Retail returns were $761 billion in 2021, and nearly 20% of this occurred post-holiday season. Retailers can resell a portion of these unwanted items on the secondary market, recovering 60% or more of the original ticket price. However, the only way to preserve 100% revenue across all categories is to mitigate unnecessary returns through various prevention strategies. As the holiday gifting season approaches, retailers must find new ways to minimize the impact.
Here we offer five strategies to avoid retail returns while improving customer satisfaction and driving revenue opportunities.
1. Exchange Portal
goTRG data shows retail returns processing takes up to 60-days for many retailers and typically costs 55% of the retail value of an item in labor and freight fees to resell the item. Unfortunately, retailers can’t avoid returns processing costs in every case, but some hope to prevent refunds through intelligent exchange portals.
Exchange portals seek to retain revenue and drive repeat business by offering customers easy, automated exchange options. This technology is incredibly beneficial, considering incorrect sizes are the top reason for returning items. So, instead of immediately processing a refund request for pants that didn't fit, exchange portals offer customers a new size or similarly priced alternative in a single click.
These portals typically integrate with the retailer’s online store, giving customers a seamless shopping experience. This allows retailers to retain revenue from the original sale while it works to resell the returned item in-store or through secondary market channels. In the process, retailers preserve the customer relationship and increase the chances of future purchases.
2. Keep It
“Keep it” is the practice of allowing customers to hold onto unwanted items without shipping them back or returning them to the stores. In many “keep it” cases, customers receive a full reimbursement, known as a “returnless refund.”
Amazon, Target, Chewy.com, Glossier, and Thinx are a few examples of top brands that reportedly employ this method. While the idea may seem like a poor financial business decision at first glance, the reality is that processing retail returns can sometimes be a costlier prospect than the refund itself.
Transportation fees are the most excessive expense. That’s because retailers that lack the reverse infrastructure or returns management support must ship returns to at least three processing facilities before reaching their final resale destination. Bulky items, like furniture and appliances, are particularly burdensome due to their weight-proportionate shipping costs.
In addition to retail returns shipping, which costs an average of $13.50 for a lightweight $50 item, retailers must pay labor, service, and partner fees, including storage, refurbishment, and repackaging.
From a pure profit and loss perspective, the returnless refund idea makes sense for certain goods like heavy furniture or items that are hard to resell, like customized shirts, hats, and picture frames. Additionally, allowing customers to keep items garners the bonus of goodwill and loyalty. On the other hand, the strategy is an expensive $4.4 billion solution with significant drawbacks.
Another risk retailers must worry about is customers abusing the policy. Returns fraud is already a $78.4B problem annually, and returnless refunds seem to invite more nefarious behavior. On top of inevitable scammers, returnless refunds mean retailers are giving up on reCommerce strategies that could help them recover lost margins.
3. In-Store Incentives
Retailers have started experimenting with strategies to encourage consumers to return items in-store. The goal is to retain revenue and even utilize retail returns as a sales opportunity. This makes sense considering 71% of in-store returns result in an immediate purchase, and often those purchases equate to a higher value than the return itself. Another obvious benefit is savings. By bringing customers to stores, retailers save significant time and money they would otherwise spend shipping and processing the return.
By harnessing unique incentives, retailers can garner immediate revenue and even prevent the dreaded refund altogether. One innovative method to inspire in-store retail returns is offering bonus credit. For example, customers who want to return a $75 item might receive $85 in credit to return the order in-store. Another incentive includes offering discounts on same-day purchases.
Some retailers are taking a slightly different approach to the same in-store destination. For example, as retailers like Express reinstitute returns shipping fees ($6.99), they entice customers with the option to select “free” in-store returns instead.
4. Virtual Fitting Rooms
Online shoppers say the inability to try on clothes before purchasing is why they return 73% of their orders. Yet only 7% have used virtual fitting rooms to digitally “try before they buy.” This data reveals a significant opportunity for omnichannel brands to utilize AI-based technology to reduce eCommerce retail returns rates.
Online brands, like 1822 Denim, have seen incredible success from enabling shoppers to try on clothes via a virtual model. Macy’s, Adidas, ASOS, and Modcloth have also adopted this technology. Walmart, however, is now the number one player in this space thanks to its acquisition of Zeekit—a top VR company that claimed its virtual reality fitting room service reduced returns by 36%. Through this partnership, Walmart launched the “Choose My Model” virtual fitting room earlier this year. In September, the general merchandise giant announced it was taking technology to a superior level.
In a recent Walmart news release, Denise Incandela, Executive Vice President, Apparel and Private Brands Walmart U.S., said, “Today, we are embarking on the next phase of our virtual try-on technology with Be Your Own Model, industry-leading technology that brings the in-store fitting room experience to online shoppers. This experience allows customers to use their own photo to better visualize how clothing will look on them, and creates a gamification of shopping that we believe will be very compelling to the customer. Walmart is the first to offer a virtual try-on experience for apparel brands at scale, and it’s the most realistic application I have seen.”
5. Better Product Content
The Be Your Own Model software might not be accessible for all eCommerce brands–especially boutique organizations. However, all brands can reduce retail returns with better product descriptions and visual content.
One leading cause of online retail returns is the failure to set expectations about how the products look, fit, or function. So, retailers that spend more time crafting detail-rich descriptions that accurately describe color, size, material, or features will inevitably improve returns rates. Examples include:
- Creating enticing headlines
- Writing paragraphs about what makes the product unique compared to competitors
- A bulleted list of important specifications and features
- A peer-review section that includes meaningful information from real people who have purchased the product
Written product descriptions with valuable information is essential. At the same time, words alone are not enough to tell the whole product story. According to a consumer survey, online shoppers expect about six images and three videos to accompany product descriptions. As a result, organizations are starting to invest in “lifestyle content” technology that automatically delivers dynamic imagery and videos. One example is Tangiblee, which allows customers to compare what a bag looks like with multiple outfits and virtually see if the bag is large enough to fit their phone, cosmetics, and personal items.
Bottom Line
As the holidays loom, retailers must take an aggressive approach to minimize losses. Fortunately, they have several tech-driven solutions with proven results and traditional incentive options to reduce returns by double-digit points. Those organizations that implement proactive mitigation strategies while partnering with returns management companies to recover margins on returns they can’t prevent will see greater profits and enhanced customer loyalty.
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