What should retailers do to minimize the amount of returned merchandise and lost sales?
“In this world, nothing is certain except death and taxes.” ~Benjamin Franklin
For those in the retail world, add a third certainty: returns. Returns are an unavoidable part of retail life and online retailers are hit especially hard. The National Retail Federation (NRF) reports that 23% of the nearly $4.6 trillion of US retail sales in 2021 came from online sales and eCommerce. Because of the business boom brought on by the pandemic, the NRF also stated that online retailers should expect to regain 20.8% of the total merchandise that was sold in 2021; a significant increase in the average return rate from 2020’s 18.1% average. Holiday returns are also slated to spike. Just as sales grew 14.1% year over year, the returns are forecasted to reach 17.8%, or $158 billion.
Reasons to Return an Item
Retailers can do everything in their power to provide the best possible shopping experience for their customers, but they’ll never be able to completely control customer satisfaction. Mistakes happen and people have varying tastes and opinions as to what’s ‘acceptable’. A wrong item might’ve been purchased by accident or maybe, an item was damaged either in transit during the shipping process or broke during its warranty period (if applicable). Perhaps, the item’s product description and/or photographs on the website weren’t 100% accurate or upon receipt, the customer decided that they just didn’t like it.
According to SaleCycle, the top 5 reasons for returning an item purchased online are:
- Damage (80.2%)
- Inaccurate product description (64.2%)
- Did not like item/did not meet expectations (37.2%)
- Late delivery (7%)
- Buyer’s remorse (7.5%)
Most Frequently Returned Item Category
The most problematic category in all of online retail is fashion. Clothing, shoes, and accessories/jewelry are the most frequently-returned pieces of merchandise. This typically happens because shoppers often purchase multiple variants of a particular item (IE: different sizes, colors, etc.); they keep what fits/is preferred and return everything else. In this case, the top 5 reasons for returns are as follows:
- Doesn’t fit (70%)
- Damage (65%)
- Inaccurate product description (49%)
- Did not like item/did not meet expectations (32%)
- Overpurchased (13%)
Types of Products Returned
A November 2021 survey by Statista showed that 88% of participants listed clothing as the most common type of product that was returned in 2021. Shoes were next at 44%, followed by electronics (43%), Home & Garden items (24%), and Health & Beauty (21%).
The Hidden Costs of Online Returns
No one wants to deal with returns. Returned merchandise means lost sales and lost profit. At the same time, no one wants upset customers. Returns have a negative impact on a business’ profit margin. The cost of labor and resources increase, including returns processing, additional warehousing, shipping costs and restocking. Items that are damaged or broken beyond acceptable resalable condition are either disposed of or sent back to the supplier which adds additional expenses without a way to recoup the losses. Those items that can be salvaged and resold often require refurbishing and repackaging and because retail laws prohibit such items from being sold as brand new, that means even more lost profit.
Then, there are the effects that returns have on customer service, customer loyalty, and loss prevention. The ‘customer is always right’ business practice is good for customer retention, but is also potentially dangerous for inventory management and loss prevention as it opens the door for fraudulent returns claims and stolen merchandise. Of course, adjusting the returns policies can help mitigate any cheating but too stringent of rules and they may prove to be off putting to honest shoppers who will take their business (and money) elsewhere–most likely, to a competitor who doesn’t treat all of their customers like criminals.
Reducing The Return Rate
The way businesses go about handling returns are as varied as the businesses themselves. A megacorporation such as Amazon has the clout and financial resources to allow for an extremely generous and lenient returns policy that puts the customer up front and center, even if it means losing up to $7 billion in 2017 as reported by GeekWire. But not all eCommerce businesses have that kind of financial security to be able to afford that kind of service to their customer base. A fine line must be walked between giving your shoppers the best service as possible while not giving away the farm.
Offer an Extended Return Window
In retail, the most common return window is between 15 and 30 days. Having a period that short has two effects. In one way, it tells customers that a business is so confident that customers will be so happy with their purchases, they’ll be less likely to return their purchase. What usually happens is actually quite the opposite; shoppers that habitually return items will feel compelled to initiate a return as quickly as possible. One way to minimize returns is to extend the return window from 15 or 30 days up to 90 days, or even a year in the most extreme cases. This is known to trigger the endowment effect, an occurrence when an individual begins to form an attachment to a product or item and places a sentimental value that is far greater than its actual monetary value. Extended return windows can also take advantage of people’s forgetfulness. A study by MarTech found that shoppers tend to return items at the very last minute. By lengthening the return window, retailers can eliminate the urgency to initiate a return by inadvertently making customers forget that a return window actually exists.
Offer Item Exchanges
Not every shopper is out to steal, cheat, or take advantage of a store’s return policy. More often than not, items are purchased by accident. It could be the wrong size, color, brand, etc. If it has been determined that a customer wishes to return a purchase because it was the wrong item, instead of immediately accepting the return and losing the sale, it has a chance to be rescued by offering an alternative replacement item. It could be the actual item that the customer had originally intended to buy, or it could be a similar product of type/function. Naturally, it will be easier to suggest an exchange if dealing with the customer directly but exchanges can also be subliminally proposed through customer personalization on your website. Incorporating personalization features and data tracking to take note of past web behaviors, searches, and purchases can be used to create item upsells like “Frequently Bought Together” or “Others Also Searched/Purchased”. Customers that accidentally bought the wrong product might be able to find the correct item or a suitable alternative if the choices are available and made visible.
Optimize the Product Pages
Product pages act as the virtual salesperson; from pitching the product and dissecting its features, to ultimately persuading the customer to make the purchase and close the deal. As previously covered in our post, How to Optimize Your Product Page for Higher Conversions, here are 4 tips for stores to reduce returns and accidental purchases by optimizing product pages.
- Product Titles
- Product Descriptions
- Product Photography
- Product Upsells and Cross-Sells
Titles that are concise, to-the-point, and are under 75 characters help make it clear to shoppers what it is that they’re buying. The under 75 character limit also helps make the titles appear clearer on the smaller screens of mobile devices while avoiding spamdexing, which can have a negative impact on SEO.
Accurately detail the product’s physical attributes as clearly as possible and be sure to note special characteristics such as important features, construction, etc. There are two ways to do product descriptions. The first is through creative writing; a summary of the product’s features and highlights that engages readers and draws interest. The second is to create a bullet list of the item’s special characteristics. This helps shoppers digest the information even quicker and more efficiently while getting around the resolution limitations of mobile devices’ small screens.
High-resolution, multi-angle images of products help give viewers a better visual idea of an item that they cannot otherwise inspect in-person until physical receipt. Many retailers have relationships with their suppliers and can rely on them to provide professional product photographs to be used on their websites. However, if a company does not have that option, they may have to photograph the products themselves. This does require a bit of skill and investment (photography products such as a good quality DSL camera, lighting and lighting equipment, and digital editing software) but it’s far better than having no product image at all. Additionally, stores can opt to incorporate VR and Augmented Reality to their product pages to provide shoppers with simulations that can help influence their product purchases.
Product Upsells and Cross-Sells
Related to the Item Exchanges discussed earlier, upsells and cross-sells can rescue a sale from being a return, while potentially increasing the original sale amount either through quantity, monetary, or both.
Returns are an unfortunate fact of life in any retail business, but it is possible to minimize them while protecting both your customers and your business’ bottom end.