Online Retailers Grapple with Returns

retailers struggle with returnsOver the last few months, it’s been revealed that many online retailers (including Amazon and Best Buy) are banning customers or shutting down their accounts for what has been deemed as excessively returning products.

These moves have shocked customers. But retailers have long understood that returns are a very real, very expensive problem. And now many online retailers are taking bold steps. They either prevent certain customers from making returns or ban them from making purchases altogether.

Returns are a hot button issues for shoppers and online retailers. According to the 2017 UPS Pulse of the Online Shopper study, 75% of consumers have shipped returns back to the retailer in the last year. And customers are demanding when it comes to their refund money.  A Bizrate Insight study found that 72% of online customers expect a refund credit within 5 days of returning merchandise. In the same study, 88% of customers would limit or stop shopping with a merchant that took too long to credit the refund. For more on customer behavior regarding returns see infographic.

Returns are Costly

For online retailers, returns are expensive. Most retailers take internal actions to curb the cost of returns. However, online customer-facing policies have been relatively easy going. That’s because online commerce made aggressive moves to attract more users. Simplifying the ability to return goods was part of the customer lure. Liberal return policies often quelled the fears of shoppers skeptical about buying certain products sight unseen (shoes, apparel, etc.).

In fact, some companies actually encouraged customers to buy more than one size, see what fits best, and return the other items. Many etailers cover the cost of return shipping, include a label, and basically ask no questions. Retailers with physical outlets often allow online products to be returned in-store or at drop off locations. The cost of , handling returns in that way is lower than online.

When Customers Become Unprofitable

But many retailers have found that certain customers abuse those return policies. It may not technically be “abuse”. Still, some companies are determining that the behaviors of particular customers are actually costing the company.

The high costs for online retailers lie within their supply chain. Processing and handling returns require more workers, additional packaging materials, cleaning and repacking of some product, complex tracking systems, reversals of affiliate commissions and other payments, and more. Only about half the merchandise is repackaged and resold, according to Optoro. Merchandise that requires repackaging or repair is often liquidated at 5% to 20% of retail prices. The remainder is likely to be considered waste and is recycled or sent to landfills. It is estimated that returns sold at discount or not resold cost retailers 4.4% of total revenue each year. In a  low margin industry, that’s very significant. Online companies also pay workers to handle and process returns and have to maintain complex systems to track returns.

Many online retailers use their own analytics to calculate lifetime customer value. But there are firms that specifically monitor customer return behavior. These firms look for red flags. Those can include frequency of returns, how much money the returned items cost, whether the user sent a receipt and the user’s purchase history across many stores. These firms make advise clients about which customers are abusing return policies.

Until recently, most customers were unaware of their returns both online and offline were being tracked. And very few online companies were publicly exposed for banning excessive returns. However, the age of social media has made it easier for banned customers to spread the word far and wide. Bringing attention to this issue may scare off some online shoppers. But it could also make them more careful before making a purchase.

Mitigating Returns

Returns are not an issue for products that can be delivered digitally. Typically, categories like apparel, accessories, footwear and home furnishings have high return rates. Any products where fit, coloration, fabrication, and style determine whether the consumer ultimately keeps the product, often have return rates between 25 and 40%.

To combat the growing issue of returns many companies are looking at new tactics to increase satisfaction upfront in the buying process, thus making returns less likely. This can include better and more detailed product descriptions, more images from a variety of angles, sizing charts, and additional customer reviews.

Retailers have shifted from writing returns off as a necessary cost of doing business and rather moved to invest in optimizing the returns process from a customer experience and logistical perspective.

Some online retailers are turning to artificial intelligence to help consumers choose the right product during the ordering process. This can mean using shopping bots to answer questions during the purchase process.

The issue of returns has also been a catalyst for startups. Happy Returns focuses on reducing consumer friction in the returns process. The company helps lower the cost of eCommerce returns for brands by operating “return bars” in major malls. The malls may also benefit from seeing incremental traffic.

The return issue won’t be solved anytime soon. But expect more online retailers to closely watch customers returns in an effort to increase profitability. Meanwhile, they will need to also up their game to provide the consumer with better information at the time of purchase to help mitigate the chances of returns.