It’s understandable that retailers are frustrated by persistently high product return rates, especially for ecommerce purchases (15.4% following holiday 2023, according to the National Retail Federation). Retailers can try to reduce returns by charging fees or adding/keeping friction to the process, but too-stringent policies risk annoying consumers — or worse, discouraging them from making any purchase.
But don’t throw in the towel just yet. During the Retail Strategy & Planning Series webinar, “Returnuary: The New Make-or-Break for Holiday Success?”, experts from leading analyst firm Kearney and tax management solution provider Vertex revealed five steps retailers can take to lessen the pain of returns when they do happen — and to help prevent at least some returns in the first place.
To better manage “Returnuary,” Kearney Partner Katherine Black and Vertex Director of Consulting, Vertical Solutions Pete Olanday recommend that retailers:
- Make return policies crystal-clear for customers, who increasingly appreciate transparency. Additionally, greater detail and clarity can mitigate common points of miscommunication (e.g. return windows, whether a receipt is required, where products can be returned);
- Leverage user-generated content (UGC), particularly visuals, since reviews and photos of real customers wearing or using a product can increase consumers’ confidence that the item will be worth keeping;
- With BOPIS purchases, encourage try-on when the customer picks up their purchase, rather than having them take it home and potentially discover a problem;
- Use loyalty programs to reward top customers with more generous return policies; and
- Use predictive analytics and AI-powered technology to forecast return patterns and support decision-making about what to do with returned products (e.g. sell it on a marketplace versus reintroducing it into regular inventory).
1. Make return policies crystal clear.
Kearney research indicates that 77% of consumers say the returns process influences how much they trust a brand, according to Black, which is why she criticized retailers that bury their return policies in hard-to-find corners of their website. “I think it’s fair to say that very few retailers are super-explicit about their return policy,” she said. “I think that can create some confusion for consumers, especially if it’s a big change from what it’s previously been, or it’s really different than competitors’ [policies] or the industry standard. I think it’s important to call it out in a way that’s friendly and transparent for the consumer.”
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Clarity is arguably more important at holiday times, when many purchases are gifts: “If [recipients] are getting a gift receipt, or any sort of indicator that it’s a gift, it’s probably even more important that the policies be transparent,” said Black.
“Be as verbose and explicit as you possibly can with the return policy,” added Olanday, who noted that returns also have financial and tax implications for retailers. For example, retailers that require a receipt will be better able to determine the original purchase location (which determines the tax rate) as well as the original tax collected. “If you don’t have the receipt, the retailer doesn’t know when you purchased it, and most of the time, it just refunds you at the current tax rate, which is typically higher than when it was purchased,” he said. “So now the retailer is refunding more tax than the customer paid, so there are downhill implications for having lax return policies.”
2. Leverage user-generated content.
“Really authentic product reviews are another point of transparency,” said Black, so it’s worth retailers’ while to make sure reviews on their site are actually provided by genuine customers/users. Additionally, visual UGC, particularly with apparel sales, is vital. She noted that pictures of a person wearing the product allows a prospective shopper to “really visualize not how an item looks on a size zero model who’s a foot taller than they are, but someone who is actually their size, height and age range, to see how the item will actually look when they get it.”
3. Encourage try-on before items leave a store.
BOPIS (buy online, pick up in-store) has become a mainstay of omnichannel retailing, especially since COVID, and it also presents retailers with a golden opportunity to forestall returns. “One thing I’ve seen retailers starting to do more of is encouraging the consumer to try it on while they’re in the store, which is a great idea because you can short-circuit a lot of those complexities that come from a return,” said Black. “Once it leaves the store and goes home, that’s where the complexity really starts to explode.”
4. Use loyalty programs to reward top customers.
Retailers with loyalty programs can leverage them to provide more generous return policies for their most valuable customers, perhaps waiving return or restocking fees for members. Black said she has not seen a lot of retailers do this, meaning it could be a strong point of differentiation for those that try it. “I think it’s a great way to boost long-term revenue and loyalty from what can be a prickly issue,” she noted.
5. Use predictive analytics and AI-powered technology.
Predictive analytics and AI can help retailers better manage returns, in large part because much of the cost and complexity of handling them revolves around whether, and how, to reintroduce a returned item into inventory. “AI takes the processes and the data that exist today and makes it a lot more useful in an accelerated fashion,” said Black. “So there’s better forecasting, better predictions, better ability to handle specific customer issues, and certainly better planning around the inventory management aspects.”
Another wrinkle with returns is the multiplication of sales channels, which increases the likelihood that a consumer will buy an item at one touch point but return it at another. “We have online and brick-and-mortar, but there’s also social media, buying things on TikTok or Facebook or within a metaverse video game,” said Olanday. “It shouldn’t matter which channel a consumer purchased [the item in]; they should be able to traverse your brand seamlessly and purchase, and return, anything anywhere.”