For sites that sell non-consumables, returns are what oils the wheels of e-commerce. Without the ability to return goods, shoppers would simply ditch their baskets and head for the nearest store.
Buying online, without being able to see and try goods, makes online return rates much higher than bricks and mortar. For online apparel, it’s 20% and for expensive items, it can be as high as 50%. In physical stores, it’s around 10%.1
Returns are an inevitable part of doing business online. With costs rising, retailers are looking at how to minimize them.
For some retailers managing the ‘reverse logistics’ of returns, is a major issue. Up to 60% of retailers believe they’re negatively impacted by consumer returns. And 30% of online-only retailers admit that managing returns affects profit margins.2. No surprise that a fifth of businesses increase prices to cover costs of processing returns.3
But they have to tread carefully. Attempting to prevent profit erosion by introducing barriers to returns, or recouping costs through delivery charges, can end up costing sales. 58% of shoppers say a retailer’s returns policy impacts their decision to make a purchase online. And 47% would not order an item if they had to pay to return the item.4
What about serial returners?
Fashion retailers are seeing the rise of the serial returner, where shoppers by multiple sizes and then return what doesn’t fit. So, should they be discouraged?
At Klarna, our own customer analysis shows that higher returns are associated with higher value customers who also retain a higher volume of goods. In many cases, serial returners are profitable because they buy more, keep more and regularly up sell and cross sell.
The secret is not to turn this business away by making returns hard. But by tackling what causes them to overbuy in the first place – normally this is due to issues with sizing. Four in ten shoppers believe standardizing clothing and shoe sizes would help them return less frequently.5
Making returns work for you
Retailers who focus on creating ‘positive return-experiences’ are more likely to increase sales and boost profit.
Studies show that a frictionless return policy is the single most important decision making factor for online shoppers – particularly when buying clothing. Even more important than price.6 No-questions-asked’ policies are also likely to increase purchase rates, particularly among younger audiences and those who choose to browse and buy via mobile.
By trying to lock down returns – online retailers are missing a huge opportunity. Their best customers can have the highest return rates and still be the most profitable. They may send unsuitable items back but they also keep more, generating more overall revenue in the long term. Restricting returns simply sends them elsewhere.
Surprisingly, increasing time-to-return can deliver a clear sales benefit and lead to a reduction, not an increase, in returns.7 This plays on the “endowment effect” – the longer a customer has a product in their hands, the more attached they feel to it and the less urgency there is to return it.
Here are some positive action retailers can take to navigate the challenges of returns:
- Try to prevent returns by making sure customers know exactly what they’re buying. Use online tools such as zoom and 360-degree product views. And ensure product descriptions are detailed and accurate.
- Let users help each other with size and quality. Encourage dialogue on social sites that allow consumers to share their experience.
- Differentiate between profitable and non-profitable returners. Use CRM and purchase behavior analysis to identify and target most lucrative segments.
- Look at your return policy, assess if it could work harder to encourage sales. What would the impact of offering a longer returns period? Or a tiered fee?
- For fashion sites: add models’ vital statistics and sizes they are wearing. Consider innovations such as virtual fitting rooms. Ensure standardized sizing.
- Update your returns processes: use technology to aid logistics; link ERP and operational processes to optimize efficiency.
- Provide returnable packaging and ensure clear and accurate returns information is included with the delivery.
- Supplement customer communications with self-serving return portals or easy access to customer support.
- Use payment services that allow the customer to pay after delivery to minimize payment friction; reduce ‘commitment fear’ and urgency of return.
6 Granify survey of 20.8 million consumers
7 University of Texas-Dallas