Retailers are using analytics to improve the design of their products and the mix of goods they sell. They want to reduce the $106 million cost they have to pay every year when customers return items.
Why it’s important:
The National Retail Federation said that the number of items that were returned after being bought online more than doubled last year, reaching $106 million for every $1 billion in retail sales.
Retailers are using information about returns to change how their products are made, how they are sold, and how they are displayed.
New ways to return items bought online, like dropping them off in a store, should make the process run more smoothly.
In the past year, as the pandemic spread and e-commerce grew quickly, the high cost of product returns became a major issue for online stores.
Many stores were not ready for the sudden increase in reverse logistics, which means moving goods from the consumer back to the seller or manufacturer. This was needed to handle all of the products that customers returned or exchanged. Retailers had to find solutions that were not only cost-effective but also pleased customers at a time when people expect returns to be free and easy more and more.
Narvar, a company that helps retailers manage returns, did a survey last year and found that 76% of first-time buyers on an e-commerce site said they would be more likely to buy from that retailer again if the returns process was easy or very easy.
Finding the right balance between keeping customers happy with easy return policies and keeping costs down
Retailers need to find the right balance between making customers happy with a good return policy and keeping the costs of returns to a minimum.
Peter Sobotta, founder and CEO of ReturnLogic, a company that helps brands and retailers manage product returns, said that returns that aren’t handled well can cost retailers not only in terms of the direct costs, but also in terms of the potential loss of customers who are unhappy with the return service.
He said, “Right now, this is probably the biggest and hardest problem to solve in retail.”
The National Retail Federation says that consumers will return about $428 billion worth of goods to retailers in 2020. Total returns were about the same as in recent years, but online returns more than doubled from 2019 levels to 2018 levels as e-commerce grew to $565 billion.
The NRF’s survey showed that for every $1 billion in sales, the average retailer has to pay back $106 million in returned goods. Easyship, a company that offers logistics services, said that the cost of returns takes up about 14% of the retail price of a product on average.
Data to the rescue: analyzing returns to improve product mix and make the process go more smoothly
Retailers are analyzing returns data more and more, both to improve their product offerings up front to reduce returns and to make the returns process easier and more efficient for the customer.
For example, the women’s clothing brand Ecru has been working with ReturnLogic since before the pandemic. They have used data analysis from returned products to make a number of changes to how they do business. By looking at data from ReturnLogic, Ecru has been able to figure out how many products were sold and how many were sent back. This helps with product development. Because of how often some items were sent back, the company also cut down on what it sold.
Averaged over three months, the brand’s return rate has dropped from 25% to 30% to 9% since it started using ReturnLogic. ReturnLogic says that return rates of 25% to 30% are common in many types of women’s clothing. Also, it was able to cut “bracketing” or “fitting room” purchases by 15%. This is when people buy more than one size of an item and send back the ones that don’t fit.
The company said that some of the improvements were because it added more information to its online product descriptions. This gave customers a better idea of how the products might fit.
In a ReturnLogic case study, Howard Sheer, managing director of Design Factory NYC, which owns the Ecru brand, said, “The feedback in return reasons or comments tells me when a product may need to be changed or if the product description on the website may need to be changed.”
A recent report from McKinsey & Co. says that e-commerce brands and retailers, especially those that sell clothes, have a lot to gain from analyzing data from returns.
In its report, the company said, “Returns data could, in fact, be taken into account throughout the go-to-market process.”
Data that shows the exact reasons for returns could be used, for example, to improve product design and development and to improve merchandising. The report says that when the total cost of returning certain items is taken into account, it could lead retailers to spend more time and money promoting products that people don’t return as often.
Sobotta said that data about product returns can also be used to help set prices. He said that high-priced items are often more likely to be returned, so retailers could use returns data to figure out which items could have better margins at a lower price point if returns and the costs that come with them were reduced.
How quickly goods can be resold after being returned is important.
David Morin, head of retail strategy and customer success at Narvar, said that it’s also important for returned items to be sent back quickly and to travel as little as possible. It’s especially important in the clothing business to get returned items back on the shelves as soon as possible, he said, because the longer it takes to process a return, the more likely it is that the item’s price will go down.
To help with this, Narvar gives customers a “printerless” return option where they can show a QR code instead of a return label when they drop off their package.
During the pandemic, Levi’s was able to loosen its return policies with the help of the drug Narvar. For example, Levi’s added online product exchanges to help customers find the right size even when stores were closed. This changed 30% of returns that could have been made into product exchanges.
Morin said that e-commerce brands and retailers are increasingly making sure that returns are sent to the closest location that accepts returns. This is in addition to giving customers the option to return items to a physical store.
Before, many stores sent all of their returns to one central distribution center. However, he said, sending items to the distribution center closest to the customer has benefits for both the customer and the store. For example, consumers may be able to get their refunds faster, which cuts down on the time retailers may have to spend answering questions from customers about the status of their returns.
Distributing returns to multiple distribution centers can also help retailers better manage their labor costs and the speed at which they can process returns. This is because the work can be done in more than one place.
In the same way, Morin said, some stores have started to offer free returns within a certain time frame, like 15 days, but charge for returns after that.
When it comes to returns, Jackie Ostrov, who is in charge of growth at the logistics company Easyship, said that being clear is very important. This includes making sure that return policies are clear from the start and giving updates on tracking via email or within e-commerce platforms.
She said that most shoppers would rather be able to ship items back to the store than bring them back to the store. She cited 2019 research from Statista that showed that 63% of consumers who returned online purchases did so by mail, while only 13% brought products back to stores.
“Online shoppers expect the return process to be just as easy as the purchase,” Ostrov said.
Ostrov thinks that retail pick-up/drop-off (PUDO) locations for product returns will become more popular as retailers look for low-cost ways to make customers happy.
Ostrov said, “We think there will be more online drop-offs at stores in the U.S., just like there are more PUDO points in Europe and the Asia-Pacific.”