a virtual fitting room firm.
- Just keep your returns: Stores weigh paying you not to bring back unwanted items – CNN
- Retail Returns Increased to $761 Billion in 2021 as a Result of Overall Sales Growth – National Retail Federation
- Will AR try-on sneaker tech put Amazon a step ahead of its rivals? – RetailWire
- Will try-on tech be the right fit for Walmart’s fashion business? – RetailWire
- Retailers give customers refunds and tell them to keep items – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Do you expect to see a significant uptick in the number of items that retailers tell customers to keep rather than return? What do you see as the most effective way to cut returns without limiting sales?
Poll
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There are two issues with returns. One is the cost of processing them which, for online retailers, is often punishing and profit-eroding. The other is accepting more inventory at a time when stock-levels are sky high – something few retailers want. As such, a pragmatic solution is not to require goods to be returned. The issue is that this is potentially open to customer abuse. However retailers can track this and put in place solutions such as offering it to mainly repeat customers who they know are honest, etc. A wider solution, especially in fashion, is to try and reduce return rates by proving better images, more reliable sizing, and perhaps charging for returns to discourage over-buying.
I do expect to see more retailers simply telling customers to “keep it” instead of returning it. The fact is, it’s more costly to manage returns, not to mention the environmental impact of the returns that often end up in landfills. That said, retailers need to be mindful of potential abuse by customers who take advantage of a too liberal “keep it” policy. Retailers will also need to be very thoughtful about which products they offer “keep it” to, and which customers.
The challenge is the cost and value of the returned item make the economics untenable. You have to contrast that with encouraging bad shopper behaviors as scam artists find ways to score free goods. In certain shopper communities like pets, that may be less the case. As e-commerce grows share, retailers will have to reckon with the loss leaders on their P&L like returns, especially with omnichannel integration. Retailers will continue to struggle to make e-commerce return economics work and we will see new models like charging for returns or only offering free returns in-store and yes, much more “just keep it.”
Where was all this math when the word “free” started to be thrown around with such reckless abandon? I almost want to dust off “race-to-the-bottom” terminology.
Exactly! Oh, how quickly we forget…
I like what retailers have done in terms of having AI options to see how a product will look before you buy items like glasses, furniture, and apparel. While it makes things easier to keep a product rather than return it, there eventually has to be a cross-point where that will become an issue financially.
There’s no doubt that returns pose financial and operational challenges for retailers. The flip side, though, is the potential problem of dishonest customers getting refunds for products they always intended to keep. Let’s see how this plays out.
I get it. Returns are ridiculously expensive and impactful to the entire enterprise. I’m just not sure that widespread “keep it and donate it” policies make for good strategy, despite the results from Chewy and a few others. We have to stop giving away all these expenses at some point and begin reshaping consumer expectations. Think about all the consumers who bracket their sizes when purchasing apparel online. Will we just tell them to keep all three items? Where does that lead? I’d think we would be better off studying ways to disincentivize returns slightly. Return shipping fees are certainly a return deterrent, although they may of course also be a purchase deterrent. Perhaps we should spend more time studying the new return fee Zara is trying. We have to stop the cycle of giving away everything.
“Keep it and donate it” may work for pet food, but for many items this will be abused.
Also would guess if you returned pet food and were told to “keep it and donate it” that retailer would not let you order that same pet food again, and if you started to do that with a bag of pet food every few weeks, even if different types of pet food, I assume that retailer would tell you they are no longer doing business with you … but how much money do they lose before that happens? Also if someone is abusing the policy their spouse, kid, etc. can just sign up again and begin the cycle of refund abuse again.
US retailers have been too lax on returns for years. They believe the consumer is more comfortable buying if they know there is a flexible return policy. Many consumers have thrown tantrums when they don’t get their way on a return and the retailer will always cave in then give them a gift card for the “inconvenience.” Overseas, especially in Europe, return policies are RADICALLY different (if you can even make a return at all). And in Asia again IF you can even make a return at all, that return better be 100% perfect condition and able to be re-sold. Otherwise, no return for you. And people don’t even try.
This really seems like a great opportunity for a third-party app to come in and literally clean up. There are a few business models that could work here. Two off the top of my head are a non-profit that arranges to ship the returned product to an individual or group in need and a for-profit that works with several digital and traditional retailers to aggregate the returns and offer them in bulk to discounters and others, perhaps through an auction.
Abandoning returns is a short term solution for a big profitability problem — not viable for the long term. Shoppers already feel disappointed when a product didn’t meet expectations, now they must figure out how to dispose of it themselves. We are already seeing a tremendous increase in consumers concerned about landfill waste and environmental protection. This practice will only shine a spotlight on retail’s dirty little secret that a large percentage of returns do wind up in landfills. Furthermore, consumers lose respect for a brand that doesn’t have a system to deal with returns, and begin to wonder how overpriced a product must be if the retailer can afford to abandon it. It’s far more effective to invest in technology, partnerships and experiential solutions to try and reduce returns permanently.
Amazon’s been doing this for years. I’m sure it’s selective, but it’s about time the rest of retail got a clue.
It is obviously selective, hence the thousands of Amazon returns processed daily by UPS, Kohls….
I assume you heard the story of the person who kept doing Amazon returns filled with “dirt” that equaled the weight of the returned products. Supposedly the Amazon return center just weighs in the boxes but doesn’t look at what is in them. It took them months to figure out what this crook was doing.
The danger to profits lies in the fact that – at least until inventory levels normalize – consumers may test how far the policy goes and just order with no expectation of having to pay for their purchase,
I do see an uptick in retailers telling customers to keep their returns. The last thing retailers want shoppers to do is start buying and “returning” in order to be told to keep it anyway. They’ve already been “trained” to over-order, with the expectation that they can return what they don’t want. Maybe one answer to the returns dilemma is to increase the use of reason codes. But, instead of initiating the return and then asking why, use reason codes as an actual screening process. Maybe use this as an opportunity to get the customer back on the line immediately to find a replacement item. This might help weed out some fraudulent returns and at least give retailers additional data points they can turn over to their data analytics wizards.
What retailers can’t afford to do is hide from customers. I ordered a coffee table from one of the most recognizable online furniture brands. It arrived damaged, but now they won’t respond to me at all. Losing customers like this will add up and backfire big time.
Here is what scares me: when you adopt the strategy of consumers keeping returns, people will take advantage of this. Certainly not everyone, but many. Should there be a limit provision? I think a better strategy is to accept the returns, give them to charities and take the write-off.
I think this is a long time coming. Returns are expensive and difficult to manage. I’m thinking about all the private label apparel my former company would get on return. It would all go into the landfill. It was too expensive to get the item rack ready. A lot of it had to be pressed or washed. We couldn’t send them to charity; the items would be purchased and returned to the store for a refund. Catch-22.
Keeping the item makes the most sense and from a sustainability standpoint, I’m glad we’re moving in that direction. I would also point out that it’s the most customer-friendly solution to this issue. Keeping returns is the ultimate friction-free return process.
A significant uptick? It depends. For retailers who sell bulkier items (which are expensive to ship), and have good systems in place so they can identify people who are trying to game the system before they lose too much money, maybe. But the real focus should be on reducing returns. How do you do that? One way is definitely better product information. More size, length, fit, and feel information. More product attributes that are presented in consistent, easy to understand terms. And better ways to find/follow reviews from people like yourself based on your physical attributes or personal preferences, e.g., (high/flat arch, wide/narrow toes or heel, body shape, seam/tag sensitivity, hot/cold sensitivity, how often you’re going to use a product, environment in which you’re going to use a product, properties that are most important to you, etc.)
There will always be shoppers who buy many so they can return some, but if you can increase their confidence in their choices, and increase the likelihood of a good match and ultimate product satisfaction, returns will go down.
More retailers will surrender to the rise of costly returns by telling customers to keep the items. Yet it’s not a long-term solution.
Tech, data and images that let online shoppers know exactly what they’re buying can cut returns. Virtual try-ons and fitting rooms, body-measuring tech, 3-D images and detailed product data help shoppers find items that fit.
Consumer: “You mean I can order this $99 dress and if it doesn’t fit I get to keep it?! Where do I sign up?”
The math may add up, but this is a horrible idea as it trains consumers to believe your products are of throwaway quality. I suppose doing this with a rare item can work, but to make it a regular occurrence will bring yet more disaster onto retailers.
If the retailer doesn’t show respect to its products, why would anyone expect a customer to believe they are worth buying? As a mathematician, it’s critical to remember that math reflects only a narrow dimension of the world.
I wouldn’t go down this route until I could track returns by customer, and then extend this privilege only to “best” customers with track records of reasonable returns. If retailers could manage reverse logistics to get saleable products back in stock quickly and with less expense, the need for this would decrease. Better product information and more consistent and reliable size fitments would also help. Personally, I’m still expecting an Amazon Emporium – a big box selling a random assortment of all returned products at great prices. Otherwise, the basics are that the cost of all products has to go up to cover excess returners.
AR tools have been growing as a tactic being deployed by retailers to help minimize returns. Wayfair has both been using AR and recommending customers donate their returns for quite some time, without achieving a balance in profitability, however for smaller ticket items this may be more effective. I expect retailers to continue to test options, like Kohl’s new initiative of drop-off returns.
No doubt there are certain items that are too expensive to take back. I can’t imagine that this will be standard practice for all items. And there should be a concern about “training the customer” with this very liberal policy.
For low priced, perishable, consumable, and non-restockable items consumer driven disposal will be the norm (keep it). For higher priced items that can be restocked or refurbished and resold, retailers will seek alternative disposal. The cost of disposal whether at a landfill or in liquidation is becoming a retail challenge. To counter this trend, retailers will look to that ounce of prevention that they’ve been avoiding (because managing information can be just as costly), but in the long run lowers cost of sales.
Letting consumers keep returns is not a “one size fits all” strategy. It depends on the type/size of product, the demographic of their target audience, average order value, rate of return, etc. The industry needs a total creative overhaul when it comes to returns. I think we’ll see the retail leaders coming up with a mix of potential solutions for returns: keep the return, pay for return, donate the return and provide documentation, free returns for loyalty program members, and BORIS are all potential options. The best return management strategies will include a mix of all of these and will require robust technology and automation to help keep costs down.
Yes, I think the notion of “keep it, don’t return it” is going to become increasingly popular. That said, I think there will have to be some more nuanced guidelines for the program to work. For example, what would stop a consumer from ordering a high ticket item, beginning the process of returning it – knowing the retailer will tell them to keep it and give them a refund – and then just, essentially legally stealing the item? Today if you order a big screen television from Amazon and it gets delivered to my house, Amazon will tell me to keep it or trash it. But what happens if I can somehow engineer the same scenario? So this puts the pressure on retailers to not make a mistake. Sure AR/VR sizing tools can help, but only in the case of legitimate purchases.
This is a great solution to better manage COGS, inventory, and customer satisfaction. Most customers are inherently honest, and abuse will be minor in the large picture. Plus there are ways to overcome abuse by managing the customer, better information and incentivizing repeat customers to make better purchasing decisions.
Within the context of a relationship with a “loyal” customer, credit without return is a smart policy. It would be quite easy to train an AI to flag the rare serial abusers who may be candidates for “as is” status.
In reality, most returned merchandise is not returned to regular inventory anyway. High ticket items go to various reclamation centers where they are evaluated and remarketed as “factory refurbished.” Garments and packaged goods likely go to land fill.
Digital retailers would do well to consider how to adjust store return policies from the prior millennium to fit today’s realities.
This won’t work. This is like Extreme Couponing on steroids. The difference here is you get to take whatever you want, then tell the retailer you will need to do a “return” then just keep it.
Watch the YouTube videos and Blogs that will spring up and be spreading like wildfire with people taking advantage of this.
The retailer can certainly track returns and use the various fraud softwares out there and refund databases, but there are various problems with those. For instance, I will give an example: drugstore chain CVS uses a database, scans the returner’s ID, and will flag fraudulent returns and deny returns to people who frequently make returns. There was a trick going around some coupon blogs that was causing fraud involving refunds and Extra Bucks (store coupons good on any item) issued; I won’t go into details on how they did it, or I should say do it, because CVS’s system still has this hole. So the system flagged a lot of people, rightfully, for doing fraudulent returns. This made it so they could no longer do returns at CVS and at other retailers.
Enter issue 2: customer who had a fraudulent return in the past goes to CVS. Picks up a soap, tag says $5.99, Scanner says $7.49. Customer pays the full $7.49 then notices overcharge. Customer goes to CVS employee asking for the $1.50 refund. CVS employee has to process a “return” to facilitate that. Customer has been previously flagged for fraudulent returns and no longer is allowed to return anything to CVS. But this isn’t a return, this is a scan error. CVS system will not allow any money to be given back to this customer. So store has to do a work around (just give customer cash, post void and re-ring transaction if they know how, etc.) in order to honor the posted price which they are legally required to do.
Ultimately, I think we will start to see retailers as a whole get a lot tougher on returns. They will have no choice due to all of the abuse.
So far the competitive environment continues to drive these “easy” or too easy return policies.
Retailers should adopt a “don’t return” policy, but very carefully. Such a policy could easily be gamed, costing the retailer significant incremental revenue. One example might be two friends, who want the same time in different sizes. If one calls in a return and gets the item for free, the other would benefit, of course.
Returns are driven by (1) wrong size, (2) looks different in person, (3) product defect, (4) found a better price elsewhere, and other reasons. Size and product looks different can be addressed through more detailed on-line purchase information. Product defect is simply a cost of doing business and is best addressed by permitting the customer to donate the time. Pricing issues can be addressed through price matching, up to a point. Retailers must identify which issues are driving their returns and then prioritize the solutions accordingly.
Customers have become accustomed to purchasing apparel online, knowing full well when checking out that they will return half of it. This behavior is not a healthy process for retailers or the environment. Retailers need to offer more videos, reviews, and dimensions for shoppers to take the guess work out of the buying process. We also need to provide some barrier to just returning everything. Charging just a few dollars per item will help offset the cost of shipping and receiving while making the consumer think twice before filling up their cart.
Pure play digital retailers account for only 10-12% but they witness significantly higher order return requests. The foremost thing to analyze here is, how can a retailer reduce the number of returns? I think the “omnichannel presence” can resolve this issue to a certain extent. Digital platforms do not have the capability to provide the personal touch as the brick and motors do. Traditional retailers must accustom themselves to match the contemplations of newer generations. If a retailer can provide a blend of “digital + in-store experience” it will certainly help customers to make better buying decisions and of course, a satisfied customer would not ask for returns. This way retailers will not only be able to reduce the friction by minimizing the returns but will also be able to create more stable and cash-positive business relationships.