In the next few years, online returns in the UK will likely increase by 27.3% to reach a total of 5.6 billion pounds by 2023, according to data and analytics firm GlobalData. Out of this, the highest rate of returns will be from the clothing and footwear sector. Already, product returns cost the UK retail sector approximately £60bn every year.
There are several reasons for this trend. An important one is buyer’s remorse, or put simply customers changing their minds. In other cases, it could just be a matter of shoppers wanting to try different sizes or fits to see which one suits them best as they would in a physical store. In such cases, there is no malice against the product or any intention of taking advantage of the retailer. On the other side, there is a set of customers that is actively trying to game the system, taking advantage of a generous return policy.
Whatever the reasons, the growing instances of product returns creates some unique logistical challenges, especially for online retail organisations. Given this, it can seem tempting for retailers to do away with returns altogether. However, such an approach can backfire and cause a huge dent in sales volumes. This is because studies suggest that 70 to 90% of customers would only buy online if they have a favourable return policy.
As retailers gear up for the winter peak period, they need to deal with the onslaught of unwanted gifts and orders between Christmas Day and the new year. How can online retailers deal with this?
An analysis of product return trends indicates a direct correlation between the price of the product and the probability of returns. Higher cost items are more likely to result in buyer’s remorse, and consequently, more likely to be returned. In the case of lower value or lower cost items, customers often choose to keep the product even if it is less than perfect for their requirement.
Therefore, it can be helpful for retailers to draw a correlation between price and the propensity to return for each product. For example, does the probability of return fall sharply when the product is priced 10% cheaper? This can provide excellent insights for pricing strategies.
Most retailers currently use highly antiquated returns processes that are inefficient and confusing. Technologies such as dynamic resourcing and stock management can help retailers create ‘return hubs’ to smartly manage the pressure of returns.
These return hubs can then function as local warehouses and ship the products directly to new customers instead of the need to send them back to a centralised warehouse. As a result, returns processing is simplified considerably.
Mass marketing messages are often responsible for ad-hoc purchases that are not well thought out. In turn, these ad-hoc purchases also have a high probability of being returned. Better targeting of marketing messages through accurate micro-segmentation at the point-of-sale can prove to be effective. It can minimise instances of buyer’s remorse and ensure fewer returns.
Customer experience stores
As mentioned earlier, returns are high in the apparel sector since customers seek the convenience that they see in physical stores in terms of trying out various options before making a purchase decision. This is especially true in the case of high involvement products such as clothes, shoes and jewellery.
Therefore, we will see a trend towards experience stores, where the primary objective is not sales. Instead, these stores are designed to allow consumers to experience the product before purchasing. The product can subsequently be ordered online.
Penalising serial returners
We encountered an instance where one of our retail clients was dealing with a 40% rate of returns. Upon further analysis, it came to light that a whopping 23,000 of its online customers had returned every single product that they had purchased from the company. In essence, this meant that these customers had taken undue advantage of the company’s 30-day return policy and not actually paid for a single product from the company.
Companies can track such serial returners and find ways to blacklist them. They can minimise the risk of returns by devising customised returns policies that put serial returners at a disadvantage. At the same time, they can also reward loyal customers by allowing them to try out products before making a purchase.
Building a technology backbone to combat retail return culture
In order to take some of the steps listed above to curb excessive returns, there needs to be a robust technology infrastructure that can support them. Retailers have traditionally spent only about 1% of their revenue on IT, noticeably less than peers in industries such as banking.
This has been changing, with IT evolving from a back-office function to front and centre as a strategic focus area. Still, while retailers today collect a humungous amount of data, they have not been using it effectively to drive better results.
An effective data strategy supported by a strong IT backbone can prove to be invaluable for retailers as they tackle the growing menace of unwarranted product returns.