It seems like a lifetime ago that U.S. retailer Nordstrom made waves with its “no questions asked” returns policy. There is even an urban legend that one customer returned a set of tires to one of the retailer’s stores (in 2015, then company co-presidents Erik and Blake Nordstrom claimed that the story is true; the return occurred in the mid-1970s in one of the company’s Alaska stores).
Generous returns policies were routine among retailers prior to the rise of ecommerce; it wasn’t uncommon to see a sign in a store proclaiming that “your full satisfaction is unconditionally guaranteed”. But the rise in the volume of online customer orders and fulfillment in the years 2010-2019 changed the dynamic. As one fashion retailer put it at the time, “the new dressing room is the living room.”
Some retailers have taken a particularly aggressive stance towards returns handling, because of concerns about fraud. For example, U.S. consumer electronics retailer Best Buy has a “15-day” returns policy, and “special conditions” can trigger a denial. In 2019, the retailer began working with a third-party company to analyze returns to detect fraudulent behaviors. However, the company abandoned that practice after being sued in California (the company settled the lawsuit).
Whether customer returns are honest or fraudulent, the problem with reverse logistics is exploding. To get a sense of the size of the challenge, consider these facts from the National Retail Federation:
- In 2020, returns amounted to approximately $428B (10.6% of total U.S. sales), of which 5.9% were fraudulent.
- In 2021, returns amounted to $761B (a 78% increase).
- In 2022, the U.S. retail industry, including online and brick-and-mortar stores, transacted $4.95 trillion in sales. Returns equaled $816B, about 16.5% of the total across all verticals and selling channels.
Ecommerce platform Shopify tracks return rates, and recently reported that while brick & mortar sales generate an 8-10% return rate, 20% of ecommerce orders result in returns, and “holiday commerce” results in a 30% return rate. Worst of all, sales of merchandise via all selling channels that Shopify classifies as “expensive items” result in a 50% return rate.
The Consumer Perspective
While the challenge for retailers is real and growing, consumers aren’t happy with the status quo either. Retail solutions provider Aptos recently announced the results of an internal consumer study that revealed that 41% of shoppers find the refund and returns process to be too time-consuming. The top reasons for consumer dissatisfaction with the process are:
- Refunds/exchanges are too slow.
- Not able to return retail order online, or online order in store.
- The customer doesn’t have a printer.
- Difficult to create an online return/ get a return label.
- No visibility into returns life cycle.
- Processing of unexpected items is manual.
- Too many “where is my refund” calls.
Netting both the retailer and consumer challenges out, the call-to-action is clear: as the volume of transactions originating in the digital channel increases, the volume of returns will too – unless retailers take corrective actions now.
How to Get ‘From Here to There’
Retailers know that as ecommerce grows, returns grow at an equal or faster rate. Shopper expectations are higher than ever before, and the retailer’s returns policy has an influence on consumers’ attitudes towards the brand. What that means is that retailers’ promise to consumers about how reverse logistics will be handled has become an essential part of the brand promise before the buy button.
What can retailers do now? RSR offers these considerations:
- Consumers want this process to be easy. “Free returns” may not be a sustainable policy for all retailers, but there must be a tradeoff (e.g., using the returns policies as an incentive, by offering rewards that reinforce desired behaviors).
- Retailers need to focus more on sustainability in their returns handling. Cost analyses are required in order to determine if certain items are worth returning at all, vs. allowing consumers to keep unwanted products.
- Automation can help control returns handling. Automated returns portals, automated voice assistants, automated returns authorizations and “printerless returns”, instant refunds at first scan – all these capabilities and more can help.
- BORIS (“buy online return in-store”) creates the opportunity to engage with customers, replace the returned item for something of greater value, and upsell!
- Retailers should think more about returns prevention. For example, are garment sizes correct? Does the ecommerce website offer guidance about whether sizes tend to run big or small or “just right”? What do other customers have to say? “Fit finder” tools are helpful. A customer’s data from the CRM system can be used to pre-filter items offered on the website (for example, does a customer return an excessive number of items made by a specific manufacturer? Don’t feature them on the product category page on the website.
- Selling “blemished” inventory is better than auctioning it off. Some retailers report a 3X better margin on selling blems via the ecommerce site than via liquidation.
- Use returns data when making assortment decisions. Retailers need to be thinking about how to predict and prevent returns. In a sense, returns are the voice of the customer; they are often an early and important sign that something is wrong with the products being sold.
The Bottom Line
As we often do, RSR encourages retailers to view the challenges and opportunities associated with returns handling through the eyes of the consumer. Shoppers have choices, and they are more inclined to take advantage of those choices than ever before. But consider the Nordstrom tire legend; that story is still being talked about years after the fact, customers still believe in the company’s brand value, and Nordstrom still reaps the benefit of all the goodwill created.