4 Ways Retailers are Managing the Cost of Returns

 

By Tricia McKinnon

While Amazon makes running an eCommerce business look easy, managing online sales is anything but easy. What often makes eCommerce difficult is returns. Consumers don’t always feel comfortable buying pants or a shirt just by looking at a picture alone. Then, there is the issue of sizing which is not standardized across retailers. You may be a size 10 at lululemon and a size 12 at Athleta. Then when you are shopping at a single retailer like American Eagle you might be one size in jeans but when you shop at American Eagle’s Aerie brand you are a different size in underwear.

Then there’s colour. I am sure you have seen a beautiful garment online, let’s say in the colour green only to find its neon green when you receive it. While retailers are frustrated by the volume of returns they receive there is a genuine level of friction in the online shopping process.

Because of this friction customers often engage in a practice known as bracketing which involves ordering multiple sizes or colours of the same item to ensure they get the right fit. Once the customer figures out their size they send the items they do not need back to the retailer. Approximately 63% of consumers in 2022 practiced bracketing, up from 58% in 2021. 15% of consumers have even said that bracketing is “just how they shop now.”

Practices like bracketing and returns in general are expensive. Not only do retailers pick up the cost of shipping goods to the customer but many also pick up the cost of sending returns back to the retailer. It can cost a retailer between $10 to $20 per order to process a return and this cost does not include shipping. Some of the costs retailers incur in addition to shipping include receiving the goods, labour to determine if the goods can be resold, and providing new packaging to resell the merchandise.

In 2021 United States’ consumers returned $218 billion worth of goods bought online or 16.6% of purchases. $23.2 billion of those returns were claimed to be fraudulent. The return rate tends to the highest amongst clothing companies. Revolve has a return rate of 54% while Boohoo’s return rate is 33.7% in the UK. In the first quarter of 2022 Boohoo said its sales were up 9% excluding returns but when returns were deducted sales declined by 8%.

Despite these challenges retailers are struggling with what to do since 98% of consumers say free shipping is the most important factor they consider when deciding if they should shop online. While Amazon raised consumer’s expectations there aren’t any retailers who are truly competing with Amazon on a holistic basis. Amazon has other businesses like Amazon Web Services and advertising to cover the costs of its retail business while other retailers do not have this luxury. With online returns spiralling retailers are taking several steps to get their costs under control including:

Do you like this content? If you do subscribe to our retail trends newsletter to get the latest retail insights & trends delivered to your inbox

  • Reducing the return window. Many retailers used to offer generous return windows. If you went shopping at Gap in the past you could return items within 45 days or return items within 60 days at J.Crew. One of the issues with a long return window is that by the time the item is received back by the retailer it might be on clearance, which means the retailer is unable to sell it at full price. "Now retailers are saying, 'we're not interested if customers are going to cause this crazy returns nightmare that we can't afford'," said Sender Shamiss CEO of goTRG, a returns management provider. Both Gap and J.Crew have reduced their return window to thirty days.

  • Charging for returns. Charging for returns in the retail industry must have been a game of who’s going to make the first move with everyone hoping their competitor would do it first. With high inflation eating into profits several retailers have abandoned their previous practices and have begun to charge for returns.

    In Europe before a test H&M was about to conduct where it charged for returns in a few markets H&M’s previous CEO Helena Helmersson said: “it all depends on how it’s received by the customer. So that’s why we do a test to see if that is something to fast track.” “If we’re about to roll it out, it will take some time,” “We don’t have an exact time limit on it. But again, let’s see when we see the evaluation of the tests, whether this is the most impactful thing to do or not.” H&M now charges $5.99 in the United States for returns that are shipped back to the retailer for customers that are not members of their loyalty program and $2.99 for those that are. In the UK non loyalty program members are charged £1.99.

    Zara charges $4.95 for returns in the United States but customers can return online orders in store for free. By making it free for customers to return online orders in store retailers are hoping customers will make additional purchases while they are in the store. "Customers can return online purchases at any Zara store…free of charge, which is what most customers do," said a Zara representative.

    Uniqlo charges $9.90 for mailed in returns in Canada, Abercrombie & Fitch charges $7.00 and Foot Locker charges $6.99. Some retailers are also charging restocking fees. But “these adjustments in return policies are not there to cover costs,” said Spencer Kieboom, founder and CEO of Pollen Returns, a returns management company. “They’re really there to deter the consumer from returning [goods].” 

  • Loyalty programs. Another way retailers are trying to grapple with returns is by only allowing free returns if the customer is part of a loyalty program. Next has a loyalty program called Nextunlimited which allows members to receive unlimited deliveries for £22.5 per year (less than the cost of 5 standard deliveries).

    Boohoo Premier customers get free returns and next day U.K. delivery if they pay £9.99 annually for membership in the loyalty program.

    Free returns in exchange for paying to become a member in a loyalty program is a good way to entice customers to spend more similar to how customers of Amazon Prime are enticed to spend more at Amazon because they have already paid over a hundred dollars for a Prime membership.

  • Website tweaks and updates:  Narvar, the post-purchase customer experience platform, conducted a survey and found that changes such as providing sizing charts, providing better merchandise photos and descriptions, reviews and providing pictures of merchandise on different body types help to reduce returns. This is one of the reasons many retailers use augmented reality to show customers for example, what different shades of make up will look like on a customer’s face digitally, so they have a better chance of purchasing the right shade of makeup.

Tricia McKinnonStrategy & Growth, eCommerceComment