Introduction
Returns occur when a customer sends back the items they purchased to the retailer for a refund, store credit, or a similar item. For example, a customer may return a shirt because it is too large or a pair of shoes because they are too tight.
Why is Retail Return Management Important?
Retail returns are considered a necessary evil by about 75% of retailers. It’s a part of business that is often overlooked, but it has a massive impact on your brand. In fact, 84% of consumers surveyed by Doddle said the return experience is important when it comes to their opinion of the retailer.
Proper returns can improve customer lifetime value and maintain revenue. On the other hand, improper returns, which are easily achievable, can lead to decreased customer loyalty and satisfaction.
How to Handle Retail Returns in Your Business?
This guide discusses how to craft a return policy and create an easy return process, along with what the future holds for retail returns.
Why is Retail Return Management Important?
Returns can be a simple way to frustrate customers and lose their loyalty. 95% say a bad return experience would make them less likely to shop with that brand again. Retail returns are akin to a virus. They attack your profit margins, affect customer loyalty, and threaten your business all at once. Changes in how consumers interact with retailers and make purchasing decisions indicate an increase in products being returned to sellers, as noted by McKinsey. Research from the National Retail Federation (NRF) suggests that $428 billion of merchandise was returned in 2020, which equates to 10.6% of total retail sales in the U.S. that year. The NRF also estimates the annual cost of returns at $101 billion. Shoppers expect fast, free, and easy returns. This alone drives retailers to do more, such as offering “refunds without return,” a refund granted to customers without needing to return the product.
At the same time, returns remain a neglected issue for retailers. A study by McKinsey showed that managing returns is not among the top priorities for a third of retailers, and a quarter of them do not execute it efficiently and effectively.
Managing returns comes with a set of operational challenges, including consumer expectations, reverse logistics, and data constraints – but you are not powerless. Many tools are available to help manage returns in a friendly manner while maintaining profitability and operational success.
The Hidden Benefits of Retail Returns
Managing returns the right way can save you time and money. In fact, the entire retail industry could save up to $125 billion annually by focusing on reducing returns. Beyond direct financial costs, there are also impacts on branding, customers, and the environment.
Customer
Customer loyalty is built through interaction, which occurs even when retailers are not officially making profits. For instance, consider the moment a customer realizes they need to make a return.
When customers know they can get their money back as easily as they can spend it, they will shop with greater confidence and spend more. – Sanaz Haghizadeh, Happy Returns
This creates an opportunity either to respond in a spirited and well-executed manner or to confront the customer with an angry employee who fears the immediate next steps. Which would you prefer to experience? And which would you prefer your customers to experience in your store? Nearly 74% of consumers feel that retailers’ return experiences need improvement. Focusing on your return process can help you stand out from the competition.
Return
Something from the client creates an opportunity for them to appreciate your customer service, purchase something new with the possibility, and at least build a more engaged customer relationship. It is critical for business sustainability, and this fact alone is why customer returns should not be feared but welcomed as an opportunity to increase long-term customer loyalty.
Brand
Negative experiences can easily find their way to potential customers. Whether through word of mouth or a post on social media, nearly 72% of customers share negative reviews about poor return experiences. This affects brand perception and can lead to future revenue loss.
By reducing the number of returns to offering flexible return policies, addressing these challenges can lead to meaningful changes in brand perception. If you handle returns in a way that aligns with customer expectations, you can benefit from positive word of mouth from satisfied customers.
Environment
Did you know that 15 million metric tons of carbon dioxide are produced by shipping returns each year? From packaging to transportation to energy usage, returns leave a heavy environmental footprint. By offering refunds without returns, you can reduce your impact on the environment and save on shipping costs.
Crafting Your Return Policy
It’s easy to create a return policy that states all returns must be made within 14 days of the purchase date and that store credit will only be issued. However, the easy way is not necessarily promoting customer loyalty, is it? Instead, consider how to design a more strategic approach that can help your business thrive.
Know Your Shoppers
First and foremost, it’s important to create a return policy that makes a lot of sense for the products you sell, as well as the customers you target. For example, are children your target audience, making parents and grandparents and many gift-givers the targeted buyers? If this is the case, you should consider that purchases made in your store may not always be the right purchases for multiple reasons. Choose a reasonable return period.
Consumers have many retailers to choose from when making a purchase decision, and one factor they will consider is the item’s returnability if it does not meet their needs. Crafting a return policy that consumers feel comfortable with will help ease shoppers’ minds about buying from your store. That means stepping out of your comfort zone to implement a policy that allows returns within 30, 60, or even 90 days of the original purchase date. Naturally, some exceptions may apply – even Nordstrom has had to make exceptions to their return policy for special occasion dresses due to the number of times customers have sympathized with this privilege.
A study conducted by the University of Texas at Dallas and published by ScienceDaily found that leniency in retail return policies directly affects return rates. Research shows that if a retailer wishes to reduce returns, longer deadlines (e.g., a 90-day return period versus a 30-day period) are more effective. In fact, this flexibility in the return deadline reduces return rates.
One of the study’s authors, a Ph.D. candidate at the University of Texas at Dallas, Ryan Freeling, suggested that the decrease in customer returns could be due to the “endowment effect” – the longer consumers own a product, the more attached they become, making them less likely to return it. The cost of handling returns affects profitability. You should consider the different dimensions of your return policy, as you might be able to manipulate the policy to achieve your goals.
Finding
Balancing customer expectations and inventory management is one of the most important considerations when designing your store’s return policy. It’s essential to be realistic from a business perspective while being fair to your customers. To help determine what might make the most sense for your store’s policy, consider the following:
What is your average inventory turnover? For example, do you typically sell items in a cycle that takes 60 days, meaning that the time from when they are received in stock until the time they are sold takes less than 60 days? Or do you have inventory that lasts longer than that, where it’s delayed for a quarter or even six months? The faster you manage your inventory, the harder it will be to extend your return window. Do your suppliers provide flexibility regarding re-orders and other purchasing logistics? This is a key factor to consider when formulating your return policy, as inventory is often managed based on availability from your suppliers. If a hot item has sold out and cannot be reordered, for example, you should think about how that might affect your return policy. “Once it’s gone, it’s gone” is a common expression used by smaller merchants when referring to inventory management, indicating that once something is sold, you are comfortable with not restocking it.
What are the return policies among your biggest competitors? As with most things in life, competition is important to consider when trying to improve your practices. If your direct competitors offer a more flexible return policy, think about how this policy will affect consumers’ decisions between purchasing from your store versus theirs in the future. The reality is that competition exists. It’s crucial to keep track of what your competitors’ practices are, including their return policies.
Have you had a history of return issues, and if so, what are they? Merchants often find that customer behavior repeats for various reasons… and these reasons are often fueled by the merchants themselves. With that in mind, do your current return policies clearly show and are easily understood by all customers for review? Do your employees share your return policy with every customer each time a new purchase is made in-store or online? Ensuring that these policies are implemented and managing the communication and administration of these policies can help eliminate misunderstanding amongst consumers and thus returns as well. Are your customers usually first-time buyers or returning customers? The importance of this will vary depending on whether the customer is familiar with your store or not. Your communications should be consistent regardless of the situation, with new customers receiving a more detailed explanation of your return policy to help avoid any confusion – and hopefully any confusion for new customers and therefore any returns.
By asking yourself these questions and carefully reviewing your answers, you can shape the ideal policy terms based on your customers’ needs, inventory management, and competition. Additionally, it can help you identify what you want and need from your return policy – making you ready to create a policy that best fits your store.
Writing
Your Return Policy
Since 96% of people will shop again with a retailer based on an easy return experience, let’s take a look at what to include in your return policy. A formal policy helps you communicate with customers and employees about managing returns. It will help you treat all returns equally instead of case by case, which is often less productive.
Policies are not set in stone. You can adjust them based on your business and the products you sell. But you’ll want to cover the basics:
- Items that can be returned
- Items that can be exchanged
- Products that are “final sale” (i.e., non-returnable or non-exchangeable)
- When items can be returned or exchanged (e.g., 30, 60, or 90 days after the purchase date)
- What conditions items can be returned in (e.g., lightly worn clothing, with tags still on, original packaging, original condition, etc.)
- What are the options for returned products (e.g., store credit, refunds, equal value product, etc.)
- How to initiate the return or exchange process (an email address to contact or a webpage to visit)
Why Should Returns Be Easy?
Many retailers feel anxious about the idea of making returns easy for customers. “If I make returns easy, will the return rate increase and threaten my profitability?”
Our experience with over 100 Shopify merchants showed us that if done carefully, making returns easy for your customers – and for yourself – can be very healthy for your bottom line.
Why? Most customers don’t decide to return an item because the return process is easy. They return it because the purchase didn’t really work out. The decision to keep or return an item is not significantly influenced by the ease or difficulty of the return process. Customers who want to return an item but don’t do so because they find the return process complicated are much less likely to shop with you in the future. Many studies support this, and you may know it to be true from your personal experience. For most retailers, the most loyal customers represent a disproportionately large share of your sales. These customers tend to have the highest return rates – because they love shopping with you and trying new products and styles. By making returns easy, you can increase their purchase frequency – more than their return rates – and boost their net purchases. The simplest reason of all: when customers understand and believe that returns are easy, they are more likely to buy from you, and to make larger and more frequent purchases as well.
If you’re looking for one definitive proof point, consider this. Among all the retailers who worked with Happy Returns to make the return process easier for customers and themselves, the number who changed their minds and decided to revert to a previous, friction-filled approach is… Zero. Literally, no one. In general, they must believe that improving the return process is beneficial or at least manageable for their businesses.
For those who may wonder, what about customers who frequently return items and abuse the system? Yes, that can be a problem (whether you have friction in the return process or not), but it should be addressed by implementing processes to manage those particular customers – not by making returns burdensome for all your customers (which is better).
How to Make Retail Returns Easy
1. Automate Your Return Process
Putting returns on autopilot provides a hassle-free return experience for you and your shoppers, allowing your team to focus on other tasks.
There are…
Merchants have a great opportunity to use return applications to alleviate the burden of returns on customer experience teams and provide a self-service experience for shoppers.
By utilizing best-in-class software to automate returns, you can customize your online returns portal to include all your policies and guidelines, including your return periods, return fees, final sale items, and much more.
2. Automate the Exchange Process
Reduce refunds by making exchanges as easy as possible and giving customers multiple opportunities to choose this option themselves.
Again, by using software, you can actively present exchange offers based on the reason a shopper is returning an item, or automatically show them alternative options by size or color based on available inventory.
Automating the exchange process also helps provide a customer experience similar to shopping in-store, where a staff member is available to assist the shopper in finding the right color and size.
3. Assist Customer Service Team in Automating Return Processing
Source: https://www.shopify.com/retail/frictionless-retail-returns-process
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