By Mike Cassidy
It’s tempting in the e-commerce world to do a little happy dance with each sale.
After all, it’s a rough-and-tumble business of intense competition and low margins. A sale means revenue and potentially a customer that will return again and again. But the sale is just the beginning, isn’t it?
Every retailer knows that a key to building customer loyalty is the after-sale customer service that an enterprise provides. And no part of the after-sale relationship is more fraught with peril than the reality of e-commerce returns.
“Think about the pure e-commerce model,” says Tadd Wilson, vice president of business development for ShopRunner, a subscription service that provides retailers with customers and provides customers with free, expedited shipping. “For every dollar of revenue, you’ve probably got 20 to 25 cents in returns. It’s a huge bite. And that could potentially get worse, because you have things like Zappos or what Amazon is doing with apparel.”
Yeah. Worse. As it is now, eMarketer reports that 75 percent of retailers surveyed say online costs have risen as a percentage of sales “some” or “significantly.” And 74 percent also said that returns are hurting profit to a “great extent” or to “some extent.”
The return bite now, which the National Retail Federation and Forrester put at 12 percent of sales for all verticals and which others have described as 30 percent of all products ordered online, will only grow as e-commerce grows and consumers come to expect free and easy returns.
The trend is likely to hit apparel sellers particularly hard, given that post-purchase solution company Narvar found that 43 percent of all online returns involve apparel. The University of California at Berkeley found that as many as 30 percent of all apparel orders are returned, with each return costing between $3 and $12 for repackaging, shipping and restocking.
Amazon is dropping a bomb into the apparel returns world
And then there is Amazon and as Wilson puts it, “what Amazon is doing with apparel.” What Amazon is doing with apparel is dropping an Amazon-sized bomb into the world of returns by encouraging its Prime members to order more clothes than they intend to keep, try the items on, pay for and keep what they want, and return what they don’t want — at no cost.
It’s a digital shopping habit that many consumers have already adopted. Wilson calls it “wardrobing” and Narvar refers to it as “bracketing,” buying a shirt in three sizes, for instance, to see which fits best.
In a survey of nearly 700 consumers, Narvar found that overall, 40 percent of consumers order more than they intend to buy and ship back the goods that don’t make the cut. When it comes to those shopping for apparel, the number rises to 48 percent.
Amazon’s Prime Wardrobe service formalizes the practice and encourages consumers to keep more of what they order by giving a 10 percent discount to shoppers who keep three to four ordered items. Those who keep five or more items get a 20 percent break. Shipping is free in both directions and shoppers don’t pay for anything until they make their selections.
And just as Amazon has made two-day, free delivery and one-click ordering a common experience, its move to make returns cheap and easy means that other retailers are going to have to consider following suit — unless they want to be left behind.
“It’s an arms race,” ShopRunner’s Wilson says. “The question that I think a lot of retailers are asking, though, is how do you do it intelligently? Amazon is very good at things like this.”
For one thing, Wilson says, Amazon considers the value of the item that a customer wants to return.
“I’ve ordered cables from them and one of the cables didn’t work,” he says. “It just had a fault in it. They said, ‘We don’t want you to return that. Just throw it away.’ Because the margin that they’re earning on that, as soon as I put it in the mail they’re losing money on it.”
It’s cheaper in the end to simply send a new cable to replace the faulty one.
Or, Wilson says, Amazon will consider the customer and how valuable the customer is to Amazon.
“They see this guy spends a ton of money on Prime, so we don’t care about this cable,’” he says is the online behemoth’s philosophy. “That’s a little hard for small retailers, because they just don’t have the same volume. You’re not making as many purchases with them as you are on Prime.”
Returns are at the forefront of shoppers’ minds
There is no question that consumers in the age of Amazon have high expectations for returns. Narvar’s June 2017 study, “Making Returns a Competitive Advantage,” laid out the mood of the shopper in statistics:
- 48 percent of shoppers returned an online purchase in the year leading up to the report’s publication.
- 49 percent said they look into a retailer’s return policy before buying online.
- 84 percent said restocking fees are a deal-killer.
- 74 percent said return shipping fees would stop them from making a purchase.
- 38 percent said they’d rather return an online purchase to a local store; and 22 percent said they wouldn’t even make an online purchase if they couldn’t return it to a brick-and-mortar store.
- 47 percent of those who’d returned something had returned it to Amazon.
- 75 percent of those who returned items to Amazon were satisfied with the experience.
And so there is little doubt that e-commerce operators need to be on top of their return game. So, what can they do? Retailers over the years have experimented with innovations to cut back on returns in the first place.
- Rue La La described to the Wall Street Journal its practice of charging customers $9.95 (WSJ subscription required) for their first order to cover deliveries and any returns resulting in a store credit for a 30-day period. The retailer also created notices that would point out to a consumer, for instance, that when they’ve ordered an item in two different sizes that they’ve always sent back the small size.
- For it’s part, lingerie startup ThirdLove deployed imaging technology that allowed women to get accurate bra-size measurements, meaning ill-fitting bras weren’t delivered in the first place, so no need for dissatisfied customers to return them. Others have tried similar solutions.
For his part, Wilson said digital retailers should focus on a few areas in particular regarding returns:
- Keep it simple: “Some of the return policies are a little Byzantine,” he says. There might be limits on how long after a purchase a refund will be granted. Make them reasonable. Narvar found that 53 percent of consumers believe a 30-day return policy is fair. And, in fact, its survey said, 74 percent of shoppers return an item within a week. Furthermore, 81 percent of consumers want a simplified returns process, according to a University of California, Berkeley study of online apparel returns. Wilson says he’s personally struggled with requirements that the original packaging not be damaged. The best-in-class retailers make returns obvious. Including pre-printed mailing labels and instructions with shipped orders is good. Offering an online resource center with clear information and easy-to-print labels is better. Some consumers, when faced with complicated or labor-intensive return procedures, will simply keep the item and ask their credit card companies for a refund, according to the Q1 2017 Global Fraud Index. That refund ultimately will be charged back to the retailer.
- Be strategic: Retailers know what their return rates are by product category or even SKUs. Consider incorporating that knowledge into your return policy. Do you want to have different policies for high-return-rate items and low-return-rate items — policies that seek to change return behavior? “They kind of have to be able to have a philosophical or religious discussion around do we want to have a differentiated return policy or a blanket policy or a blanket policy with exceptions?” Or do you want to have different policies based on customer value or loyalty?
- Be mindfully generous: Consumers appreciate liberal return policies, but make sure your leniency is conscious. Shrewd shoppers will exploit any inadvertent loopholes. “There are these communities that pop up around specific retailers,” Wilson says. “If there’s a flaw or a loophole in return policies, they’re going to get found and published. If you’re going to be generous, be generous on purpose.”
- Encourage in-store returns: “If you’re a multichannel retailer, you have stores. Using returns as a way to clawback revenue is very, very important,” Wilson says. “You’re rolling the dice, but you’ve got a chance of someone buying something additional. And logistics tend to be easier.” In fact, according to UPS, 70 percent of shoppers returning an item to a store make an additional purchase while they are there.
No question, returns are painful and can be expensive for digital retailers. But there are steps retailers can take to ease the pain and bring that happy dance back when a customer clicks “buy.”
Photo of UPS truck by Mike Cassidy. Tad Wilson portrait courtesy of Tad Wilson.