In a survey by the National Retail Federation consumers ranked return policy as more important than a brand's customer service.
To stay competitive, brands are spending tons of money to make returns hassle-free for consumers. Increasing the ease of returns is a great way to increase customer loyalty and retention.
However, recently, brands have gotten so good at making returns hassle-free for consumers that the number of returns has skyrocketed. According to the NRF, total merchandise returns account for $369 Billion in lost sales for US Retailers.
The effects are even more significant with omnichannel brands. The money omnichannel retailers are spending on returns grows as their online sales become a larger part of their overall sales. Steve Dennis, President & Founder of SageBerry Consulting, calls this phenomenon the "omnichannel migration dilemma."
If they aren’t already, brands should be paying close attention to the number of returns and the costs associated with them.
As Peter Drucker would say, “If you can’t measure it, you can’t improve it.”
The Returns Epidemic
“Online shoppers want the same level of choice, control and convenience making their returns as they do making their purchases,” - Teresa Finley, CMO for UPS.
First and foremost, consumers want returns and exchanges to be free. According to a report by Walker-Sands, 54% of consumers said that free returns and exchanges made them more likely to shop online. The only factor that ranked higher was free shipping.
Unfortunately for brands, free returns are not free for the business. Returns increase costs in a multitude of ways. From shipping costs to increased labor costs (inspection and restocking). Not to mention that some of the returned inventory will no longer be in good enough condition to sell at full price (or at all).
Fraud & Abuse are Making Matters Worse
Unfortunately, good-intentioned policies are being taken advantage of by individuals who want the dressing room experience at home and criminal groups alike.
No, we aren’t suggesting that Jessica who is unsure about the perfect dress for her date is as bad as groups who are deliberately committing fraud. But both are sucking profits out of companies whose only crime is trying to take care of customers who aren’t pleased with their purchase.
According to Appris, for every $100 in returns, $5.00 is lost to return fraud.
Just let that sink in for a moment.
The same study estimates that the retail industry loses just under $24 Billion per year to returns fraud and abuse.
Every brand in the world strives to provide a great customer experience. But every brand can’t afford to hemorrhage money from returns.
Finding a Balance Between Customer Experience and Your Return Policy
Brands are in a dilemma:
1. Should they provide a liberal return/exchange policy? 100% satisfaction guarantee, no questions asked, etc.
2. Should they provide a more stringent policy? Restricts the amount of product a customer can return, the period in which they can return, etc.
Similar to most issues, the answer is in the middle.
Lenient return policies are a great way to win the hearts, minds, and dollars of consumers. Companies like Land’s End and Zappos have built their companies on the backs of generous returns policies. This bet on building relationships with their customers has paid dividends and is inseparable from their brand's image.
Despite all the positives of a lenient return policy, the risk of abuse can not be ignored. L.L. Bean is probably the most famous example of a brand changing its return policy. Last year, the company decided to end its 100% satisfaction guaranteed policy instituted by the company’s founder. Making this decision after they observed a significant amount of abuse from their customer base.
The abuse was so widespread that Company Chairman, Shawn Gorman, had his own donated shirt returned for a refund. L.L. Bean reported that the policy cost them $250 million over 5 years. Even so, the decision to change the policy was met with backlash from customers like the one below:
Some customers felt so betrayed by the brand’s decision that they even filed lawsuits.
Here are two more examples of companies who were known for having very generous policies who felt like they need to make changes:
- Costco - In 2007 the company restricted returns of electronics.
- REI - The company’s return policy was so lenient and return abuse was so rampant it earned nicknames like Rental Equipment Inc.
Have you considered changing your return policy?
Is return abuse a widespread issue for your company? Is it putting your company under immense financial pressure? It may be time to make sweeping changes to your return policy.
Here are the 4 main ways that brands alter their return policies:
- Require proof of purchase
- Require an item to be in its original packaging
- Reduce the amount of time customers have to return the item.
- Give customers store credit for returns
Worried about the cost of returns?
Don’t be! Ok, maybe you should just a little. Some of the biggest names in e-commerce are taking action against excessive returns. Amazon and Zappos have both suspended customers they identified as serial returners.
There isn’t a definitive best policy for deterring serial returns. But using data to target individuals who you know are pushing the limits of your return policy is a great alternative to making sweeping changes to your return policy. Sweeping changes punish your entire customer base for the actions of a few.
Reducing Returns with Zenkraft Dashboards
Zenkraft’s solution collects data on returns and packages them into easily digestible dashboards. These dashboards can be a valuable weapon in your efforts to crack down on return fraud and abuse.
Zenkraft’s dashboards will empower your team to make an informed decision to protect your margins. When analyzing the data you will be able to identify product categories, specific products, the reason for the return, and which customers are making the most returns.
After reviewing the data you can then determine what course of action to take. Whether that means, making wholesale changes to your return policy, changing your policy for a specific product category, or warning/banning customers who are testing the limits of your policy.
We can all agree that you’d rather your brand be on the first page of Google when you search “Generous return policies” instead of “Stingy return policies”. But just because your brand is perceived to have a less generous policy doesn’t mean it was a mistake.
Brands, especially those whose online stores are driving a large percentage of sales, need to be wary of the rising expenses associated with returns. And keep a close eye out for serial returners. It may be necessary to tweak your return policy to preserve the financial health of your company.
Brands span industries and sell completely different products. So why would there be a one size fits all return policy for every brand? I would look ridiculous in Shaq’s suit, but that doesn’t mean I won’t look good in a tailored suit.
Your return policy should be tailored to fit the nature of your product. Books and video games that can be completed in a week should have shorter return policies than refrigerators.
If 85% of L.L. Bean’s customers were ok with the controversial decision to change from lifetime returns to 1-year returns. It’s certainly possible for your brand to strike a balance that is both customer-friendly and bottom-line friendly.