A happy holiday season starts with a strong returns policy. Here’s how to cut the costs of returns and keep customers happy.
January has traditionally been a time of rest and relaxation for retailers, a chance to slow down after a busy and stressful festive season. Instead, many brands are finding themselves grappling with retail’s equivalent of a holiday hangover: returns.
It’s estimated that between 13 and 30 percent of stock sold during the 2021 holiday season was returned. That’s the equivalent of hundreds of billions of dollars’ worth of stock in the US alone.
And return rates are rising, thanks to a pandemic-induced surge in online shopping. Why? Because in-store shoppers return around 10 percent of products, while online shoppers send back up to 40 percent.
The rising rate of returns
Returns have risen 46 percent in the past five years
Two-thirds of consumers are predicted to return at least one gift during the holiday season
UPS said it handled a record 60 million returns after the 2021 holiday season – 10 percent up on the previous year
Regardless of industry, returns represent a significant cost to retailers. Not only are there delivery costs to factor in, but staff might also spend time checking products for faults, before repackaging them, re-warehousing them and reselling.
Recently, global retailer ASOS even pointed to soaring return rates as a contributing factor to its downgraded profit estimate. And there are other costs to consider too, with returns also impacting the environment.
Here's how to reduce return rates and save money…
The rise of e-commerce has given rise to a new trend: bracketing. This occurs when customers purchase a product in several sizes with the intention of trying everything on at home and choosing the best fit.
In fact, a Navar study recently found that 58 percent of customers intentionally buys more products than they intend to keep and that “fit and size” continue to be the primary reason for online returns, accounting for 42 percent of returns.
The solution? Providing as much detail as possible about every product – fit, size, dimensions, features, material and appearance – to give customers as much confidence as possible in committing to a single size. That also means providing multiple, clear photos of the product or garment from a number of angles. A clear and detailed size chart is another must for fashion and footwear retailers.
Global clothing retailer Everlane takes this one step further by also photographing the same garment on models of varying sizes and body shapes so that consumers can better understand how they will look in the piece.
Some brands such as Ganni offer free alterations to customers in a bid to reduce returns. The Danish fashion brand has partnered with clothing repair app Sojo for the service. “Online shopping has a huge environmental cost attached to it due to the amount of returns that are made – with the majority of returns being due to poor fit,” explains Sojo CEO and founder Josephine Philips. “By partnering with Sojo to offer local tailoring, Ganni is reducing environmental impact and also creating clothes that fit customers perfectly, which [means they] will then be loved for longer.”
"Online shopping has a huge environmental cost due to the amount of returns that are made."
Technology can also help consumers achieve the perfect purchase and reduce returns. Start-ups like Perfitly and The Modern Mirror are developing augmented reality (AR) technology to help customers ‘see’ how clothing will fit before they purchase. Similar technology already exists in the beauty industry (L’Oréal, for example, offers AR services allowing customers to ‘try on’ makeup and hair colours) and for accessories.
Optical retailer Bailey Nelson offers a ‘virtual try-on’ feature allowing customers to try sunglasses and glasses. Not only can these types of services reduce returns, but, according to Bailey Nelson, the virtual try-on feature has also increased conversions by 400 percent.
Although free returns policies have become ubiquitous – and it’s well known that many customers will buy but then abandon purchases thanks to free returns – some retailers are beginning to introduce paid policies.
Global retailer H&M recently announced it was considering testing a paid returns policy, where online shoppers must cover the shipping costs of their returns. In May, ZARA announced it would charge British customers £1.95 ($USD2.37) to return products by mail (a policy already in place in other countries). Other retailers, such as Lisa Says Gah, deduct shipping costs from the overall amount refunded.
Another way to reduce the shipping cost of returns is to partner with a reverse-shipping provider or logistics hub to give customers the option to drop returns at designated ‘return bars’ or drop-off points. That way, returns can be collected in bulk by retailers, removing the final-mile delivery costs and avoiding having to pay for every individual return.
Charging customers for reverse shipping is one way to discourage shoppers from returning products. But there are other ways to add ‘friction’ to the process in order to dissuade returns.
For example, offering free returns for products that are dropped off in-store removes the cost of final-mile delivery, while offering an extra-long returns period – say 30 days – removes the sense of urgency for consumers who may well forget to return their product or decide to wear it during that period.
A report by Afterpay Australia found that customers who pay with Afterpay are less likely to return their purchases.
In Australia, return rates for in-store purchases are around 9 percent and 20 percent for online. With Afterpay, return rates are much lower: around 6 per cent for in-store purchases and just 2 percent for online.
This may be because many Afterpay customers use the buy now, pay later platform as a budgeting tool, which drives more considered purchases and a lower rate of return. Afterpay reports that in 2020, Australian retailers are estimated to have saved $30 million in lower depreciation costs and shipping and handling as a result of lower returns.
If you deal with large volumes of returns, one way to mitigate the operational costs of handling them is to outsource the entire process to a third party. By engaging a dedicated ‘reverse shipping’ company, you can receive returned products in batches rather than as a steady stream of daily parcels, and even choose to have products verified by a third party rather than overwhelming your warehouse staff.
Specialist returns staff – from companies such as Happy Returns and Smart Returns, which operate dedicated returns facilities – may also be faster and more efficient at sorting returns. Many also have relationships with liquidators and recyclers who can help recapture value from damaged products.
Some experts believe that the secret to reducing the costs of returns is not to view returns as a headache, but to instead reframe them as an investment in long-term customer value.
That’s because a good (or bad) return experience can make (or break) a customer’s relationship with that brand. According to Optoro, 89 percent of consumers are less likely to shop at a retailer or brand if they had a bad experience with their returns. On the flip-side, 97 percent of customers say they would be more likely to purchase from a company that they had a positive return experience with.
From that perspective, the solution to rising returns may well be to make returns as easy and fast as possible for customers to maximize brand loyalty and extend customers’ lifetime value.
That means clearly outlining your returns policy online (including on your header or footer, product pages, cart checkout and FAQ page), and offering customers flexibility, speed and great communication when it comes to delivery and refunds.
Reverse shipping provider Returnly takes this one step further. When customers return a product they are given an instant ‘Returnly credit’, which allows them to shop for a new item online rather than being forced to wait days or weeks for refunds to be processed. Not only does this enhance the returns experience – and engender customer loyalty – but it also increases the customer’s propensity to buy again.
"Being able to facilitate easy returns plays a huge role in success."
Brett Chester, chief marketing officer at Shippit, describes the returns process as “the other side of the shipping coin,” and something businesses should be thinking about as a core aspect of their business.
“Being able to facilitate easy returns plays a huge role in success,” Chester says, explaining that in using third party providers like Shippit, retailers still have full control over return policies while enjoying the many benefits of outsourcing like a reduction in administrative tasks and cheaper shipping rates.
Retailers could even look to build returns into the DNA of their brand. For Australian online furniture retailer Eva, a lucrative returns policy that includes free delivery, free pick-up returns and a 365-day return window offers it a unique point of difference in a crowded market – and one that translates into meaningful brand growth.
“It starts with thinking about the customer first and then building that into product margins,” says Lia Ang, Eva’s head of marketing, adding that its flexible policy “is the feature that resonates strongest with customers”.
She explains, “We know that delivery and pick-up costs are huge turn-offs when it comes to purchasing online, so the balance to strike is to make sure your margins are enough to absorb those costs for the customer while not being so exorbitantly high [that] customers won’t pay for your product.”
While a year-long-returns policy is generous, Ang says the unique position also works as a way of creating consumer confidence, saying, “what we were hoping to illustrate is the trust in the quality of our products, and that we design and build products to be with you for a long time”.
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