How to Deal With Retail’s Returns Frenzy

KEY INSIGHTS

• Retailers are seeing record volume of holiday-season returns amid rising e-commerce purchases. The cost to process these orders is growing
• Providing information about how a product is made and how it fits can reduce return rates
• Encouraging customers to bring unwanted orders to brick-and-mortar locations helps defray rising shipping costs

Fashion brands that saw brisk business over the holidays may be in for a nasty hangover as customers return the ugly sweaters, too-small jeans and other unwanted gifts.

UPS said earlier this week it will handle more than 60 million returns this holiday season, 10 percent higher than last year and a new record. That partly reflects booming November and December sales. At the same time, retailers will pay more to take those orders back, as carriers have raised shipping costs repeatedly during the pandemic to cope with surging package volumes. It doesn’t get any easier once those unwanted orders reach the warehouse; processing returns is notoriously labour-intensive, and the logistics industry is facing a worker shortage.

“Returns are a huge headache for every brand and the most challenging piece is the manpower,” said Iva Pawling, founder of Richer Poorer, an e-commerce brand specialising in everyday basics. “We need people to go through products to see if they can be resold, and it’s not an insignificant [number] of people who need to be tasked with returns in the distribution centre.”

Pawling said her brand’s returns typically amount to about seven percent of total sales, compared to between 20 and 30 percent across the entire fashion industry, according to multiple logistics experts. She credits the stretchy nature of most Richer Poorer garments, which reduces fit issues.

Still, Pawling said she’s anxious, particularly as shipping costs have risen 25 percent for her business this year.

Retailers have rolled out all sorts of fixes meant to reduce the cost and labour of returns, even as they increasingly waive customer fees for sending orders back. Brands routinely offer detailed size guides and reams of information about products on their website, in the hopes that better-informed shoppers will be less likely to order the wrong fit. They partner with third-party services such as Happy Returns, which allows shoppers to drop off returns at one of its 3,800 locations nationwide and then aggregates these returns for every brand partner. Retailers even team up to share the burden, with Kohl’s department stores accepting Amazon returns.

Those measures have helped reduce costs. But returns will always be inevitable. In order to prevent them from being a serious drag on profits, brands and retailers should explore new, creative strategies to ensure returns are a manageable part of their e-commerce business model.

“Returns can still be so painful,” said Michael Simoncic, managing director at consultancy Alvarez & Marsal’s consumer and retail group. “What’s driving the urgency today is that the cost and implications of returns having never been higher — they can result in lost revenue.”

There’s No Such Thing as Free Returns

Shopify estimates that about two-thirds of consumers will check an online retailer’s return policy before they make a purchase. Offering free returns is one way to ensure they ultimately click the checkout button. Fabric, a logistics startup, found in a survey of 200 retailers that one-third consider introducing free returns as a top priority for 2022.

But not everyone is on board. Lisa Bühler, founder of Lisa Says Gah, credits the online boutique’s policy of charging customers to send back orders for its relatively low return rate of 15 percent. The store may lose some sales too, but that’s offset by reduced logistics costs, she said.

“Not having free returns does make the customer think about the purchase a little bit more,” she said.

Still, even Bühler is considering paying for a third-party service like Happy Returns to make it possible to offer free returns in 2022.

The Right Fit

The best protection against returns is to make sure the customer likes their order in the first place.

Sizing tools, for instance, are already popular among major retailers. Gap uses True Fit, which recommends sizing based on a customer’s weight, height, age and sizes they wear from other brands. Ssense uses customers’ previous purchases to recommend sizing with a service called Fit Predictor.

Brands should be “aggressive about fit recommendation, pushing it out to customers so they actually know to use it,” said Nikki Baird, VP for retail innovation at Aptos, a retail services firm.

Some start-ups, including Perfitly and Modern Mirror, are developing augmented reality fit technology, where customers can provide photos and measurements to see how clothes fit on virtual avatars. Baird said this concept is likely some time away from mass adoption, however.

Robust and specific product information can help fill the gap in the meantime. Lisa Says Gah provides measurements for bust, inseam, length and even sleeve lengths for many of its products. Bühler said she and her team are looking into adding customer reviews and video content on product pages. The boutique also encourages customers to ask questions via Instagram if they’re not sure about a potential purchase.

Sense of Shelf, a Brooklyn-based online marketplace, has a return rate of just under four percent of sales, said founder Madeline Ritaccio. She said product pages that emphasise where and how items are made — highlighting a Vietnamese factory certified by a labour watchdog, or that a brand is owned by a woman of colour — helps keep that figure down.

“Our customers make their purchases with intention,” Ritaccio said.

Limit Impulse Buys

Sometimes small tweaks to a retailer’s shipping policy can reduce the number of orders that get sent back.

Sense of Shelf’s $150 shopping cart threshold for free shipping fends off impulse buys, which are more likely to be returned, Ritaccio said.

“We’ve never trained our customer to expect things like crazy sales and free shipping and all of this stuff that makes people potentially have these huge hauls and then big returns,” Ritaccio said.

Extending the returns window from 30 days to 90 or even 120 days can actually reduce returns too, as some customers wind up using an item or forgetting to ship it back, said Pete Madden, a director in the retail practise at AlixPartners.

Save on the First Mile

Retailers can reduce the cost of online returns by steering customers to drop off items at a physical location, rather than ship them. Most brands allow online returns at their stores, while digitally native retailers can work with companies such as Narvar, Optoro or Happy Returns, which help vendors facilitate returns by generating prepaid shipping labels or providing in-person drop-off spots. Other services such as Loop or Returnly don’t have physical locations but offer returns software that incentivises exchanges and still streamlines the shipping process for consumers.

Happy Returns, which was acquired by Paypal last May, increased its US drop-off locations from 2,700 to 3,800 last year, according to vice president David Sobie. The service offers shoppers a shipping option too, he added, but 65 percent of the time, they choose the in-person option.

The added bonus of being a store that offers returns for other brands is the foot traffic that these returns will provide, Simoncic added.

“I think we’ll see multiple things emerge in the next couple of years in terms of returns, and a lot of it will be return drop-off locations,” he said. “When you go to the mall, you’ll see in the parking lots return centres. You’ll see more partnerships like what Kohl’s is doing with Amazon, and lockers or kiosks that allow for drive-by drop-offs.”