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Are ecommerce returns simply the cost of doing business?

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Brad Smith, of golf-footwear seller Jack Grace, has a very serene way of thinking about ecommerce returns.

He sets aside emotion and goes straight to the ledger, as you’ll see in the brief video interview below.

Smith’s is an interesting take in a time when retailers — and especially online retailers — are scrambling, trying to figure out how to cut down on the number of returned orders they wrestle with. Ecommerce has changed everything about returns, the way it’s changed so much else. Consumers shop differently online, purchasing, for instance, three of the same shirt in different colors or sizes. In the end, they’ll return the two that aren’t their favorite.

The statistics on returns are stomach churning for most in retail. As we reported earlier30 percent of all apparel orders are returned, the University of California at Berkeley says, with each return costing as much as $12 for shipping, repackaging and restocking. eMarketer reports that 74 percent of retailers say that returns are hurting profits to a great extent or to some extent. The National Retail Federation and Forrester has put the cost of returns at 12 percent of sales.

11 percent of returns are fraudulent

And the numbers hurt more when you throw into the mix that an estimated 11 percent of those returns are fraudulent, according to a National Retail Federation survey.

But Smith takes it in stride — and why wouldn’t a guy who is chief operating officer at a retailer specializing in shoes take things in stride? But Smith isn’t calm about returns because he doesn’t care about the costs. Smith is calm, because he sees the cost of returns and even the cost of getting ripped off on returns as an investment in customer experience — for legitimate customers.

Legitimate customers want to be able to buy online, even when they’re not exactly sure how a garment will fit or what a color really looks like or whether a couch will fit against a given wall. They want to know that if something isn’t right, they can send the merchandise back for the right thing or a refund.

Smith says retailers need to bake that cost into their margin calculation. Figure out what you pay to manufacture or acquire your product, he says, and add in the cost of fraud. Then calculate what you need to sell it for to make your margin. Or figure out what you can sell it for and determine your margin.

Return fraud is an emotional subject

It sounds like a cold calculation, but Smith understands that return fraud is an emotional thing when you’re trying to run a business. And thinking of returns and return abuse as part of the cost of doing business, isn’t the same as ignoring the challenge, he says.

In an upcoming video, we’ll talk to Smith about ways to reduce the cost of returns.

Photo by Mike Cassidy

Contact Mike Cassidy at [email protected]; follow him on Twitter at @mikecassidy.


Mike Cassidy

Mike Cassidy

Mike is the head of storytelling at Signifyd. A former journalist and a retail geek, he covers ecommerce and the way technology is transforming digital commerce. Contact him at [email protected].