The Candid Voice in Retail Technology: Objective Insights, Pragmatic Advice

Returns: A Big Issue That’s Getting Bigger

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It seems like a lifetime ago that U.S. retailer Nordstrom made waves with its “no questions asked” returns policy. There is even an urban legend that one customer returned a set of tires to one of the retailer’s stores (in 2015, then company co-presidents Erik and Blake Nordstrom claimed that the story is true; the return occurred in the mid-1970s in one of the company’s Alaska stores).

Generous returns policies were routine among retailers prior to the rise of Ecommerce; it wasn’t uncommon to see a sign in a store proclaiming that “your full satisfaction is unconditionally guaranteed”. But the rise in the volume of online customer orders and fulfillment in the years 2010-2019 changed the dynamic.

Some retailers have taken a particularly aggressive stance towards returns handling, because of concerns about fraud. For example, U.S. consumer electronics retailer Best Buy has a “15 day” returns policy, and “special conditions” can trigger a denial. In 2019, the retailer began working with a 3rd party company to analyze returns to detect fraudulent behaviors. But the company abandoned that practice after being sued in California (the company settled the lawsuit).

Whether customer returns are honest or fraudulent, the problem with returns is exploding.

To get a sense of the size of the challenge, consider these recent facts from the National Retail Federation:

  • In 2020, returns amounted to approximately $428B (10.6% of total U.S. sales), of which 5.9% were fraudulent.
  • In 2021, returns amounted to $761B (a 78% increase).
  • In 2022, the U.S. retail industry, including online and brick-and-mortar stores, transacted $4.95 trillion in sales. Returns equaled $816B, about 16.5% of the total across all verticals and selling channels.

Ecommerce platform Shopify tracks return rates, and recently reported that while brick & mortar sales generate an 8-10% return rate, 20% of Ecommerce orders result in returns, and “holiday commerce” results in a 30% return rate. Worst of all, sales of merchandise via all selling channels that Shopify classifies as “expensive items” result in a 50% return rate.

But for consumers, the issue is back and white: returns either work for them, or they don’t. And for many, it’s the latter, not the former. A recent survey revealed that 41% of shoppers find the refund and returns process to be too time consuming. The top reasons for consumer dissatisfaction with the process are:

  • Refunds/exchanges are too slow.
  • Not able to return retail order online, or online order in store.
  • Customer doesn’t have a printer.
  • Difficult to create online return/ get a return label.
  • No visibility into returns life cycle.
  • Processing of unexpected items is manual.
  • Too many “where is my refund” calls.

As we often do, RSR encourages retailers to view the challenges and opportunities associated with returns handling through the eyes of the consumer. Shoppers have choices, and they are more inclined to take advantage of those choices than ever before.

So what are some of the things that retailers can do now? Here are a few suggestions:

  • Use returns policies to reinforce desired behaviors, for example by offering targeted incentives.
  • Retailers should consider the cost of returns shipping and handling to determine if certain items are worth returning at all. This isn’t just about cost savings – it also could be good for the environment.
  • Automated returns portals, automated voice assistants, automated returns authorizations and “printerless returns”, instant refunds at first scan – all these capabilities and more can help.
  • Encouraging consumers to return items to a store to create the opportunity to engage with them, perhaps to replace the returned item for something of greater value, as well as upsell opportunities.
  • Retailers should think more about returns prevention. We discussed this opportunity in a Retail Paradox Weekly blog in May 2022 – check it out!
  • Selling “blemished” inventory is better than auctioning it off.
  • Returns data can help in future merchandising decisions. In a sense, returns are the voice of the customer; they are often an early and important sign that something is wrong with the products being sold.
Newsletter Articles June 29, 2023