Photo: RetailWire
The holiday season promises many unhappy returns for retailers
In many ways, retailers are in a no-win situation this holiday season.
More consumers than ever are buying online, which typically means reduced profit margins. The overwhelming majority of those receiving gifts plan to return at least some of them, further cutting into retailer profits. Finally, many consumers returning gifts will be unhappy with the process, which could lead to consumer alienation. Talk about being up against it.
In an Oracle report published in September, 77 percent of consumers said they anticipated returning some of the gifts they would receive. Twenty percent of those plan to return at least half of the gifts they receive.
The growing volume of returns is nothing new to retail, particularly online, in categories such as apparel and footwear.
“They have given a retailer their money, but they haven’t given them the promise of keeping it,” Kit Yarrow, a consumer psychologist, told CNBC. “There’s a whole different mentality around ownership.”
“Consumers are making it clear that returning and exchanging gifts is okay,” she added.
Overall, according to National Retail Federation statistics, 11 percent of purchases are returned. Eight percent of those are fraudulent. According to research conducted by Appriss, retailers lost $6.5 billion due to return fraud during last year’s holiday season.
Retailers with stores have a cost advantage when it comes to returns. Handling returns in stores costs about half of what it does for products going back to a distribution center, according to AlixPartners.
In the past, some retailers using data analysis have opted to ban returns from some customers who they see as having abused the process.
- Vast Majority of Consumers Already Plan to Return Holiday Gifts – Oracle
- Naughty or nice: 3 things to know about fraud during the holiday season – National Retail Federation
- Many happy returns for retailers – AlixPartners
- What makes consumers grumble most about returning online orders? – RetailWire
- Will return bans burn retailers that impose them? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: What current practices should retailers implement to reduce product returns? Do you see any technological or process innovations coming down the road to help retailers minimize the financial risks associated with returns?
Poll
BrainTrust
Free returns have become a basic expectation for shoppers across every category and so I don’t think there’s any easy way to claw-back this benefit when other competitors happily provide it. Minimizing the negative financial impact of returns by whatever means is of high interest for all retailers – the problem is this is not an easy problem to solve. I suspect that for most retailers the strategy will be: take the sale now — worry about the bottom line impact later.
Honestly, returns are just part of the cost of doing business direct to consumers. The “overall” number is meaningless, as it’s pretty important to look at product category and point of delivery. I have been around the DTC space for a very long time, and a 25 percent return rate for apparel was considered “really good.” I have heard that Amazon is at 35 percent (not verified…pure hearsay, but I wouldn’t be surprised).
I also don’t believe that it’s cheaper for the retailer when consumers return product bought online to stores, rather than to the DC. Maybe in a big box it kinda-sorta works, but stores were not made to be processing centers. They were made to sell stuff. And I’ve designed returns processing systems for catalog retailers. It’s a complex process anywhere.
I don’t see any way around it — a return replaces the fitting room, really. Try it on. If you like it, keep it. If not, send it back. Think how many more items you try on in-store that you don’t buy. That’s what happens online.
But it is a bit worse, as the product doesn’t get dirty or wrinkled on a trip to the fitting room. It can be both when it has made a round trip to the consumer and back.
I have no easy solution. I just know this is a fact of life.
Good perspective Paula.
Great insights, Paula! I can’t add a thing.
Yup, return in-store really kills the store flow with long lines flowing into the entrance area of the store. I always wondered if it make business sense to have a trailer (Returns R Us?) that just does returns for multiple brands to offload the pressure. The issue I think is receipt verification online and data security across brands.
The solution to the problem retailers face with the R word is at the root. The root cause of high, costly returns is the insanely liberal policy surrounding the process: Free shipping outbound, free shipping inbound, and no re-stocking fess. Retailers have burrowed themselves into this rabbit hole and eventually will have to wean consumers off a practice that is clearly unfair to retailers. There is a cost associated with every touch point and today, the retailers pays it all and the consumer laughs all the way to the wardrobe. I know of no technology that will cure this problem.
Yes, Bob, once upon a time consumers actually had to pay for more convenience and thought it was worth it. Now they expect it and most of them don’t have any idea what it is costing the retailers. Ask your non retail industry friends and I will bet every one of them will tell you that they think that to buy online must be a lot cheaper for the retailer. A whole lot of educating needs to be going on ’round here … for my 2 cents.
More retailers are investing in augmented reality (AR) to minimize returns by encouraging consumers to try before they buy. Retailers like Sephora, IKEA and Warby Parker use AR to give consumers a personalized, realistic preview of the products they’re considering buying. For instance, AR lets consumers superimpose a pair of glasses on an image of their face or a new countertop in their kitchen. AR lets consumers see exactly what they’ll get – before they spend a dime – so they shop with greater confidence, resulting in fewer returns.
After all the time, effort and energy invested in making returns painless and “free,” it’s tough to say that retailers have anything to complain about. By now, retailers have the data on what categories or items have the highest probability of being returned. There must be a way of being smarter about marketing online, but promoting in-store purchases and returns. I read about the extrapolated math which says that by the year 2030 some massive percentage of sales will happen online (half?). It sounds like most retailers go belly-up with that percentage moving online. There is a disconnect somewhere. The lack of profitability and the projection of a massive share of the business moving online is very difficult to reconcile. Sounds like the use of the word “free” needs a lot of study.
An easy return policy is expected. Smart retailers are allowing extended return dates to let early shoppers not worry about giving a gift that can’t be returned a week or two after the holidays. A non-friendly return policy will equate to non-friendly customers… customers that won’t come back. This will be a great opportunity for the retailer that is customer focused with fair return policies. They will build trust with their existing customers and potentially win over defecting customers.
Returns were an issue before e-commerce, but the problem is exacerbated now. Better descriptions, sizing information and customer reviews can help customers make better selections.
Serialized inventory is a way to reduce/eliminate fraud in this area. This is a technique currently used in big ticket electronics that tracks the serial number of the product sold to a consumer. When the product is returned the returns management system matches up the product sold to the serial number on the e-receipt and rejects any mismatch. Retailers need to move to this technique for all product types as quickly as they can. Even if they can’t yet do this for all items they need to at least create signage to warn fraudsters to ply their sinister trade elsewhere while respecting their loyal customer base. The last thing you want to do is to alienate your good customers by creating a process that punishes everyone for the sins of the few.
I blame retailers for their own misery. Shopping online is devoid of the sensory aspects of the physical world. Three-dimensionality, Touch, feel and look are non-existent. What do retailers expect?
So what practice should retailers implement to reduce returns? Unfortunately, this is not the question retailers ask themselves. Rather, retailers are tied up in knots expecting humans to shop their enormous digital offerings through the lens of the physical world. This is a HUGE disconnect. There are breakthrough technological innovations available right now to solve the return problem. AI-enabled algorithms are able to process the minutiae of human and produce preferential sensory inputs into the physical world outputs. And because men and women shop differently (yes, you know that is true if you are a retailer) these same AI-enabled algorithms can be trained to shop like a male or shop like a female. The new frontier is female brain-based AI. Counteracting 24 years of computer science based linear algorithms. Female AI is the obvious and most important innovation ever to reduce returns year-round.
Undoubtedly there will always be product returns due to changes in preferences or mis-targeted gifts that did not meet the recipient’s needs. However there are some fundamental ways that retailers can help minimize the situations in which there are simple errors or misunderstanding of the product description or appearance.
One technological and systematic approach to the improvement of the quality and completeness of product data is the use of a master data management software solution.
This type of solution serves as a single version of the truth of product data that will feed into retailer websites and other marketing channels. By using this system as a foundation, retailers can set data standards in product attributes used by category, the number of images or videos used and more. MDM systems will also reduce the errors that are commonly seen online such as duplicate information, older product descriptions, and products placed in the wrong hierarchy. Enriching and improving the product data for the consumer at the point of purchase can help reduce confusion and errors in purchases – resulting in lower returns.
Reverse logistics, or what is commonly known as returns, are part of the cost of doing business in the digital-first world of retail. It’s imperative for retailers and brands to be completely transparent and open about their return policy, and make it as seamless a process they possibly can, as that is the new industry standard. Historically, a negative return experience has been one of the greatest points of friction for customers. One bad experience could lead to customers not only abandoning their carts but taking their business elsewhere.
Without the advantages of a try-on room or showroom, e-commerce businesses should expect the rate of returns to be around 40 percent with some ready-to-wear categories, as well as electronics, etc. There are some technologically savvy ways that customers could use mobile apps to get their right sizes. However, as we know, nothing replaces the try-on experiences in-store, and if the products do not fit, the customer has every right to return it to the sender.
The cost of returns is a cost of doing business. Turning returns into exchanges by offering a special discount if customers exchange the merchandise instead of returning it can help minimize some of the financial impact of returns. One of the common problems with free returns, especially for apparel, is the practice of many consumers who order two sizes with plans to return the one that doesn’t fit. I don’t have a great solution for that problem. Does anyone else know of a strategy to help prevent these returns?
There’s the gold nugget — apparel sizing is so unstandardized as to be almost worthless in helping a shopper make a decision. I’ve bought 2 pair of pants with the same SKU and same measurements on the same order from Lands’ End (whom I give high marks to), but the actual fit varied between them — because they came from two different production lots. What’s a shopper to do?
Returns are certainly a conundrum. While they come at a high price for retailers, customers pretty much expect free returns as standard. It’s understandable that if you’re going to buy something online that you’ve never seen, felt or tried in person that you want to feel secure in doing so. Free returns offer that security because you know you’re not stuck with it if you don’t like it when you get it or if it doesn’t fit etc.
I have seen talk of offering incentives to customers on the promise that they won’t return an item (or at least won’t get a free return) e.g. giving them free shipping in exchange for paid returns or offering a small discount on the proviso they can’t return it (unless it’s faulty, etc). It’s tough to see these sticking, though.
As already noted, retailers who have physical stores are benefitting from reduced costs around returns. I wonder if we might see more online only retailers opening pop-up logistic spaces in shopping centres and high streets over the holiday season to mitigate this issue. These spaces might open during the shopping process so that customers can have their parcels sent to the physical store and then try them on using on-site fitting rooms and other try-out spaces to see if they want to keep them. The retailer can then use the space in January to allow customers to bring back gifts for a refund.
Ultimately though there’s no easy fix. You can try to give people the best possible information at the point of purchase (photos, videos, product descriptions, reviews, AR/VR try-on, etc) but there are still going to be things that come back. And customers don’t want to pay for that part of the service.
Returns are a built-in metric for doing business. Organizations that possess a robust return process will succeed in the long run. Digitally native companies are now understanding the paramount importance (financial and immersive experience) of having a brick and mortar presence. Every time a customer comes into your store to return an item, you create another opportunity to increase revenue and to cement your brand through your returns process. With the massive increase in retailers’ adoption of Buy Online and Pick up in Store (B.O.P.I.S.) many consumers are now expecting every retailer to implement this service.
It is refreshing to see legacy retailers adapting to the New Retail Ethos. Until the proliferation of digital scanning technologies and 3D printing methodologies (customization and personalization) become ubiquitous, categories like apparel and footwear will continue to dominate the returns landscape.
Returns have always been a part of retail and now customers expect free returns when dealing with an online retailer. Retailers’ best bet is to provide as much product information as possible so the customer has accurate and thorough data available before the purchase and then utilize customer purchasing information and browsing history to offer recommendations on the item being purchased.
Thanks to creative reporting the true impact of returns is most often diluted and/or softened to executive level management. Issues like “all sale items are final,” damaged returns, non stock item returns and the like are most often allowed for customer satisfaction purposes. Another large contributor is stolen merchandise being returned for cash or credit. Combined these return issues are measured in the billions of dollars with no serious consideration given to remedy any one issue.
It is time to consider letting loss prevention stand as a separate department to handle all returns from any source with the primary goal to be a reduction of improperly returned items. This will force the company to review standards and operating procedures regularly. Broad policies and procedures combined with delayed markdowns can and do cause cataclysmic cash flow issues especially if there is a lull in the market. These issues are not new to the industry. They are a lot of constant work and upkeep. Store management doesn’t need or want this on their plate. Ad executives all too often have little or no training and experience in directing a project like this. Change is good and it is time for a change.
Managing returns is more about managing the sale. Selling a product before it ships immediately reduces the risk of return. Customer experience software and initiatives are more important than ever to grow a sustainable and profitable business. I have seen the “exchange” option dissipate over the last 5 years; something that was a primary return control strategy in the past. Many retailers require a return and repurchase which adds 3-5 additional steps, making it easier to return and more difficult to retain the dollars spent.
In-store returns this holiday season “done well” can be a traffic and revenue-driving initiative that gets people in-store for an experience and leave a lasting impression. Executed poorly, retailers could lose a customer for life.
The only technology idea I can suggest is to expand the customer reviews model and facilitate more online discussion by customers about sizing and fit. For clothing apparel it’s just too difficult to predict how the size fits and retailers don’t seem to want their customers discussing this for fear of too much chatter about poor fit, poor construction, poor materials (sheer, scratchy, or actual colors not matching the display photos), etc.
When I buy hard goods it’s often difficult when shopping online to obtain basic facts about products like the size, weight, construction material, and various other specs that should be available depending on the item. Many retailer’s web sites are capable of disclosing this information, but it’s very inconsistent and often unavailable. I’m pleased to see more online grocery retailers are showing more images of the product, including the nutrition facts table.