In 2017 the returns landscape is evolving quickly. A combination of consumer trends are making returns more challenging than ever before for retailers to manage them well.
The first global trend we are seeing is the increasing expectations of convenience. In fact, nowadays consumers are buying from a wide range of websites and comparing experiences. This means that they now expect the convenience of large retailers such as Amazon, ASOS, etc. In the world of returns this means a free and easy touchpoint.
The second global trend is what we refer to as the virtual fitting room. When shoppers purchase clothes in a physical store, they try them on and then decide what they buy. In the world of online fashion, the fitting room is now at home when shoppers receive the package. Consumers now will buy many products, and then decide what to keep after trying them at home. Accordingly, 80–90% of returned fashion products are due to fit or style. The return touchpoint is therefore central to the purchase decision; many retailers still treat returns as an afterthought.
When combined, these two powerful trends increase the rate of returns, and makes the return touchpoint an imperative, to be handled expertly, in order to keep and grow customers, and to ultimately deliver profit. In 2017, about 80% of consumers expect free returns. In contrast, only 25% of merchants do offer free returns. It is becoming increasingly clear: merchants need to equip themselves with tools and best practices to meet their customer’s expectations.
Before we jump into strategies to fully leverage your returns, first let’s consider a few relevant data points to help us think differently about returns:
- 83% of consumers read the return policy before buying: the return touchpoint has an impact on conversions.
- 72% of consumers are likely to shop more with a retailer that made the return process easier: the return touchpoint has an impact on customer lifetime value (LTV).
- 89% of consumers have returned an online purchase in the last three years. The return touchpoint is now mainstream and affects most of your customers.
6 strategies to make the most of your return touchpoint
Our insights come from data of 25k+ returns from over 1,000 merchants globally, with a large portion in apparel, luxury and beauty products.
#1: Promote convenience
Promote Free or Easy Returns on your landing page. By simply including a banner, you can impact your conversion rate: we know of retailers who use free returns promotions as a “panic button” when their conversion rate is trending down. In any case, make sure your communicate your return experience clearly across your customers.
Secondly, make your returns policy sexy (sort of). Since 83% of shoppers do read your return policy, it is worth thinking carefully about the user experience (UX). Here is a good and a bad example.
Good example: Clear, quick, structured.
Bad example: Wordy, unclear, looks like a contract. And who says contract says lawyer; and who says lawyer says “where is the catch”?!
This type of unclear returns policy that looks like fine prints probably doesn’t help build brand trust. Consumers needs to feel that the return process will be hassle-free and that the retailer has their best interest at heart in order to build trust and loyalty.
Lastly, in order to promote convenience, give your customers more control on the returns process. Control is a form of convenience, and by allowing the customer to be in charge, they feel more invested in your brand.
Most retailers initiate a return with a customer service phone call or email, where back and forth ensues until the customer has received all the info they need. This creates friction, since customers have shopped at Amazon, Nike, etc. where they can handle returns easily and quickly, all by themselves.
Instead of using phone or email to initiate a return, embed a customer return portals on your site to automate RMA’s and shippings labels. As explained it increases convenience and brand trust, while also saving your customer service time.
#2: Increase store credit refunds
In his previous job my co-founder once tried to implement a “store credit only” return policy. Not surprisingly, customers revolted because they were not offered the choice to receive a cash refund. Because their experience was impacted negatively, it had an immediate negative impact on conversion and LTV. Needless to say, that policy did not last long.
Interestingly, there is a way to drive more store credit refunds that presents a positive impact for the customer experience. By providing multiple return options to the customer, or what we call choice convenience, such as cash refund, exchanges and store credit, they will feel more positive about opting for a store credit. In fact, highly engaging brands engagement tend to see higher choice of store credit refunds. One can argue that a store credit refund signals a real intent to buy again soon, and could be seen as a proxy for a strong Net Promoter Score (NPS) from your loyal customers.
As a case study exaple, top Return Magic merchants saw up to 85% of refund being processed in store credits. This has a positive impact on cash flow and margins since the orders refunded in store credits remain in the store. In order to drive this kind of behaviour, in some cases merchants did charge a return fee for cash refunds, and offered free store credits. By creating an extra incentive, it did leave the choice up to the customers, without negatively impacting they return experience.
#3: Protect profits with a smart return policy
Not every customer or every transaction is equally profitable. So why treat them all the same? With a smart rules engine, you can segment the returns data and customize the return experience based on a number of dimensions to your policy, such as return reason, product margin, country of the order, customer LTV, discounted products, etc.
In order to protect profits you can decide, for example, to offer free returns only for damaged products, high margin products, local order, high value customers, and regular priced items.
Conversely, you are able to deduct the cost of the return label from the refund (i.e the customer pays for it) in cases where the product is returned because of fit, is a low margin product, an international order, a low value customer and on discount items.
By segmenting the return data and by customizing the experience you can make sure to invest in the experience where it makes most sense to optimize profit, and drive customer LTV, etc. and avoid investing too much in unprofitable transactions.
#4: Leverage real time data
With a front end return portal you can capture a sizeable amount of real time data on returns, customers, products, etc. This provides tremendous insights to improve inventory decisions. We have seen this happen previously with one of our high volume merchants, Midori Bikinis. They saved tens of thousands of dollars by understanding that the sizings were an issue driving returns. Once they adjusted they inventory purchasing decisions accordingly, they were able to drastically reduce loss and discounts caused by returned products.
#5: Use the return touchpoint to increase revenue
With data on returns on who is buying and what is in their basket, you can understand some important information to drive more sales. For example, you can understand what customers would prefer in exchange of an item being returned, or what they want to keep when they bought the same product in multiple sizes. Today retailers think about returns as a painful process, they do not look at returns as a channel to drive more revenue. But, while the customer is requesting a return, what if you could recommend a complementary product to increase basket size? For example, if you know that a loyal customer has bought the same dress in two sizes and is going to keep one of them, why not recommend a matching belt at a discount to complete the outfit, and increase basket size in the process?
A recommendation engine leveraging data on returns could deliver promotions via the customer return portal (similar to when you buy a plane ticket and you are asked if you wish to book a hotel within the checkout). This recommendation engine could also serve promotions directly inside confirmation emails. What is interesting about confirmation emails is their open rate, since it contains critical information, people do pay attention and engage with them. Why not use this email touchpoint to convey critical information, and also say: “by the way have you considered this matching product too?”
#6: Invest in reverse logistics
Finally, I should also mention there are a number of ways to improve the net margin on returned products. While not customer facing, these ideas are used by some retailers to make the most of their growing pains associated with returns:
- Cross-border returns center: Use a 3PL provider for your international returns. For example a Canadian retailer selling in the US could manage returns within US and resell them locally with the next US order. This is what ASOS is doing in Germany, instead of shipping back to UK, returned products are resold locally. It saves shipping and customs fees. Some 3PL providers do offer a shared inventory management solution, so you do not need to have huge scale for this to make sense for your store.
- Predictive Restocking: You can track in real time the status of returned packages. If you know that an item is not damaged and can be resold, why not put the item back into inventory sooner and turn inventory faster to improve profit? For example: If a specific high demand item is seeing more demand that what is current available in inventory, you could sell the item from a previous order, knowing from the real time data that it will be back in your warehouse within 48 hours. Increasing sales velocity and reducing loss could amount to sizeable extra profit.
- Liquidation Channels: Today most retailers handle returns in one of two ways: restock or destroy. However, there are other alternativse to handle returns that may be more appealing to optimize for profits. Essentially, other liquidation channels can allow your to recover more profit than restocking or destroying options. For example, you can resell product as second-hand on eBay, Amazon, etc. You can donate returned products, which is great for buy-one-give-one brands, since they can give the returned items to charity. Even for retailers that do not offer buy-one-get-one, the donations can result in sizeable tax credits. These are just a few examples, there are multiple alternative channels that are worth investigating.
The challenge of returns is real. It is growing in line with consumer expectations for free and easy returns. The good news is, retailers have a number of strategies available to rethink returns and take action to deliver more value, and ultimately drive more revenue and profit.
About Return Magic
Return Magic is an API solution for online retailers. Return Magic offers software as a service to optimize the return touchpoint for revenue and profit. With over 1,500 merchants and a 5-star rating, Return Magic is Shopify’s top-rated return solution. You can install it on the app store.
You can reach us directly at firstname.lastname@example.org