Retail returns : a $816 billion problem

This is the estimated figure for the loss of sales for retailers in the United States in 2022 due to returns. It accounts for 16.5% of the total sales for the year. The data, presented in a report last December by the National Retail Federation and Appriss Retail, represents an amount greater than the annual spending of the Federal Government on education, training, and employment programs.

Apart from this impact, returns also pose a high risk to customers, brand, and environmental factors. Lost customers and a negative perception of the brand can result in the loss of future revenue, while their environmental impact is growing alarmingly.

In addition, there is the risk of fraud in these types of transactions. According to the same study, 10.4% of returns were fraudulent, with a higher risk in returns of online-purchased products returned in-store.

The increase in returns has been observed in recent years, especially with the rise of online shopping, where retail return volumes can double or even triple. In response to this problem, many retailers have traditionally invested in providing a better return experience. Is this the best strategy?

But why do retail returns really increase?

Retailers have traditionally attributed the increase in returns to issues with their return policies or customers themselves. However, the reality is that the main reasons consumers return products are not due to return policies or customers but how retailers present their products and manage their orders.

The company Incisiv, in its study “2021 State of the Industry Report: Retail Returns,” identifies reasons such as “product quality not as expected,” “discrepancies with the product description or color,” “error in the received product,” “received damaged product,” or “greater delay in delivery than expected.” All of these factors are not attributable to customers and are controllable by the retailer.

Therefore, it is crucial today that the strategic focus is not only on improving processes after a return but also on improving processes before they occur. That is, increasing the likelihood that customers will keep their purchases.

How to increase this probability?

Before any initiative, it is increasingly important to have an organization responsible for return management, something that, according to Gartner, only about a third of retailers have today. Having tools and data for proper return analysis in any channel should also be a strategic goal.

Taking advantage of these resources, there are various initiatives that can help reduce the incidence of retail returns. While some are applicable to all channels, the online channel deserves special attention today.

• Quality product information: Always provide complete and updated information about products for sale, including quality content such as photos, videos, and descriptions.
• Accurate stock information: Lack of accurate information about existing inventory can lead buyers to purchase a product that is later unavailable or delivered later than expected. Having a unified, centralized, and real-time view of stock anywhere is critical not only for efficient return management but also for the success of any unified commerce strategy.
• Reviews from other buyers: Increasingly valued by potential new customers. To encourage this, it is possible to resort to bonus policies or discounts on future purchases.
• Assistance tools during the purchase process: In the online channel, tools such as real-time chats for inquiries and doubts, for choosing sizes in fashion, or virtual try-ons for products like glasses or cosmetics are increasingly adopted. According to Gartner, the use of these technologies will allow fashion retailers in 2025 to offer more personalized assortments and reduce the number of choices by up to 30%, which will facilitate the reduction of returns.

How to improve the customer experience in a retail return?

All these efforts will not completely eliminate returns; therefore, it will be essential to have a flexible policy and adequate resources that help increase customer satisfaction, facilitating future new sales.

• Sales and returns forecast: As a first step, accurate sales and return forecasting at the SKU, channel, or store level is essential today. This will allow planning the necessary resources for the process, with the aim of optimizing profitability without negatively affecting the customer experience.
• Clear and accessible information about the return policy: It is advisable not only to not hide it but to promote it and highlight its differential value. It should be easily accessible on the website, and its reference on sales tickets, both online and offline, is also recommended.
• Flexibility in product collection: In-store, at home, by mail, or at pickup points. While in-store delivery is one of the preferred methods for many buyers, retailers must consider the risk of stock accumulation in these stores and the potential impact this activity may have on the shopping experience of other customers. In some cases, and depending on the expected volume of these, it will be advisable to have dedicated areas or terminals for them. Therefore, it will be important again to equip oneself with tools that allow supporting different scenarios, such as between different stores or channels, to offer the best return experience to the customer.
• Extended return periods: Policies such as 30, 60, or 90 days are common. Although, if possible, customers will always appreciate strategies like Nordstrom’s in the United States, which does not set a time limit. In fact, Nordstrom treats all returns on a case-by-case basis, with the primary goal of ensuring customer satisfaction.
• Flexibility in refunds: In this case, retailers can apply different policies, such as a full refund in the same or another payment method of the purchase or the delivery of cards with the refund amount, which can be used for future purchases with or without a validity period.
• Return costs: Shopping from brands and retailers that offered cost-free returns has traditionally been one of the main criteria for buyers in their purchase decision, to which retailers have responded with zero-cost returns for many years. However, this practice has begun to change as a result of the high economic and environmental impact of returns. Thus, Zara started in 2022 to apply a charge of EUR 1.95 on its online returns (free if they are in-store) in about 30 countries like Germany and the UK. The interesting thing about this initiative is that, according to recent data from the company, it has not resulted in a reduction in sales. Moreover, it has led to an increase in in-store returns and a shorter return time, both of which help reduce Zara’s return costs.

The opportunity of ReCommerce

Despite all these measures that will reduce the number of retail returns and offer a better experience to customers, one of the consequences of returns is the accumulation of stock, which will have to be dealt with later at the lowest cost for the business.

While there are different possible initiatives to implement, it is undeniable that ReCommerce represents a great opportunity for retailers today, considering the increased consumer sensitivity to sustainability aspects. An opportunity that requires retailers to develop and improve their supply chain capabilities, something that seems inevitable when observing the trends today in the consumption pattern of the new generations of buyers.

Many segments and retailers are already seizing this opportunity, with greater or lesser success, among which fashion is clearly one of the prominent ones. Brands like Levi’s or H&M with their RE:WEAR program, which already has a dedicated website for the purchase of second-hand products.