The holiday season has been associated with weird presents since gift-giving became an annual tradition. You know what I’m talking about: Those plaid socks from Uncle Seamus; the sweater with mismatched sleeve-lengths from Aunt Gertrude; and ties and scarves adorned with kittens or unicorns from your adorable children. Your first thought might be: “Bless the gift-giver! It’s the thought that counts.” Your next thought probably is: “Will I be able to return this?”

E-commerce has spawned a new era of returns

It’s no secret the digital path to purchase is the route taken by most consumers. This trend was strengthened this holiday season. Daphne Howland (@daphnehowland) reports, “Some $6.22 billion was spent online by the end of Black Friday, a 23.6% increase from last year. … First-time users for the top 10 mobile shopping apps in the U.S. grew more than 16% on Black Friday, PayPal processed more than $1 billion in mobile payments first on Black Friday, then on Cyber Monday, (another couple of records), and a majority (67%) of consumers say they want to take advantage of buy online, pick up in-store services to make holiday shopping easier.”[1]

Although that may sound like a good thing for retailers, Howland reports a study published by B-Stock “revealed that 11% to 13% of holiday purchases are returned, that 20% of all returns take place at the holidays and that it costs twice as much to process an online return as it does to sell it.”

Admittedly, a returns rate of 11 % to 13% doesn’t sound too bad; but, other studies have estimated e-commerce returns at a rate closer to 30%. The returns rate can vary considerably by category. Howland reports nearly half the clothing sold online is returned. Analysts from B-Stock note, “This season in particular is going to bring higher return rates as more consumers than ever are expected to shop online (ecommerce return rates are double that of brick and mortar). Good old buyer’s remorse and gift-recipient dislike will also play a big role in the reason-for-return.”[2] They add, “Unless you have a zero-returns policy — which in today’s retail environment is unlikely — there is no hiding from holiday returns.”

Making the most of returns

A good returns process begins with a good returns policy. Howland reports, “Nearly a third (32%) of U.S. shoppers say they’ll abandon an online purchase without an offer of free returns.” Of course, free returns aren’t really free – somebody has to pay. Eventually, consumers pay — otherwise e-tailers would never turn a profit. To help keep costs in check for most shoppers, Amazon has started screening their Prime members looking for shoppers who abuse their return privileges (i.e., they return too many orders or return items for reasons deemed unacceptable). Suresh Acharya, chief scientist for the JDA Software Group, insists most companies can use cognitive technologies to help identify items most likely to be returned and/or the people most likely to do the returning. “If we analyze not only the attributes of items being returned but the how, when and where of the original sale,” he explains, “we can identify correlations between sales and returns. From there, it’s a matter of determining the probability of a certain item being returned in the future. Analytics can also identify the customer segments with the highest propensity to return. In this case, retailers can use technology to move from relying on forecasting based only on what they can see to taking into account patterns they could never recognize on their own.”[4]

Although adopting a no returns policy and banning certain shoppers are potential strategies for retailers to use, most retailers will implement other, more reasonable policies. Good policies and processes can reduce the sting of returns by ensuring returns processes are as economical and efficient as possible. According to UPS analysts, there are six key ingredients to an effective returns program.[5] They are:

1. Clarify policies. “Make your returns policy and instructions clear and easy to find.” A good returns policy can also strengthen customer loyalty.

2. Provide Options. “Return to store or via online processing; give your customers a choice.”

3. Understand the sale. “Understand your customer’s reasons for a return so you can prevent it or generate a new sale.”

4. Preserve value. “Have a plan for getting your merchandise back in inventory.”

5. Offer quick refunds. “Offer as quick a refund window as possible, and stick to it.”

6. Keep consumers in the loop. “Keep customers in the loop, no where they are.”

One potential consequence of a good returns policy and practice is increased customer loyalty. Jim Kelly, Executive Vice President of Sales and Client Success at Optoro, explains, “69 percent of retailers recognize returns are vital to creating a good customer experience, but only 45 percent of retailers think they are doing a great job of extracting additional value from returns. … For consumers, a positive returns experience is a clear driver of engagement and loyalty.”[6]

Concluding thoughts

Kelly notes, “The season of holiday shopping is here. … But are [retailers] accounting for the associated influx of returns? In some product categories, return rates can approach 30 to 40 percent — and that number is at an all-time high during the holidays.” He insists an optimized returns strategy is essential in order to keep customers happy and costs down. “Without one,” he writes, “retailers risk a significant loss in profit. Across the industry, returns cost retailers $50 billion in lost margin every single year.” As generally the case, prevention is better and cheaper than cure. In the case of the product returns, prevention begins with understanding the customer and steering them to items they are most likely to keep rather than return. Good data and a capable cognitive computing platform can help. Once the opportunity to prevent has come and gone, mitigation is in order. By taking the steps outlined above, the consequences of high, e-commerce return rates can be mitigated. ‘Tis the season of returns; and, a good returns strategy can help make the joy of gift-giving linger a little longer.

Footnotes
[1] Daphne Howland, “Half of the apparel sold at the holidays is about to be returned,” Retail Dive, 6 December 2018.

[2] B-Stock, “Tis the season … for holiday returns,” Retail Dive, 9 October 2018.

[3] Khadeeja Safdar and Laura Stevens, “Banned From Amazon: The Shoppers Who Make Too Many Returns,” The Wall Street Journal, 22 May 2018.

[4] Lauren Olsen, “How Data Scientists Are Helping Retailers Predict Purchases and Returns,” Footwear News, 23 April 2018.

[5] UPS, “6 Keys to an Effective Returns Program,” The Wall Street Journal, 4 May 2016.

[6] Jim Kelly, “Can Retailers Use this Season’s Returns to Increase Customer Loyalty?” Longitudes, 28 November 2018.