For retailers, the game has changed when it comes to returns. Pandemic-era purchase habits have pushed online sales higher than ever before, but the double-edged sword is that return rates are also through the roof. Still, with consumer habits shifting more online, returns can provide retailers with a rich opportunity to turn a negative into a positive.
First off, it’s important to understand the scope of this problem. Returns cost retailers about $743 billion in 2023, with a return rate of more than 14 percent (and more than 17 percent for online sales). These numbers are slightly down from the nearly 20 percent return rates retailers saw at the height of the pandemic, but still a staggering number.
Given the gravity of the situation, many retailers are reevaluating their return policies and processes in order to address the issue. Returns are a major challenge, but when approached smartly, retailers can create their own opportunities, leading to increased sales and better customer loyalty and retention.
How Retailers Are Coping With an Increase in Returns
Over the past year, many retailers have adjusted their return policies to shift some of the financial or logistical burden onto their customers. Some have begun charging return or restocking fees, but creating exemptions for customers who are members of the store’s loyalty program or those who return the item to a brick-and-mortar store or partner store.
While some retailers are shifting the burden to customers financially, others are avoiding returns altogether. In recent years, many retailers — including Amazon.com sellers — have adopted a “returnless” model, telling customers to simply keep the merchandise they ordered.
This “keep it” mentality is controversial among retailers because it can lead to an increase in fraud, but conversely, it provides the least amount of friction for customers and retailers alike, which can increase repeat purchases and customer satisfaction. What’s more, this policy can help retailers reduce their environmental footprint, which again helps build customer loyalty in an era when nearly 40 percent of consumers want a brand to align with their values.
Seeing the Opportunity in Returns
Though returns are a major burden for retailers, they can also provide an opportunity on multiple fronts, from increased customer satisfaction to increased sales and better inventory management.
That said, returns shouldn’t be treated as an inevitability. Given that almost 40 percent of consumers place the blame for a needed return on the retailer for not providing accurate information, retailers can focus on providing accurate product descriptions, rich product imagery and other visual product information tools to mitigate the risk of returns.
Even in a perfect world, however, returns will happen. It’s the responsibility of the retailer to ensure that the process is as frictionless as possible for the customer, while also keeping in mind that returns shouldn’t be a financial burden to accommodate.
One of the major issues impacting returns is the cost of reverse logistics. The cost to process, restock, refurbish (if necessary), and resell products is not insignificant. Investing in a more efficient system — particularly one that leverages artificial intelligence — could help streamline the process, schedule return pickups, analyze merchandise for resale, and much more.
If upgrades to reverse logistics systems don’t bring down the cost of returns, retailers can find ways to shift the burden to customers in a way that doesn’t cause them to abandon the brand. By incentivizing free returns through loyalty programs, retailers are able to nurture customer relationships and promote repeat purchases which can help counter the cost of return processing. Loyalty programs can also be used to incentivize customers to take returns in the form of store credit, further encouraging repeat purchases.
Finally, there’s the question of what to do with returned products. This is a great opportunity for promotion and merchandising managers to get creative. Refurbishment programs, specialized promotions for returned merchandise (both online and in-store), and unique product bundles are all ways retailers can turn returned goods into profit centers for their business. These goods can also be donated to charitable organizations in need, which helps elevate brand reputation.
For many retailers, the weeks and months after the holidays are a challenge: after riding high on the holiday season sales, there’s the hangover period where it feels like more products are coming in than going out. By investing in reverse logistics, incentivizing loyalty and repeat purchases, and getting creative with merchandising and promotions, this return season can be spun into a golden opportunity.
Kristin Naragon is the chief strategy and marketing officer at Akeneo, the product experience company.
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