In the world of retail, eCommerce has proven its weight in gold in recent years. But at the same time, it comes with a mounting issue that brands and retailers are struggling to solve: “The Returns Conundrum,” the problem of returned merchandise and lost value for retailers.
Year to year, growth in online shopping has bolstered retail overall, including bricks-and-mortar stores, even during the toughest economic conditions.
True since the dawn of eCommerce, the more online sales grow, the more customers return some items. It’s the nature of the beast, after all. Buying online comes with some degree of uncertainty, meaning purchases have a higher chance of not meeting customers’ expectations.
Customer frustration will reign supreme, understandably, when refunds or replacement items are delayed or fail to meet their expectations.
Items are returned for many reasons: from a tight fit to compatibility, and to damaged goods. But the occurrence of returns in an eCommerce-centric world has been growing consistently.
The COVID-19 pandemic, more than any other recent event, magnified this reality, as the majority of consumers around the globe were forced into lockdowns. Shopping online became an easy workaround and third-party logistics providers (3PLs) were quickly categorized as “essential” services.
An unfortunate consequence of this reality is the increase in customer friction felt by those staffing the contact center. Customer frustration will reign supreme, understandably, when refunds or replacement items are delayed or fail to meet their expectations.
And customer dissatisfaction will only grow when they are placed on long holds or there are long email/chat response times. This increases the likelihood that their frustrations will be taken out on customer service agents.
Numbers Reveal Urgency
Prior to COVID-19, retail returns in 2019 totaled around $309 billion, which was about 8.1% of total retail sales for the year.
Returns hit their peak in 2021 and 2022, registering at $716 billion or 16.6% of sales in 2021 and $816 billion or 16.5% of sales in 2022, according to the National Retail Federation (NRF). Last year, for the first time in several years, we saw a decline in total returns at $743 billion or 14.5% of total retail sales (SEE GRAPH 1).
Despite that recent decline, returns are still astronomically high compared to the pre-pandemic figures.
In 2019, retail growth for the year stood around 3.5%, more than doubling to 7.6% in 2020, then to 14.4% in 2021, COVID’s peak (SEE GRAPH 2).
From there, growth has been declining steadily, down to 7% in 2022 and 3.6% in 2023. While overall retail growth has returned to pre-pandemic levels, returns have not.
What retailers are learning is that pandemic habits, more online shopping and less in-person shopping, aren’t fading nearly as quickly and are likely to become permanent.
That’s why, even though the rate of returns may be leveling out, it remains historically high as eCommerce continues to accelerate with more and more people choosing to shop online. This means the returns problem isn’t going anywhere and will continue to present challenges to customer loyalty.
It’s a tricky reality for business, one that indicates losses from returns will only get worse. More than ever before, brands and retailers need strategies in place that not only aim to reduce the cost burden of returns, but that also keep customers happy and loyal!
Dichotomy of Returns and Customer Loyalty
During the height of the COVID-19 pandemic, it was exceedingly easy to return an item, or at least get compensated for an item that failed to meet expectations. Customers came to expect this ease of returns, but it didn’t last long.
As the pandemic eased, retailers again faced an age-old problem that had simply taken a backseat for the previous few years.
The losses associated with returned merchandise weren’t going away. In fact, in 2022 for every $1 billion in sales the average retailer lost $165 million in returns, reports the NRF. This was a sobering reality check that has pushed retail businesses to look for ways to recover some of this cost.
When an item fails to meet a customer’s expectations, one of several things can happen. The item can be returned, at which point the retailer evaluates whether it should be moved back to store shelves, recycled, or trashed.
This incurs some cost which can oftentimes exceed the returned item’s value. This is magnified for eCommerce marketplaces, where the lack of physical contact with the product prior to purchase increases the returns rate exponentially.
The increase in returns is also driving higher call volume to customer service centers, spiking costs that can be difficult to recover.
Also, and especially true for eCommerce, the cost of shipping, processing, and other key actions within the returns pipeline, means it’s often difficult to recover the product’s value.
Increasingly popular today is the business of resale, where many of these returned items are transferred to third-party companies and resellers through liquidation.
Addressing the returns conundrum has meant a tightening of returns policies across the retail world, but in a way that limits the erosion of customer loyalty.
Nearly 60% of retailers adopted “returnless” or “keep it” returns policies, signaling the overwhelming reality that most returns are overridden by their depleted value.
Others have implemented fees to cover costs and others are offering store credit instead of refunds, with some retailers directing customers back to the physical store to make their returns.
The increase in returns is also driving higher call volume to customer service centers, spiking costs that can be difficult to recover.
Regardless of the way forward, maintaining customer loyalty must be the priority, which means more strict policies must be done in a way that doesn’t alienate customers.
Secret Sauce: Communication and Transparency
Too often, not enough credit is given to the simple effectiveness of communication and transparency. Communication that is honest and transparent is a customer trust builder. Retailers should be up front about their returns policies and qualifying reasons for returning an item.
Having a proactive approach to sharing this information is even better, making sure customers understand such policies before even making a purchase.
It’s also important to manage customer expectations throughout the returns process, including timeframes and information about refunds and exchanges. This does wonders for reducing frustration and dissatisfaction.
To this end, it’s equally important to make certain that product information is clear and accurate before a purchase is ever made, effectively reducing the chance an item will be returned in the first place.
Assure Adequate Staffing and Resources
It probably goes without saying, but because it’s often overlooked, it’s worth reiterating here: retailers and brands that lack the staffing and resources required on the customer-facing side of the business are setting themselves up for a world of hurt.
First, it’s critical that there be adequate staffing on the phone and online, as well as where applicable in-person, to assist customers promptly and effectively. Prompt, friendly, knowledgeable, and attentive customer service can quickly overcome any negative factors a customer may face.
Second, and to this end, well-trained employees are equally important. Trained staff can add value to the product and brand, helping customers find products, offering recommendations, and addressing concerns with personalized attention.
Third, ensuring such resources shouldn’t end with customer-facing employees. Having the right staffing to move returns through the process efficiently and on time is yet another layer here that can vastly improve the customer experience (CX).
Streamlined Returns Processes
Customer satisfaction and loyalty don’t end with the customer service center. Streamlining the entire returns process is the true linchpin to maintaining that loyalty. It matters what we do behind the scenes just as much, if not more, than what the customer sees.
A clear and transparent returns policy is a great place to start. Make sure that policy is communicated clearly at multiple customer touchpoints, including the website/marketplace, point of sale, and on the receipt. The policy should be easy to understand too.
Returning an item should be made as simple as possible. Retailers can provide multiple return options, including in-store, online, and via mail.
Of most importance here is ensuring it’s simple for the customer from start to finish. Customer-friendly online returns portals that provide a one-stop shop for these items, initiating the returns, printing shipping labels, and tracking returns can elevate this part of the CX.
While making returns easy is important, it must be balanced in a way that protects the retailer. Be careful not to message returns policies in a way that encourages returns. Returns fraud is a growing problem, costing retailers $101 billion in 2023 alone, reports the NRF.
With many customers already taking advantage, a balance must also limit customer abuse of these policies that could worsen the returns fraud problem.
Putting parameters in place, such as “no returns after 30 days, no returns on sale items,” or “exchanges only, or store credit for your return,” is a great buffer that can help minimize the impact: and reduce the losses.
Finally, don’t be shy! Retailers and brands should solicit feedback from their customers detailing their experiences with returns, identifying areas for improvement.
One more thing: leverage returns into an opportunity. There is now a profitable business model in which third-party companies are helping retailers liquidate this merchandise.
Consumer demand for more economical and environmentally sustainable choices is driving growth here, particularly with high inflation, spending concerns, and growing awareness of the vast amounts of waste from returned and discarded goods.
Limit Need for Returns
If a purchase must be returned, then the above areas can help greatly in managing returns while maintaining a strong focus on customer loyalty.
But what about reducing the chance that purchases will be returned to begin with?
As retail businesses continue to feel the financial crush brought on by returned merchandise, strategies to reduce the frequency of returns must be considered too.
The trick to maintaining customer loyalty is making sure that retail returns operations are geared toward the consumer and their satisfaction.
Employing data and analytics to identify returns patterns and trends regarding specific products can be life changing for retail businesses.
High-level analysis such as this allows retailers to adjust inventory where needed, improve product quality, and tailor returns policies to better meet the needs of customers.
In addition, review your product descriptions and imagery to make certain products being sold are accurately represented. The more information, dimensions, materials, and sizing, the better so customers can make better informed decisions. Here are some other suggestions:
- Make sizing guides/charts available providing fit recommendations for apparel.
- Incorporate customer reviews into product listings, giving customers even more information to inform their purchase decisions.
- Consider virtual try-on and augmented reality technologies, allowing customers to better visualize how products will look or fit.
The historic levels of returns during the pandemic gave retailers a window into the future, which is now. More people than ever are shopping eCommerce, and with its inherent lack of touch and feel, the returns conundrum will continue to vex retailers for many years to come.
The trick to maintaining customer loyalty is making sure that retail returns operations are geared toward the consumer and their satisfaction.