Each year, as the month of January comes to a close, so too does the flood of retail returns from the holiday season. The National Retail Federation’s (NRF) calculations show a 17.8% return rate in the 2021 holiday season, up from 13.3% in 2020. Historically, returns have been seen as just a cost of doing business, but as the return rates and associated costs continue to rise, there is more focus being given to managing returns. Part of what makes returns such a challenging issue is that they present three competing interests – those of the customer, the business, and the environment. Most companies see returns as a matter of trade-offs – satisfying one party’s interest at the expense of another. However, creative solutions can provide benefit across the board, or at least make the most of returns when they happen.
The prevailing trend in retail returns has been to make them as seamless to the customer as possible in order to maintain loyalty and provide a positive customer experience. Many companies offer a free return policy and allow customers to drop off returned merchandise at convenient locations without needing to provide packaging or postage. This has resulted in customers expecting such benefits as table stakes, and retailers are having to continuously keep up with higher standards of the return experience.
Recently, the philosophy around returns has started to shift, as the externalities associated with returns became more apparent. The environmental impact of returns is a matter of increased concern, particularly for companies that have set sustainability goals or made commitments in regard to waste or other environmental factors. Even though customers in general are valuing sustainability in their purchasing decisions, they often don’t understand the environmental impact of returning merchandise. This leaves retailers with a tough challenge to navigate.
To add fuel to the fire, the costs of returns to the retailer are also increasing due to the level of convenience that customers now expect. In most cases, a return is a complete loss of a sale because the item can’t be resold. In addition, covering the additional shipping costs adds to that loss. In 2021, the cost of returning a $50 item was estimated to be $33, which is up 59% from 2020.
These three seemingly opposing tensions in the returns process – customer, environment, and retailer – don’t necessarily have to result in tradeoffs. If retailers change the rules of the game, the challenge can become an opportunity.
Rethinking Retail Returns
Confide in your customers. The fact is that most customers don’t connect the dots when it comes to making a return and making an impact on the environment. Retailers have a unique opportunity to educate the customer about what really happens to the returned merchandise and the impact it has. However, it is important to do this educating prior to the point of purchase, so the customer feels included in the retailer’s effort to be more sustainable, yet not guilty for wanting to make a return after the purchase has already been made. According to NRF, 57% of consumers are willing to change their purchasing habits to help reduce negative environmental impact. This is a valuable opportunity to help those customers shop in a way that is aligned with their values.
Incentivize desired behavior. One area of opportunity for incentivizing desired behavior is at the point of purchase. Particularly for apparel eCommerce, which has some of the highest return rates of any category, sizing is one of the main reasons for returns. In fact, some customers habitually purchase multiple sizes with the intention of returning them. Some companies offer unique tools or services to assist customers in finding the right size, such as sizing consultations with a customer service rep or virtual fitting rooms. Retailers could offer special return benefits only to those customers who leverage such offerings (e.g. a sizing guarantee). Other examples of incentivizing desired behavior could include offering free returns if a customer returns to a store. This allows the retailer to re-sell a product on the spot, or at least consolidate shipments, and increases the chance of capturing another sale from that customer (71% of in-store returns result in an immediate purchase). Some retailers also offer vouchers to customers for making an exchange instead of a return or choosing store credit.
Give products new life. For merchandise that does end up being returned, the landfill doesn’t have to be the only option. One idea is to start experimenting with secondhand retail. This is a quickly growing segment of the market that may be worth exploring for some brands. Some brands that have already jumped on the resale bandwagon include The North Face, Madewell, and Patagonia. Aside from resale, donation is an option that forgoes retaining value from the lost sale but can bolster customer satisfaction and a retailer’s CSR commitments. Chewy is a prime example of a retailer that has delighted customers with its donation-focused return philosophy.
With these creative solutions and more, retailers don’t always have to view returns as a necessary evil. There are ways to make the process more positive for all involved. It does, however, require prioritizing the returns process as an area of focused improvement within a company. If you would like to learn more about how to optimize retail returns, reach out to our retail experts today.