Online retail seems to face a litany of problems. A very prominent one among them is the return of goods. To put it simply, returns are disproportionally common with online shoppers. In fact, it’s so disproportionate that it’s really costing the online retailers and it is starting to bear down on profits.
While sales themselves are growing exponentially (at nearly three times the rate of brick-and-mortar shops) almost one-third of online orders are being returned. Compared to the 9 percent of merchandise that is returned to physical stores, that huge discrepancy comes at a big cost. With free shipping, and often free returns, the cost of processing it all can reach up to 65 percent of the total cost of the goods sold.
How Online Retail Can Prevent the Problem
Retailers aren’t happy and they are working against this trend in a variety of ways. Some companies try to address the reasons that make customers send things back directly. Most obviously, this includes clothes that don’t fit and items that don’t look as expected because of misleading or lacking information. Companies like Dockers.com and ModCloth have taken measures that include encouraging customers to share pictures of themselves wearing the clothes to show how they look on “real” people. They also provide more and more info about their sizing—inches for example, in addition to the sizes themselves.
Other companies like Amazon.com have different ways to return goods that cut down on their costs. Amazon offers lockers in stores and gyms for returns, as well as a new partnership with Kohl’s Corp that lets customers return goods without the associated shipping costs. Customers choose a return facility near them and drop the product off there at a time convenient to them.
According to a study done by UPS, 75 percent of online-shopping Americans have returned merchandise this year by shipping it back to the merchant. This is hugely disproportionate to the goods bought in a store. Another drawback of returns with online shopping is that while roughly two-thirds of people that return items in physical stores make another purchase during their visit, this does not at all apply to online retailers. As a result, it’s starting to affect the business model.
Alternative Methods to Fight Back
Other companies offer benefits for buyers who waive their right to a free return. For example, Wal-Mart offered lower prices on items in 2016 if the customer agreed to opt-out. Should they then change their mind after all and wish to make a return, they pay a $5.99 fee and 5 percent of the item price.
There are various different ways companies are using returns—and a lack thereof—to both cut costs for themselves and to appear more appealing to the customer base. Best Buy Co. offers longer return windows through its loyalty program. The company allows customers that spend more than a certain amount per calendar year double or even triple the return window—up to forty-five days instead of the usual fifteen. In contrast, other companies try to get returns back as quickly as possible in order to resell items that are not damaged or otherwise faulty. This allows them to make more sales before price lowering.
Best Buy offers customers a prepaid shipping label for easy returns; however, the fee is deducted from the refund amount the customer receives. This is another way to save money for the electronics giant. Last but not least, a new way of returning goods has recently popped up. Start-ups like Happy Returns accepts returns for online retailers like Tradesy Inc. and Everlane, hinting at the possibility of returns not only becoming cheaper for companies, but also easier and more convenient for the customer.
Time will tell what innovative return policies work best with clientele, but one thing is abundantly clear – adaptation is key to survival in the retail world.
