Returns Policies Then and Now
The rise of e-commerce changed everything about returns policies. In the early 2000s, retailers began offering free shipping to entice more people to shop online. Shortly after, online-only brands like Zappos began extending free shipping to the reverse side as well. Then, in 2005, Amazon launched Prime’s free two-day shipping, changing consumer expectations forever. Customers loved it so much that omnichannel providers, especially in apparel, jumped on the bandwagon. By 2011, free returns shipping was widespread, and 73% of consumers already marked it as a top priority. By 2015, nearly 50% of retailers offered free returns year-round.
Today, nearly every big-box retailer and most online and omnichannel brands offer complimentary returns shipping. However, this free perk is only the beginning of the consumer-centric returns trend. Many policies also provide extended returns windows of 90-365 days while allowing consumers to send back items for any reason. Other retailers enable consumers to keep unwanted products while refunding the total ticket amount. Without context, these trends sound like poor business choices. However, retailers are responding to the genuine and overwhelming consumer preferences for extended policies. The consumer loyalty that liberal returns policies inspire has paid dividends for many retailers.
As we begin 2022 and the height of the returns season is upon us, it is important to be mindful of how the pandemic has shifted customer shopping habits toward digital platforms, and the resulting impact on our industry. According to NRF, online sales reached over $1 trillion in 2021 (up from $900 billion in 2020). Approximately $218 billion of those were returned.
Because the returns rates for e-commerce purchases is two to three times that of in-store purchases, retailers faced $761 billion dollars of returns across all channels last year. And that doesn’t include the mounting ancillary costs that include reverse shipping, reverse supply chain labor and management, fuel, labor, packaging, refurbishing, and re-commerce fees to process these items.
Faced with these added expenses and reverse supply chain constraints, the current status quo of allowing customers to return anything (for free) is no longer sustainable. Retailers must audit their policies and make adjustments that reduce operational costs and return volumes while also prioritizing convenience for loyal customers.
Returns Policies and Opportunities
A recent analysis of 197 retailers showed that 100% of Fortune 50 brands, 80% of online brands, and around 50% of omnichannel retailers offer free returns shipping, amongst other conveniences. At the same time, retailers across categories are starting to reconsider their lenient returns policies, previously driven by consumer preferences.
Let’s look at common returns policies today and how some retailers are pivoting their returns policies to adapt to this new retail environment.
Returns method options:
In-store and mail-in return options have been standard practice for years. Pre-pandemic 77% of customers preferred bringing items back to stores over the hassle of shipping items back. Still, consumers complained about the process, which often required them to print return labels, find a box, and drive to their local carrier to complete the transaction.
As a result, retailers began expanding returns method options further. Today, approximately one-third of retailers have enacted additional methods like printerless, boxless, curbside, contactless, and convenient drop-off locations. Brands like Everlane, Levi’s, and Nordstrom offer at least three return methods. Walmart doesn’t provide curbside returns, but they have a program that allows customers to schedule a return pick-up from their homes.
Multi-method returns don't exhibit an obvious financial benefit. Still, retailers that have adopted drop-off location networks said they reduced return times by five days, which means they can re-stock and resell items faster and before their value diminishes. Retailers have also reported a reduction in freight fees - a significant factor in the overall cost of processing returns.
This presents an exciting opportunity for the remaining two-thirds of retailers offering fewer options for making returns.
Refund options and transparency:
Customers want refunds - fast. 80% told goTRG they expect speedy refunds this holiday season, despite understanding the unique supply chain challenges retailers face. But that doesn’t mean retailers should start scrambling to offer pre-emptive refunds before receiving and inspecting items. There is no evidence that shoppers will look elsewhere if they don’t get an overnight refund, but there is evidence that consumers will refuse to buy from a brand that doesn’t communicate its policies. This is an area where retailers can make consumers happy by setting clear expectations and improving the visibility of their processes.
Right now, just over half of retailers specify the period of return acceptance and refund processing time on their websites. 42% of retailers do not clearly communicate about refunds, leaving the door open for confusion and frustration. This is especially common among the general merchandise, footwear, electronics, and health and beauty sectors.
ECommerce retailers have the opportunity to be more transparent about their returns policies to improve customer satisfaction – a link in the footer of a website simply is not enough. To remain competitive, they should display returns policies on product pages and throughout the website. When organizations set clear expectations, they have more freedom to tailor policies to their business needs and still prioritize the customer experience.
For the past decade, retailers have trained people to expect free returns. Consumers won’t readily give up that perk. Still, there may be some wiggle room. For example, even Amazon, the emperor of e-commerce, doesn’t offer free returns shipping on every item. Instead, the retail giant asks consumers why they’re sending an item back first. Suppose the answer is due to the customer’s error (like an incorrect delivery address). In that case, Amazon charges two fees: per shipment fee (ranging from $1.99 and $6.99) and a per-item fee (ranging from $0.99 for apparel to $50 for televisions). Additionally, if customers choose not to use Amazon’s return label provided, they’re responsible for paying the carrier to ship the return.
Additionally, omnichannel retailers are starting to take a hybrid approach that keeps customers happy while reducing their reverse logistics costs. Saks Fifth Avenue, for example, offers free shipping for the first two weeks, and after that, they charge a small fee. Lulus gives customers ten days to send products back at zero cost and charges $7 after that period. thredUP takes an even more conservative approach by only offering free returns for customers that accept store credit as their refund.
These contingencies seem to diminish customer convenience, but the policies are still reasonable, prominently displayed, and give consumers the autonomy to choose what works best for them.
Returns shipping windows:
Return windows are another area where retailers can adjust customer expectations as long as they communicate clearly and provide convenient returns methods. Customers told goTRG in a recent holiday survey that they want more time to send back returns–90 days to be precise. Brands like Macy’s and Bed Bath & Beyond have obliged. Still, the returns acceptance window does not seem to make or break brand loyalty. While customers claim to want a longer window, sales data suggests they will purchase this is not the most crucial factor in their purchase decisions.
Most retailers have 30-day returns, and customers are ok with it. Typically only big box brands offer 90+ days to send items back. This marks a significant opportunity for retailers to alleviate the pressure to extend returns windows to attract customers. A handful of online-only brands, like RealReal and thredUP, have reduced the time frame to 14 days, allowing them to receive unwanted items faster and get the highest resale value.
On the other hand, offering longer returns windows to select customers could be a strategy worth employing. To inspire continued business from high-value shoppers, brands like Target, Best Buy, and DSW give loyalty program members and VIPs double or more time to send items back.
Risks & Rewards
Drastic returns policies that eliminate customer choice, reduce transparency, and make returns less convenient risk fallout.. As long as retailers focus on rewarding loyal shoppers, offering multiple returns methods, and communicating policies clearly, the rewards far outweigh the risks.
The potential rewards of modernizing returns in 2022 include:
- Lower overall returns volume
- Fewer returns fraud incidents
- Better freight costs
- Diminished reverse supply chain complexity
- Enhanced customer loyalty, especially from VIPs
The Future of Returns
The future of returns and reverse supply chain management is a balanced approach. Free returns options, convenient drop-off methods, and transparent communication are the gold standard that customers expect. However, within these standards lies significant room for nuance where retailers can tailor rules to the customer, item, and situation at hand. Omnichannel and online brands don’t have to cede to every consumer demand. They can look for ways to reduce returns, increase recovery, and still offer an improved customer experience.