The cost of returns is estimated at $550 billion for 2020 and the number of online returns has more than doubled. In 2020, the pandemic accelerated online purchasing with non-physical store sales ending the year up an impressive 23 percent. However, higher ecommerce sales mean higher online returns. Returns fraud is another serious issue: cybercriminal activity and returns fraud are already costing states $1.5 billion in lost taxes and over 741,000 jobs per year, according to a report by Appriss Retail and the NRF. The growing shift to digital shopping includes the ease and convenience of curbside and in-store pickup, occupancy limitations in physical stores and consumer discomfort over shopping in physical stores due to the pandemic. A more concerning issue, however, is the growing trend among retailers of letting customers keep unwanted product after refunding their money.
On the House
Amazon, Walmart and other retailers use artificial intelligence to determine whether it makes economic sense to process a return. For inexpensive items or even large ones that incur hefty shipping fees, it is often cheaper to refund the purchase price and let customers keep the products.
[callout]The cost of returns is estimated at $550 billion for 2020 and the number of online returns has more than doubled. Returns fraud is another serious issue: cybercriminal activity and returns fraud are already costing states $1.5 billion in lost taxes and over 741,323 jobs per year.[/callout]
The increase in returns is a real conundrum for retailers but the practice of letting customers keep returns is potentially opening a Pandora\’s box of unintended consequences. As soon as more retailers adopt this practice, the expectations of customers will begin to change, which in turn will lead to step changes in customer behavior. Case in point: Amazon first offered its Prime membership subscription in 2005 and free shipping was introduced three years later to the online market. As more and more retailers followed Amazon\’s lead and offered free shipping, customers come to expect it for all orders from everyone. The rest is history. Today, many customers make buying decisions based largely on the availability of free shipping and returns.
Risk Management
Letting customers keep unwanted products is not a rabbit hole that brands want to go down. The goal should be to minimize the number of returns by taking appropriate measures before the point of purchase.
Machine learning is a valuable tool to help with minimizing returns. Virtual fit applications, chatbots and virtual style assistants can aid customers to select the right size and style based on the product assortment available. Retailers can use analytics to understand and categorize returns and pinpoint high-return products and better assess why they are being returned. The analysis can then be used to implement fixes aimed at reducing return rates in the first place.
One of The Robin Report Innovators, Dressipi, specializes in using fashion-specific AI to predict which products each shopper will buy and not return. Sarah McVittie, co-founder of the company, says, \”Returns at their current levels are expensive and unsustainable. As every retailer knows, it\’s not simply the cost of sending out the items and getting them sent back.\” McVittie outlines three key other cost centers including getting products back into circulation, restocking and lost sales due to not having products in stock.
It\’s a Gift
There is a positive side to allowing customers to keep unwanted merchandise. For the retailer, it avoids the expense and logistics congestion of handling returns. For customers, shipping items back or dropping them off at a drop-off hub is a pain point. By eliminating this step, retailers could develop deeper loyalty with their target markets. Chewy, for example, tells customers to donate unwanted product to an animal shelter. The charitable donation adds a value dimension to the return that resonates with customers.
However, the short-term benefits of allowing customers to keep returns may be problematic down the road. There is real potential for unwanted product to end up in the waste stream. Every year the average American generates around 80 pounds of textile waste and 84 percent of clothing ends up in landfills. Creating more unwanted product in the hands of the consumer will perpetuate this problem.
The Industry Has Been Warned
If history teaches us anything, the industry never recovered from excessive couponing. Even today, couponing has become as easy as using a digital add-in to the browser that hunts down deals for online shoppers. Free shipping has become table stakes for any online business and a common expectation for customers. Next, it will be keeping unwanted products and getting a refund. What will be interesting to see is if unwanted products are taken to stores that practice upcycling and customers get a second refund. Cha-ching, savvy customers can make a profit from unwanted products by selling them and at the same time preventing landfill waste.
For more details, tune into Many Unhappy Returns, a Robin Report podcast.
