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Think tank
May 28, 20215 min read

Retailers must get returns right.

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by Klarna

Consumers expect returns to be simple and seamless, but they remain a growing point of frustration, particularly after the lockdown-led boom in online shopping. Merchants that don’t meet heightened expectations risk losing some of their customers, according to Klarna research.

Few things are as frustrating for both shoppers and retailers than having to deal with a return. Disappointed buyers must go through the hassle of returning, while merchants lose a sale and incur extra processing and often shipping costs. 

Yet returns have increasingly become part of the normal shopping experience, particularly during the pandemic, as more shoppers bought online without any opportunity to see the item in person, and therefore made more returns. The vast majority – 80 per cent – of online shoppers believe returns are a normal part of online shopping, according to Klarna research based on a survey of more than 2,000 consumers across the UK. 

Perhaps even more importantly, those customers’ expectations are rising, with more than 80 per cent expecting free returns as a minimum standard of service, up from 75 per cent in 2019. 

Yet for many shoppers, it remains a gruelling experience, with eight in 10 consumers saying retailers need to improve their return capabilities. Merchants have made impressive strides in making it easy to shop online, but they appear to have put less effort into making returns straightforward. “Many retailers are so focused on the pre-purchase experience that what happens after the transaction tends to be an afterthought rather than a strategic priority,” says Natalie Berg, retail analyst and founder of NBK Retail.  

Some retailers have resorted to deliberately making returns harder, for example by scrapping free returns or requiring customers to print off slips at home. The most frustrating element cited by consumers is the slow refund process. This highlights the growing importance of choice in payment schedules: if refunds are slow, customers appreciate paying only once they have decided to keep an item. The research shows that people return the same amount regardless of whether they use flexible payment options, but they are more likely to purchase items in the first place if they can pay flexibly. 

The hassle factor was amplified during lockdown since consumers could not return purchases at physical stores and their access to other returns infrastructure was disrupted. Over the past 12 months, one-fifth (21 per cent) of online shoppers say they have reluctantly kept an item they were unhappy with because it was too much effort to return it, while 11 per cent gifted items they didn’t want. Consumers also held on to their returns for longer, partly driven by the extra inconvenience and more generous return deadlines during the pandemic. 

Many happy returns.

Building friction into the process to lower return rates may seem rational, yet it is ultimately self-defeating and costly. First, a poor returns policy is a sure-fire way to lose a customer, not just a sale. More than eight in 10 (84 per cent) online shoppers would turn their back on a retailer after a bad returns experience, according to the research. 

Second, having a free and efficient returns policy can be a competitive advantage by driving customer retention. Customers who regularly return goods, or “returning returners”, tend to be more loyal and spend more frequently than the average customer, according to Klarna data looking at the top 10 per cent of shoppers at partner merchants. In other words, people who return the most are often those who spend the most. What’s more, 86 per cent of online shoppers agree they are more likely to come back to an online merchant who offers free returns, while 75 per cent agree that free returns mean they will buy more from a retailer over time. 

Retailers therefore have a strong incentive to focus on making returns easier, while at the same time improving the whole customer experience to try to cut down on when returns are necessary. 

Getting the right fit seems to be a chronic problem and explains why fashion has been one of the last categories to move online, says Berg. Over the past 12 months, some of the top reasons for returning included wrong size (26 per cent), faulty or damaged items (24 per cent) or quality not meeting expectations (23 per cent). 

Customers say better “fit” technology and size guides would help reduce returns, followed by a clearer representation and description of products. Based on these findings, companies should be providing as much information as possible, including sizing based on well-known companies, whether to size up or down for certain items, and using different-sized models. User-generated content like reviews and photographs often proves to be a useful resource for shoppers looking to see if an item fits true to size. 

Point of no return.

As shoppers return to the high street following lockdown, consumers will continue to use the digital skills they adopted during the pandemic. When asked about how they expect their shopping habits to change over the next 12 months, 36 per cent of online shoppers expect to use the same or more online shopping. 

For returns, the key is flexibility: the majority want to be able to choose whether to return items in store or online. The research also found that the top return method shoppers would choose for their next online purchase is free pickup from home, closely followed by more traditional returns options such as return to a local post office or drop-off point.

For merchants, it’s about making the process as smooth and seamless as the actual buying experience. As the research suggests, those that fail to adapt will lose customers.