Mar 23, 2023Ed. Note: This article was previously posted at Retail TouchPoints.
Returns are, like it or not, as much a part of retail operations as the sales themselves. The exact return rate varies among different verticals and individual retailers, but online sales consistently generate higher levels of returns compared to brick-and-mortar. No matter what the channel, however, there will always be customers who second-guess their purchase, have something arrive too late for its intended use or receive something other than what they expected. Managing them correctly is just as important as any other part of the customer journey.
"There is no way to solve this problem," said Spencer Kieboom, Founder and CEO of Pollen Returns in an interview with Retail TouchPoints. "You can't solve returns, there will never, ever be a day where somebody goes, 'We had no returns last year.' That means you're out of business. Returns are essentially the last link to the circle that closes the consumer loop when it comes to a decision."
However, that doesn't mean retailers shouldn't be searching for ways to minimize the costs returns incur. These include not just costly shipping and processing fees but also the extra promotions or liquidations needed to move excess inventory. Returns also provide bad actors with another avenue of exploitation that can drive shrink. All this means that while retailers can't "solve" returns, they can minimize their impact on the bottom line through strategies including:
- Reduce overhead by handling returns efficiently: A major cost driver for returns is the fact that these items end up being sold at a significant loss or written off altogether — but the right technology can help retailers get items back on shelves before their peak time has expired.
- Fight fraud while protecting good faith customers: Fraudulent returns are a headache that can make any returns policy more costly to the retailer, so finding ways to identify and stop fraudsters without inconveniencing loyal shoppers can have a real impact on the bottom line.
- Make communication clear and personalized: Unwelcome surprises, from late arrivals to poor substitutes, are a major driver of returns, and retailers that are open and honest with their customers can head off send-backs just by minimizing the reasons for a return to be made in the first place.
Retailers Should Strive to Get Returns Back on the Shelf
While the return rate for digital retailers has risen and fallen in the two decades since the channel gained prominence, it has always hovered around the 20% mark, according to Kieboom. That means online retailers in particular should be on the lookout for ways to minimize the costs returns incur as well as the number of returned items that come in, since minimizing markdowns during a tough economic climate is one area where return minimization strategies can have an impact on the retailer's bottom line.
"It's not just the cost of [processing] returns, but now they have inventory coming back which is out of season," said Amit Sharma, CEO of Narvar in an interview with Retail TouchPoints. "When it's out of season, they have to do markdowns, so it starts a vicious cycle. Someone bought that item a week ago, and now it's $10 or $20 cheaper, so they return the full price item and buy a markdown item. That's another piece that is impacting consumers who are price-conscious—when items are on sale, they may buy that when they [otherwise] may have bought something on full price."
One solution to this challenge is utilizing technology to get products back on the shelf before markdowns become necessary, according to Kieboom. The same speed being applied to last mile fulfillment should be applied to receiving and processing returns so that returned items don't become fodder for end-of-season sales, resale to low-cost channels or even destroying or dumping them—a result that's bad for margins and for the environment.
"When you start running at new efficiencies and delivery like we are—placing product in micro-fulfillment centers, placing product in the back of stores to sell consumers as well—you have this fast out occurring," said Kieboom. "When you've left returns to a policy like 30, 60 or 90 days, and you're leaving it to the consumer to send it back, you have a slow back. There's essentially no way for me to leverage this product anymore, especially when a sale cycle is four to eight weeks for a product in today's world."
Achieving the goal of faster, more efficient returns requires keen insights into what products are coming back ahead of time; efficient handling for how they're processed and returned for sale; and a wide view of the entire supply chain to keep inventory levels properly updated. Retailers also need to make it easy and convenient for customers to make the returns in the first place in order to incentivize their decision being made in days, not weeks.
Fighting Fraud Shouldn't Affect Legitimate Customers
No returns policy, whether generous or strict, can help retailers fight back against another major returns challenge: fraud. A study by Appriss Retail and the National Retail Federation estimated that 10.4% of returns in 2022 were fraudulent, costing the retail industry $84.9 billion annually. Tamping down criminal activity is another avenue for reclaiming some of the cost of returns, but retailers need to take the right approach: "one-size-fits-all" defenses, like requiring a receipt or setting a specific window, do little to impede determined fraudsters. Instead, visibility into your returns ecosystem is key for separating the honest customers from those looking to profit from falsified transactions.
"[Blanket policies] are really hurting your good consumers, and fraud and abuse still slip through the cracks with those," said Michele Marvin, VP of Marketing at Appriss Retail in an interview with Retail TouchPoints. "Leveraging the power of AI and machine learning to really do the analysis across all of your various channels is probably the best way to reduce your return rate. AI tools on the front end of the shopper journey can also help reduce returns, especially online. Looking at AI and applying it across the entire spectrum of the buyer journey is really where retailers can see the most benefit."
Additionally, AI and other analytics tools can help knock down the silos that enable fraudsters to thrive. For instance, if it takes time for an order fulfillment notification to reach the database used by customer service agents, they may authorize a replacement without realizing the initial order has already reached its destination. A no-questions return policy is a good thing for driving customer loyalty—witness the impact of L.L.Bean's changing its stance on returns—but the tools should be put in place to prevent its abuse.
This data gap is particularly relevant for retailers that offer buy online, return in-store (BORIS) options. The service is very convenient and can drive incremental sales from shoppers who stop by a store to make a return, but the rate of fraudulent returns rises to 12.7% as bad players take advantage of any potential lack of communication.
"Fraudsters are taking advantage of data silos," said Marvin. "A lot of times—not always, but a lot of times—you'll see that the online system is not connected with the customer service desk, which is not connected to the store. Or if they are connected, there might be a delay in the data that flows between them. Fraudsters are constantly evolving. So when they find a gap, they know how to take advantage of it, and they do it very, very well."
Personalization Prevents Many Unwelcome Surprises
The reasons for returns can vary from a wrong sized product to a credit card bill arriving and the shopper realizing they can't afford everything they bought to a late shipment. Retailers can put a dent in return rates for this last reason by proactively communicating with customers about the status of their order. A fully informed customer is more likely to be satisfied with their purchase, but the trick is ensuring they actually receive that message.
"Emails get trapped," said Narvar's Sharma. "Phone numbers may not be clear and there's so much spam out there. People are also worried about link hijacks and other things, so you have to personalize that experience. If you know this consumer group or this persona prefers email, how do we send email [at the] right time of the day to get a much better open rate? For other customers, sending an app notification or push notification or SMS could be their preference. Personalizing to your customer base is something that we recommend."
Gathering and using the data necessary for proper personalization also can help reduce returns in general. Retailers should make it easy for their customers to tell them why they made a return, then put in the effort to catalogue and analyze the reasons behind these returns. This process can simultaneously tell retailers more about individual shoppers' preferences and uncover the pain points that are causing returns across the entire customer base. The trick is finding the right way to get that information in the first place.
"When is the right time to add just a slight amount of friction so you can actually help?" said Sharma. "I think if you set the expectation of 'help us help you,' we have seen consumers don't mind. Also, give them the context that this information is strictly for your order updates; [tell them] we are not automatically subscribing you to our marketing campaign. What we have seen is that if done right, consumers do give that information, but if you start to abuse that data and start sending marketing emails, they're going to automatically unsubscribe."