According to a recent report from the National Retail Federation (NRF) – 2023 Consumer Returns in the Retail Industry – total returns for the US retail industry amounted to $743bn in merchandise, and the total returns rate as a percentage of sales was 14.5%.
Online return rates remain high, and the cost of processing returns is higher than ever. The dilemma? Driven largely by Amazon’s introduction of free returns in 2005 (time flies!), consumers quickly came to expect the same service any time they shopped online. Free returns became table stakes for larger retailers and brands in order to compete, but resulted in a big hit to the bottom line.
Over the years, the challenges around free returns keep getting bigger, fuelled by rising fulfilment and shipping costs and increased fraud and abuse related to returns. Reverse logistics firm Optoro estimates that the cost of returns has spiked by 50% compared to 2018, and the cost of returning a purchase averages 27% of the purchase price. A greater awareness of the environmental impact of returns for both retailers and consumers is also impacting return strategies worldwide. In addition to the carbon footprint implications of returns, returned inventory amounts to 9.5 billion pounds of landfill waste annually.
So how can retailers and brands balance out the returns dilemma – minimizing costs and meeting customer expectations at the same time?
- Charge for return – 44% of retailers in the US increased their return and restocking fees in 2023, reducing reverse logistics costs, but risking losing customers to competitors that still offer free returns.
- Free returns only in-store – for retailers with physical stores, the option to only offer free returns on online purchases in stores (BORIS) is attractive because it allows them to save on shipping and brings traffic to the store. But, it requires technology, store capacity and training to be able to handle and process returns in the store.
- Return drop-off locations – some retailers opt to partner with return operation services such as Happy Returns (soon to be acquired by UPS) to provide customers a convenient alternative to return shipments. Four in ten retailers added more return drop-off locations in 2023.
But minimizing the impact of returns should also mean reducing the potential for returns in the first place. While the strategies below will not combat return fraud or wardrobing (buying an expensive item, wearing it once and returning), they can effectively help to reduce return rates by increasing the likelihood of the customer buying the right product in the first place.
- Incentives and credits – some retailers get creative, offering customer incentives and discounts to discourage returns, to begin with and to keep them coming back.
- Fit and sizing tools – visual tools that show the size and context of a product or sizing quizzes that compare sizing to other known brands, help shoppers narrow down size choice
- Virtual try-ons – augmented reality that enables shoppers to “try on” a product or place it in a virtual setting to replicate a physical experience before making a purchase decision.
- Ratings & reviews – customer feedback about an item helps shoppers make the right decisions.
- Social proof and eXtended messaging – by highlighting fit attributes, aggregated reviews and real-time insights about what other customers are buying or browsing across the shopping journey, retailers help increase customer confidence that they are making the right buying decision and increase likelihood that they are buying the right size, reducing the rate of bracketering (buying multiple of same or similar items, keeping one and returning the rest).
The returns challenge will never go away. The costs associated with returns are likely to continue to rise, and customers will still expect some kind of flexible returns option. Retailers should focus on optimizing return operations, partnering with reverse logistics experts and investing in eCommerce tools that will help shopper makes the right purchase decisions in the first place.