Retailers are increasingly turning their attention to returns in a bid to protect brand and margins, enhance the customer experience and reduce environmental impact. While ecommerce and certain sectors are more susceptible to higher-than-average returns, rising costs and the climate emergency are bringing the unsustainable nature of returns into sharp focus for all retailers and brands.
On the one hand, retailers want to offer customers the ability to return unwanted items easily and cheaply, or at no cost. On the other hand, they are under pressure to minimise returns and reduce costs.
Here we highlight some of the best practices retailers are adopting to help customers buy the right product in the first place and how returns policies are changing.
The Returns Conundrum
Consumers have high expectations: they expect to be able to return their purchases for free via a channel that suits them and receive refunds promptly. Returns are complex and costly for retailers due to the choice and flexibility brought about by omnichannel strategies.
The returns process is a complicated web of owned- and third-party touchpoints, processes and systems. They may not communicate with each other, resulting in incomplete, fragmented data held in different systems. Consequently, reliable returns data is often not systematically collected or analysed, yet it is essential for driving out inefficiencies and making smarter, better-informed decisions.
Reducing the impact of returns requires retailers to leverage digital and data solutions to identify and address the underlying causes, and ensure returns processes are efficient, cost-effective and sustainable.
Managing Returns Well Needs Unified Systems, Connected Data and Advanced Analytics
With good data and advanced analytics, retailers can quickly identify patterns and problems related to returns.
To understand root causes, retailers need to know which products have higher-than-average return rates and why. And they need to know which customer segments repeatedly return items and why, and the correlations between return rates and acquisition channels, prices, promotions, and lifetime value.
Tapping into Technology to Improve Product Details and Help Reduce Ecommerce Returns
Many tools on the market are designed to help customers better understand product details, size, and fit - from product information management systems (PIMs) to sizing calculators, improved images, and videos.
Ecommerce sites are successfully using social proofing to help customers buy the right size; Sweaty Betty and Marks & Spencer are examples of brands doing this well.
Product comparison tools help consumers discover the best product for their needs, nicely illustrated by Currys' handy "Highlight Differences" feature.
Virtual try-ons, already a standard feature for online glasses retailers like Mister Spex, are expected to become integral to ecommerce in the future as the use of artificial intelligence* (AI) and augmented reality* (AR) in retail gains momentum (* footnote).
Other great examples include:
The Ikea Place app enables users to place true-to-scale 3D models in their own virtual space
MAC, L'Oréal and Estée Lauder are examples of beauty brands using AR to show customers how make-up looks on their face
Google's AI-powered virtual try-on tool (currently available in the US) shows users how a garment from bands across Google would fit a woman's body type. Over time, this technology will benefit from advances in machine learning and visual matching algorithms
N Brown Group uses 3D design technology and body scanner data to improve product fit and sizing.
Retail Returns Policies and Processes
Customers expect the same convenience and flexibility for returns as they get for delivery and payment. As a result, returns are becoming increasingly hassle-free as retailers invest in technologies and solutions to manage returns better including collections from home, a greater choice of drop-off points, "try at home" concierge services, online returns portals and faster processing of refunds.
That said, from a customer journey perspective, there are still some frustrating disconnects between online and offline channels impacting the overall customer experience. For example, being unable to return online orders to a store (eg. Uniqlo), or waiting more than 3 weeks for a refund (online purchase) seems short-sighted.
Retailers are also adapting their policies to reduce their costs and encourage fewer and faster returns. Even Amazon has changed some of its practices by offering instant refunds (in the form of a gift card) to retain the customer's spend and introducing a "just keep it" policy, sometimes telling customers to keep unwanted items and still receive a refund.
The End of Free Ecommerce Returns?
According to research conducted by Sendcloud, 48% of the UK's top 100 retailers now charge for returns. For fashion retailers, this figure is 79%. In 2022, parcelLab found 25% of the UK's top 200 ecommerce brands and retailers charge for returns.
Deciding whether to charge for returns presents a dilemma. Many consumers still expect returns to be fast, frictionless, and free. Free returns may be important to a brand’s service ethos and some polls suggest consumers won't buy from businesses that charge for returns.
Zara, Next, H&M, Mountain Warehouse and Boohoo are among those who have implemented return charges. Some allow free returns for their premium customers, and those with physical stores typically allow free returns in-store. While it is still a little early to determine if charging reduces return rates, Next and Boohoo reported in their FY2023 accounts that return rates had returned to, or climbed above, pre-pandemic levels.
Serial Returners - Friends or Foes?
Then there's the issue of serial returners. It continues to gain attention, most recently in June when Pretty Little Thing (PLT, part of Boohoo Group) scrapped free returns and deactivated the accounts of customers with high returns activity and buying patterns not in line with their "fair use" policy. Similar issues had previously prompted retailers like ASOS and Boohoo to threaten to ban serial returners and introduce "fair use" returns policies.
PLT faced backlash from disgruntled customers who were quick to take to social media to question the company's approach and defend their returns behaviour on poor quality products and incorrect sizing. For now, PLT has stuck by its decision to deactivate customer accounts, acknowledging high returns cost a significant amount of money. However, it has since refunded the "Royalty" subscription charge for unlimited free deliveries to affected customers.
Irrespective of how PLT applied and communicated this, it's another reminder returns are a huge problem for the sector and not sustainable.
The key here is having the data insights to inform the best decisions as customers returning the most can also be the most profitable. A blanket ban on all high returners without having a single customer view is dangerous as it doesn't consider the individual customer's lifetime value, profitability or underlying reasons for returns. For example, multisize buying generates returns but it is common when customers try out a new brand or category.
In summary, returns (particularly from ecommerce) pose huge challenges to retailers and brands, both economically and environmentally. Investing in data and technology and rethinking approaches to returns, including more circular approaches for managing returned products that can't be restocked, present significant opportunities to minimise returns and waste, provide better self-service experiences, improve efficiencies, reduce costs and return products to full-price sales quicker.
Businesses that get it right can expect to gain and retain customers while making a positive impact on the environment and the bottom line.
* Footnote
AI / Artificial intelligence is the science of making machines that can think and perform like humans. AI leverages computers and machines to mimic the problem-solving and decision-making capabilities of the human mind.
AR / Augmented reality integrates digital information with a user’s environment in real-time to provide an interactive experience combining the real world and computer-generated content.
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