The cost of free returns.
Order returns cost retailers £60bn a year, £20bn of which is from online shopping. (Brightpearl)
Last month Asos made a major move by changing its returns policy and announcing it will ‘take action’ if they notice an unusual pattern. So what is this unusual pattern of returns?
Wardrobing is the term used in clothing retail for returns fraud, i.e. wearing an item and then returning it for a full refund. ‘9% of shoppers revealed they have ordered an item just to take a picture for social media and then return it’. (Internet retailing) Asos isn’t the only brand to start clamping down on ‘serial-returns’ and ‘wardrobing’.
Last year reports emerged of Amazon deactivating accounts of shoppers that had made too many returns thus preventing them from making future purchases. Sephora had a similar approach by banning shoppers that it viewed had been taking advantage. Harrods, have joined in saying they’re going to start blacklisting consumers who they’ve discovered are regularly returning items of clothing after wearing them.
Returns are hitting retailers where it hurts. Nearly half of all retailers report that their margins are significantly affected by returns (Brightpearl) Returns doubled from 2017 to 2018 from 5% to 10% (DPD).
An astonishing 60% of all online purchases were returned last Christmas. (CWB)
Each return generates a cost in terms of time, money, operations and logistics. Nearly 200 specialist online retailers closed down in January because they couldn’t absorb the influx of returns costs. (CWB)
Reverse logistics is a constant challenge to etailers.
Therefore there is a lot of support by other retailers for these companies taking a stand and it’s expected more retailers will follow suit by taking some action of some kind. 45% of retailers in the UK say they would introduce the same ban (Brightpearl).
Generous returns policies of online brands are a big attraction to shopping with them. Consumers can browse and buy from the comfort of their homes, confident that there’s no risk to their bank accounts.
Free shipping and free returns have changed the way we buy and return items, particularly with clothes.
A quarter of people have bought multiple items online intending to return the ones that don’t suit (Brightpearl). 30% of shoppers deliberately over-purchase (Rebound). It is akin to bringing a basket of clothes to the fitting room and ultimately only taking one or two items for keeps.
Asos Premier members receive free unlimited next day delivery and returns for £9.95 a year. Serial returning is, in many ways, a natural response to these kinds of policies.
83% of shoppers now say they check the returns policies and only shop again with a store that has a returns policy they like (CWB). 78% of UK shoppers would be encouraged to spend more if a retailer offered free returns (Klarna).
Although flexible, free and easy returns encourage shoppers to buy more, the cost to the merchants to process the huge wave of returns is damaging their bottom line. Making returns more difficult could deter some shoppers from making purchases as customers have come to expect this as standard. There is a pressure on ecommerce stores to offer a premium returns service to stay ahead of rivals and appeal to shoppers.
How are serial returners being defined? Asos say they will take action if it notices an ‘unusual pattern’ of returns activity. Is the issue people over-buying and returning or is the issue the fact that some people are wearing the items before returning them.
While it’s clear that the ‘majority’ of retailers support the returns crack-down, it isn’t clear how it will play out across the industry. Will smaller retailers risk banning customers for life or will they roll out alternative solutions?
Banning customers that have clearly been identified as fraudulent from large stores like Amazon or Asos seems fair but what about customers that return large amounts AND keep large amounts?
Are all serial returners fraudulent and are all of them are loss-making. This is where customer data becomes your friend. Retailers should look at the bigger picture and take into consideration the individual customer’s lifetime value. Not all returners are creating an overall loss if they keep more than they return, so it’s a good idea to find out if a customer has a ‘net negative or net positive value. (Rebound)
12 – 20% of customers generate 80% of your refunds (Rebound).
With the above in mind perhaps lifetime bans are a short-sighted solution. Let’s look at other potential measures that could be put in place to deal with the issue of large volumes of returns:
- Clearer returns policies
- A set quota on the amount of returns each customer can make per year
- A more limited time period to complete a return
- Putting accounts on hold temporarily rather than banning customers for life
- Introduce charges for returns
- Limit the number of offers & promotions presented to avoid serial returning
- Raise prices in other areas to cover the costs of returns
- Introduce an annual subscription that would cover the costs of the return
- Introduce the Try Before You Buy model
Asos have extended their returns period, however, after 28 days customers are entitled to a voucher only and not a refund.
It is likely that Asos and Amazon will have sparked a new wave in how serial returns are treated however the vast majority of retailers do not have the resources to track and identify the specifics of customer behaviour.
44% of retailers admit they don’t have adequate technology at their fingertips to identify a serial returner. (Brightpearl)
The technology to centralise returns data is available, but most companies have not invested in it up until this point. By deploying this type of tech retailers can start to gain an in-depth understanding of what drives returns behaviour. Knowledge is power, and if you have this type of information, you can make the smartest decision of how to take the most appropriate action. Sephora tracks customer patterns in order to identify excessive returns.
An audit of your returns will clearly show the stats and can help you to take action to prevent avoidable returns, for example, shipping incorrect or faulty products, goods being damaged in transit etc. that can help reduce the impact returns are making on your business.
Online retailers could be taking a significant risk by shaking things up, treading a fine line between protecting their profit margins and securing long term brand loyalty. Customer experience and convenience should ultimately be at the heart of ecommerce retail.
With the best interests of the customers at the forefront, it’s essential to be fully transparent with all policies and the type of data you collect from them.
Prioritising and leveraging returns data and analysis will lead to insights enabling you to make smarter, customer-focused decisions that are also best for your bottom line.