Rethinking retail returns

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We’ve all stood in a return line and been grateful when a merchant willingly accepts the product back that we have decided we no longer want. Quality return policies have been at the forefront of customer service for some time, but it wasn’t always this way. And now, as returns significantly impact bottom lines, it may be time for another shift in return strategy.

The evolution of retail returns

Retail return policies have evolved over time to meet the changing needs and expectations of consumers. It’s important to note that return policies can vary significantly between retailers, industries, and regions. Additionally, changes in technology, consumer expectations, and market dynamics continue to shape retail return policies, making them an evolving aspect of the shopping experience.

Here is a brief history of how retail return policies have developed:

In the early days of retail (pre-20th Century), return policies were virtually nonexistent. Consumers generally had little recourse if they purchased a faulty or unsatisfactory item. Bartering and trade were more prevalent than cash transactions, making returns less common.

With the rise of department stores in the late 19th century, retailers began recognizing the importance of customer satisfaction. Some stores offered exchange policies, allowing customers to return goods for store credit or exchange them for other items. This was largely done on a case-by-case basis.

In the mid-20th century, as the retail industry expanded and consumer rights gained attention, more formal return policies emerged. Retailers such as Sears, Roebuck and Company in the United States started implementing structured return policies. These policies typically allowed for returns within a specified time period and required proof of purchase.

In the late 20th century, competition among retailers intensified, leading to the liberalization of return policies. Many retailers extended return timeframes, offered cash refunds instead of store credit, and reduced requirements for proof of purchase. This trend was driven by the desire to attract and retain customers by providing more flexible and customer-friendly return options.

As return fraud and abuse became more prevalent, retailers faced challenges in maintaining profitability while accommodating customer returns. This led to the introduction of stricter policies, including shorter return windows, restocking fees, and increased scrutiny of returned items. Online retailers faced additional challenges due to the costs of processing returns and managing logistics.

In recent years, retailers have shifted their focus to improving the overall customer experience, including return processes. Many companies now emphasize hassle-free returns and offer features like free return shipping, easy online return initiation, and lenient return policies. This customer-centric approach aims to build trust, enhance customer satisfaction, and encourage repeat business. But as pandemic and inflation woes have impacted retailers, many have begun to seek ways to balance retail return policies that mitigate losses with quality customer service.

A line of people waiting with their shopping carts. Retail returns can result in long wait lines and impact customer satisfaction.

The high cost of retail returns

There’s no question retail returns are taking a toll on retail profits. According to Navar, it costs approximately $27 USD to manage a return for a $100 purchase. The National Retail Federation estimates that the amount of returns in the U.S. in 2022 led to approximately $816 billion in sales losses.

The high cost is forcing retailers to rethink return strategies. Some have begun to charge a fee for returns to help offset the costs. Others are utilizing “in-person” returns or charging return fees to offset the cost of free shipping for delivery. Offering store credit instead of cash for returned goods is also helping to recoup losses.

The challenge to all these shifts, however, is maintaining customer satisfaction while also protecting against fraud and loss. While some of this can be achieved by scaling back on liberal return policies, much can be done up front to help mitigate the number of returns, currently estimated to be around 20% of sales, in the first place.

How to get a return on retail returns?

Limiting returns while retaining customer loyalty can be a delicate balancing act. However, with the right strategies in place, you can minimize returns without negatively impacting customer satisfaction. Here are some steps you can take:

  1. Clear Return Policy: Clearly communicate your return policy to customers at the time of purchase. Make sure it is easily accessible on your website, in-store, or on packaging. A transparent and straightforward policy helps manage customer expectations from the start.
  2. Data-Driven Returns: Retailers are leveraging data analytics and technology to better understand return patterns and identify potential abuse. By analyzing return data, retailers can make more informed decisions about their return policies, such as identifying high-risk customers or products prone to returns. Utilizing test and learn software and basket analyzer software retailers can get a lens into buyer behavior to make necessary adjustments. Additionally, they can test out new return strategies to evaluate the cost/benefit ratio in advance.
  3. Provide Product Samples: In some cases, offering product samples or trial versions can help customers experience the product before making a final purchase decision. This can be especially useful for cosmetics, skincare products, or fragrances.
  4. Personalized Recommendations: Use customer data and purchase history to provide personalized recommendations. By suggesting products that align with their preferences and needs, you increase the chances of customers finding exactly what they’re looking for. This can reduce the likelihood of returns due to mismatched expectations.
  5. Quality Assurance: Implement robust quality control measures to ensure products are accurately described, properly packaged, and in excellent condition before shipping. This reduces the chances of customers receiving damaged or faulty items.
  6. Clear Sizing and Fit Information: For apparel or items where sizing is critical, provide detailed sizing charts and fit information. Clear instructions on how to measure and select the right size can help customers make the correct choices, reducing the number of returns due to size-related issues.
  7. Exceptional Customer Service: Invest in exceptional customer service to address any concerns or issues promptly. Train your support team to provide helpful and friendly assistance, resolving problems to the customer’s satisfaction. This proactive approach can prevent returns and turn potential return situations into positive experiences.
  8. Loyalty Programs and Incentives: Reward loyal customers with exclusive offers, discounts, or early access to new products. By providing additional value to repeat customers, you can foster loyalty and increase their commitment to your brand.
  9. Continuous Improvement: Regularly analyze return data and customer feedback to identify patterns and areas for improvement. If certain products consistently have high return rates, consider making necessary changes to minimize future returns.

Remember, striking a balance between limiting returns and maintaining customer loyalty is essential. While reducing returns is important for profitability, prioritizing customer satisfaction and building long-term relationships should always be at the forefront of your strategy.

To gain more insight into how test and learn can boost your retail strategies, check out these resources:
How DICK’S Sporting Goods leverages testing to take data-driven action
MarketDial retail testing with Kum & Go — a safety net for the unexpected
Mitigating risk and maximizing opportunity with in-store testing

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