This commentary was written by Spencer Kieboom, founder and CEO of Pollen Returns. The views expressed here are solely those of the author and do not necessarily represent the views of Modern Shipper or its affiliates.
Returns are a spotlight staple during the holiday season. There is even a designated national day for returns called “National Returns Day” on Jan. 2. An item doesn’t fit, someone already owns one or would rather have something else, and the list goes on with many reasons for post-holiday gift returns.
Returns are a big problem for retailers, with a safe average hovering around 20% of e-commerce purchases returned. United States e-commerce sales in Q3 of 2022 were $251.7 billion. Using 20% as a guide, the value of goods being returned comes out to $50 billion of existing product that is just sitting at the mercy of the consumer to return, offering zero leverage for the retailer and losing value as seasons and trends change with no way of knowing when it’s coming back.
Right return solution
What is the solution for this growing issue? Holiday returns in 2021 cost retailers 59% more than in 2020. First, let’s remove the idea of mitigating returns as a whole. It’s not realistic, and even with best efforts, the rate of returns has managed to only increase over time. Retailers typically place the focus on returns in two strategic buckets: ease and hurdles. In reality there should be one bucket: consumer.
Returns effect 20% of a retailer’s inventory, but they influence 100% of the consumer’s buying decision. Capturing the consumer making a return via a direct purchase or as the byproduct via gift makes it a part of the shopping experience. The returns interaction is an extension of how a brand treats its customers.
If the interaction comes from a new consumer that received an item as a gift, the new consumer will corelate the returns experience to the buying experience. Ever heard of the person who returned used tires to Nordstrom? Now you have. It is one of the most memorable examples of this.
The returns process is a reflection of the shopping experience itself, a shadow of the brand or retailer. An efficient and transparent returns policy can strengthen a brand’s reputation promoting loyal patronage, as 92% of consumers who have a positive return experience revisit brands for another purchase.
A simple example illustrated with a rhetorical question: Two sellers on eBay are offering the same item, same price, same condition and same 2-day shipping. One doesn’t offer free returns. Which one are you buying? In fact, the item with free returns is 76% more likely to sell.
Right return policy
Returns make a direct impact on a buying decision. When buying a gift for someone else, 75% of consumers research a return policy before making a purchase.
Retailers need to be cognizant of keeping existing customers and capturing potential customers while also making sure they don’t lose money in the process. So what is the right silo for return policies during the holiday season and the 11 other months of the year to mitigate risk? It comes down to understanding of why brands are making returns difficult in the first place, what works best for that brand, and the underlying costs that lie outside the operational boundaries.
Detering for returns is growing, but is it long-term?
Companies are coming up with different strategies to deter returns. Abercrombie, for instance, charges a $7 fee when a return is initiated. However, this is not about covering the retailer’s costs. In reality, the $7 doesn’t mean anything monetarily to Abercrombie, whose revenues in 2021 were $3.8 billion. That $7 is representing something far greater – a deterrent to the customer to mitigate the return because they have an inventory problem.
No consumer wants to pay for a return, let alone give a gift that results in a $7 return fee. But in the case of Abercrombie, there could be a silver lining, as they do not wholesale their product, meaning consumers can only buy directly from them, and return directly to them. But there is another risk and opportunity cost. A cost Abercrombie is most certainly monitoring: cart conversions and abandonment rates.
Here are some other retailers who have modified their return strategiesas a deterrent.
- Kohl’s no longer pays for return shipping costs.
- Bath and Body Works has limited its previously wide-open return policy to 90 days and to $250 per customer over that period.
- LL Bean, Dillard’s, J. Crew, REI and Zara now deduct a fee for returns made by mail.
- H&M recently announced it is testing a return fee for online orders in some markets.
Doubtful to be a long-term solution, but some brands may hold onto this strategy. As a brand or retailer who charges for returns, the best thing to be done is drastically enhance the experience for the consumer to benefit all parties involved.
If you buy a lot, returns are free
Other retailers are looking at returns from a loyalty perspective, the more loyal the consumer, the more lenient the policy, thereby tiering for returns. Companies like DSW, Best Buy and Saks are beginning to segment returns into tiers and rewarding their best consumers. For example, the best customers – based on how much they spend with the retailer annually and how often they return – get perks like free shipping and unlimited returns. Measuring customer acquisition costs (CAC) will be on the top of the list for those entering these waters.
Fast back is imperative
Imagine being a retailer and not knowing when 20% of your procured product just manufactured is arriving to you warehouse for distribution, which is exactly what has been happening for years in returns. But now total percentage being sold online is too large to ignore. Faster recovery enablement (reselling items quickly) is essential, as retailers can lose up to 10% per week of the value on items as seasons, trends, product lines and technologies change. Speed of recovery in these time-sensitive situations is imperative to saving retailers millions of dollars.
Data-driven solutions that provide insight into each individual customer’s shopping habits are also emerging. Companies like Appriss are applying their technology to the retail world and are successfully curbing excess and fraudulent returns. This is how forward-thinking retailers are ensuring that abusive returners don’t ruin policies for everyone.
Too late for 2022, but looking ahead to 2023
A comprehensive returns solution is the only way to reach that objective – 54% of retailers report that they desire more efficient returns processes and management. Retail must reevaluate every aspect of their reverse logistics process, just like delivery has been addressed, from disposotions, procedures, and resale strategies. This is the only way to fully modernize dated process and ensure that customers have a positive, consistent experience both in-store and online.
It is too late for retailers during the 2022 holiday season to leverage their returns from a recovery standpoint. With an economic downturn looming, retailers must evaluate and prepare for 2023 and this holiday season is as pivotal as any. The winners will be those who place the customer first to reap the rewards in 2023 as they adapt their reverse supply chains to their strategic advantage in 2023 and beyond.
About the Author:
Spencer Kieboom is founder and CEO of Pollen Returns, a technology-led business that empowers D2C retailers to leverage their current inventory for better planning and capital utilization through quicker recovery of returns. Pollen’s technology plugs into existing logistic ecosystems, requires no box or label, and orchestrates a “door to warehouse” return pickup at no additional cost to the retailer. Pollen Returns is a venture-backed company that is currently available in any U.S. market and will be expanding overseas to Europe and the U.K. in the near future.