Returns policies: improving customer loyalty but at what price?

Several years ago, online retailers focussed almost entirely on getting products delivered to customers quickly. However, these days, retailers are paying closer attention to their returns policies too.

Why? Well recent research indicates that 67% of all customers purchasing a product online check the returns policy prior to purchase, meaning that having an easily accessible and simple returns policy is key to many customers’ decision to buy.

In this post I consider some of the issues and solutions that retailers need to be aware of when dealing with returns.

What do customers want?

Customers want time to evaluate their purchase – the longer the return time, the more favourably a retailer is viewed. In particular, during peak times such as Christmas, extended return timescales are becoming the norm.

Customers also want easy (and preferably free) options for returning their item, and to get their refund processed quickly. In fact, some customers are “serial returners”, in that they deliberately over-purchase (for example, by ordering an item in three different sizes and/or multiple colours) and then return the unwanted items. For some retailers, this can lead to very high return rates. For example, the fashion industry can experience return rates of over 30%.

November and December are particularly challenging months for retailers given the increasing popularity of Black Friday and the run-up to Christmas. According to supply chain specialist LCP Consulting, five million items purchased on Black Friday will be returned.

The challenge for retailers

These customer expectations and behaviours create significant challenges and costs for retailers, as a generous returns policy doesn’t come cheap.

In particular, the customer expectation of not having to pay to return a product presents retailers with a dilemma. Do retailers provide a quick return service at a higher cost or opt for a slower and cheaper return service? For retailers selling seasonal or fashion items, it may be necessary to choose a more expensive but quick return service so that there is an opportunity to resell returned items before they go on sale.

According to research from Barclaycard, 57% of retailers grant refunds regardless of the condition of the item which has been returned, in order to maintain a positive relationship with customers. This is very expensive for retailers as stockrooms get filled with unsellable items and it is therefore left to the retailer to either bear the cost of repairing or disposing of the items as B grade stock (which, as an aside, typically sells at 15-30% of the RRP price). In some cases, damaged items are returned because of customer fraud, for example where the customer purchases clothing, wears it on a night out and returns it for a refund (a practice known as wardrobing).

What are the solutions?

There are ways for retailers to manage customer returns more effectively. For example:

  • put in place a system to monitor the reasons why items are returned, and act on the results. For example, if customers return a particular item on the grounds that the fit is too large or small, a retailer could provide more information on sizing in the product description;
  • generally ensure that product information (including photographs, dimensions and sizing information) is detailed, complete and accurate, and consider providing additional tools such as demonstration or catwalk videos and virtual sizing tools;
  • have a clear policy on when customers can and cannot return items and consider whether the policy is appropriately balanced (taking into account the increased chance of sales versus the increased costs if the policy is generous). Also consider whether gift vouchers should be given instead of a refund, to ensure that the customer still spends with the retailer;
  • have “goodwill” rules which allow for departures from the returns policy in limited scenarios (for example, where someone is late in returning an item due to being abroad or sickness);
  • ensure staff processing returns keep to the returns policy except where the goodwill rules allow for exceptions; and
  • have a strategy in respect of unsellable returned stock. 22% of retailers have introduced a new system to dispose of this stock by partnering with a reseller or moving the items to a bigger warehouse.

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