How retailers are changing their approach to online returns

Retail return rates are soaring. According to data from Rebound, UK retail returns were 26% higher in November 2022 compared to the same period the year before. Similarly, Salesforce noted a surge in returns, citing a 63% increase in returns year-on-year for the holiday period just gone. Rebound suggests that inflation and the cost-of-living crisis could be a factor in rising return rates, with consumers exhibiting greater caution over spend, as well as impulse buying on Black Friday (before deciding to return).

Previously, the retail industry has focused on making returns as fuss-free as possible.. Now, however, the high cost of returns is becoming impossible to ignore – both to retailers and the environment.

Optoro estimates that it costs an average of $33 or 66% of the price of a $50 item for retailers to process a return, with costs stretching from processing to discounting and liquidation losses. The high cost also means that most items end up in landfill rather than being re-stocked. Optoro states that, for 2020 alone, returned inventory created 5.8 billion lbs of landfill waste, while shipping of returns emitted 16 million metric tons of carbon dioxide.

Consequently, the retail industry has started to re-think its approach. Many companies are either looking for ways to make it harder for customers to make online returns (via charges or limits on regular return), or conversely, even more convenient to return items in physical locations.

Promoting resale and peer-to-peer returns

Only 20% of retail returns are reported to be defective, meaning that the majority of items are returned for other reasons. For clothing and apparel, this is often due to items being the wrong size or fit, or because the customer has bought multiple items with the intention of returning a part of the order (a practice known as ‘bracketing’). However, a common misunderstanding is that all non-defective items will make their way back into retail stock to be resold, but the reality is that most do not.

Technology companies such as Greenlist are aiming to alleviate the issue by offering retailers new ways to handle returns, such as peer-to-peer. The company’s tech plugs into Shopify websites, enabling customers to select items that other customers want to return. Essentially, instead of sending returns to the retailer, customers can send them directly on to each other for a discounted price. Canada-based start-up, Frate, offers a similar business model, also using QR codes to create shipping labels for customers selling on their unwanted goods.

Other technology solutions are aiming to help retail brands retain revenue by encouraging exchanges rather than returns. Return management company Loop does this by offering customers one-click exchanges on retail sites, as well as additional incentives such as bonus credit and free shipping. As well as helping to retain the cost of the initial purchase, the idea is that exchanges create a more positive experience for customers, which in turn is more likely to generate loyalty and fewer returns in future.

Peer-to-peer returns can also be made on third-party resale marketplaces like eBay, Depop, and Thredup, but in certain instances, retail brands are creating their own resale sites to combat returns. One of the most successful examples of this is Patagonia, which pledges never to dispose of returned items, instead selling them on its Worn Wear marketplace, which also buys back old clothes for repair and resale to drive a circular fashion model. Worn Wear also encourages in-store drop-offs in exchange for store credit, too, to further encourage a sustainable approach to resale.

16 ways retailers can improve their approach to online returns

Educating customers to actively discourage online returns

Patagonia’s purpose-driven business model is centred around educating consumers about the environmental cost of over-consumption, ultimately encouraging them to buy less. While it is a rather radical approach – and one that is only successful due to Patagonia’s commitment in other areas, such as charitable donations and sustainable materials – other retail brands are also taking heed and actively educating customers on what the impact of returns might be. In doing so, retail brands are able to justify charging for returns, which many more are hoping to introduce without negatively impacting the customer experience.

A number of brands including New Look, Moss Bros, and Mountain Warehouse have all recently introduced charges for online returns. Interestingly, research suggests that consumers are largely accepting of this, as long as they are offset by additional value and convenience. A Loop survey of 1,000 consumers found that 70% of respondents would be willing to pay for premium returns experiences. Loop defines ‘premium’ in this context as an experience that “elevates consumer convenience through features like at-home item pickup, package-less return drop-off, or initiation through a QR code.” Essentially, any elements that promote time-saving or that streamline the return experience.

Another strategy to win consumer favour is to offer transparency with regards to when and what items will go on sale, which can prevent customers from the practice of returning items and re-buying them at a cheaper price. Glossy reports how brands Universal Standard and Kopari did this ahead of Black Friday last year, effectively enabling customers to plan ahead and intentionally buy only once.

Elsewhere, when the cost of processing a return is more than the item itself, some large retailers have allowed customers to keep items instead of returning them. Walmart, Target, and Amazon began with this policy during Covid-19 to help deal with supply chain issues, but have since kept it as part of wider customer service strategies. Pet retailer Chewy is similarly well-known for its approach to returns, often telling customers to keep or donate items but refunding them anyway. In doing so, Chewy is able to foster a positive customer experience and drive brand loyalty.

Optimising reverse logistics – curbside returns, no queues, and paperless

While fewer returns is the end-goal, the issue is never going to disappear entirely, so it’s vital for the process to be as frictionless as possible. This can also be beneficial for retailers, with 92% of consumers saying that they are more likely to buy from a retailer again if the returns process is easy.

One way to optimise reverse logistics – which refers to the process of sending items back through the supply chain – is to offer free returns to stores or third-party pick-up locations, where technology is driving additional convenience for customers.

Walmart, Target, and Nordstrom now offer curbside returns to encourage returns to stores, meaning that customers don’t even have to leave their vehicle in order to do so. Target has even trialled the option of adding a Starbucks order for curbside pick-up, further incentivising customers to use the service.

Nordstrom in particular has seen success with its Norstrom Local stores, which are inventory-free locations dedicated to services such as pick-ups, alterations, and returns (to both Nordstrom and other retailers). Crucially, Nordstrom says that returns made at its Local outlets are processed faster than its main stores as well as online, ultimately increasing the chances of the retailer being able to resell the items.

Elsewhere, Amazon is making the process more convenient by offering box-free returns, so that customers can return their unpackaged items to any participating Amazon Fresh, Whole Foods, Kohl’s, or UPS Stores, and return their item by scanning a QR code.

Other retailers are also investing in store technology to ease the burden of returns. Marks & Spencer, for example, launched digital click-and-collect capabilities in 78 UK stores in 2022, enabling customers to return items without the hassle of having to queue up. Additionally, M&S has launched mobile-optimised returns, which it says reduces pain points, “such as the need to visit third party courier websites, use a printer, and find the right paper summaries amongst your orders.”

With returns remaining a big issue for retailers, finding innovative ways to deter customers from online returns – or at least re-direct them into physical locations – is likely to be the way forward.