Inside this guide, you’ll discover:
- How your return policy can increase conversions and retention
- Best practices to make your post-Black-Friday returns more profitable
- Industry-wide benchmarks as well as proprietary data from Shopify Plus and Return Magic on ecommerce return rates, reasons, and costs
Keep reading or access the 2018 Holiday Ecommerce Returns Guide
Returns can be like a deadly ecommerce cancer — aggressively attacking profit margins, gutting conversion rates, and ultimately threatening your business.
In the U.S., return deliveries are estimated to cost $550 billion by 2020, 75.2% more than just four years prior. Ecommerce returns are growing even faster, increasing 94.8% over the most recently measured five-year period.
Nailing down exact numbers on ecommerce return rates is notoriously difficult.
Aggregate data — often attributed to Forrester and reported by The WSJ as well as Star Business Journal — places brick-and-mortar return rates around 8-10%; online it’s more than double that at 20%. During the holidays, returns surge to 30% or even as high as 50% for “expensive” products.
Even worse, the real cost driver is this: your customers are buying from you with the intention of immediately returning some of those items.
- 41% buy multiple sizes or variations with the intent of returning
- 77% of returns come from repeat customers
- 89% have returned an online purchase
In response, businesses are adding workers, increasing warehouse space, and establishing separate departments just to handle ecommerce returns. Nevermind that it’ll take nearly 28% of businesses approximately two weeks to add a returned item back into inventory.
Returns are the new normal and central to customer experience. But, they don’t have to be cancer. In fact, they can actually help differentiate your brand, create a competitive advantage, and make you more profitable.
To help guide you, this article — as well as the downloadable guide — walks through …
- How Your Return Policy Impacts Sales
- Ecommerce Returns: The New Profit Driver?
- Reverse Logistics Solutions and Repeat Returners
- State of Returns in 2018: Refunds, Reasons, Carries & Costs
- 10 Ecommerce Return Best Practices for a Profitable Holiday Season
How Your Return Policy Impacts Sales
To make a buck you’ve got to bare it all …
We’re talking about transparently illustrating your return policy just as you would a featured product or service. Research indicates 67% of shoppers will check your return policy before buying from you. Importantly, shoppers are increasingly not happy with the return policies offered as 58% aren’t satisfied with the ease of making returns.
What do customers dislike about return policies?
While 80% of customers expect to be able to return purchases for free, just 25% of brands actually offer free returns.
Offering free returns is an incentive to buy. Free returns can lift conversion rates as 71% of customers find that a restocking fee or shipping fee can prevent them from making a purchase. A restrictive policy will prevent customers from buying. Likewise, this study suggests that by offering free returns, consumers are twice as likely to spend more than $1,000 online.
Understand as well that a simple, transparent, and generous return policy can earn customer loyalty. 72% of shoppers are willing to spend more and buy more frequently from brands that make the return experience simple.
But offering the world’s best return policy might actually kill your business, unless …
Ecommerce Returns: The New Profit Driver?
Even a friction-free return policy — one that offers a 30-day window for free returns — and entices shoppers to convert into customers will actually lead to commercial demise unless the policy is supported by a reverse logistics infrastructure.
The average retailer, according to the trade publication Inbound Logistics, spends 8.1% of total sales on reverse logistics. This includes taking back damaged, unwanted, spoiled, or counterfeit goods.
An ultra-generous return policy — operated and managed well — can actually drive growth. One of the most prolific examples is the online shoe retailer Zappos, an Amazon company.
Zappos was one of the first to offer a generous 365-day, free two-way shipping and return policy that practically invited customers to order shoes, try them on at home, and send them back if they weren’t completely happy.
Zappos’ executives are fond of saying that customer service is the new marketing. That lenient return policy, according to the company, is actually a profit center.
Zappos says customers who purchase the company’s most expensive footwear ultimately return 50% of everything they buy. However, the margin made on the expensive footwear makes up for the added shipping costs.
Our best customers have the highest returns rates but they are also the ones that spend the most money with us and are our most profitable customers.
But it’s not just the policy that makes Zappos a success; it’s the …
Reverse Logistics Solutions and Repeat Returners
Is your reverse logistics solution optimized like Zappos?
Research suggests the majority are not. 52% of distribution center managers don’t have the ability or resources to determine whether returned items should be sent to the vendor, moved into inventory, or discarded. That same study also revealed that 44% of distribution center managers consider returned items as a “pain point” in their operations.
If your supply chain is unprepared to accept these goods, they’ll be stored and unrecognized as current inventory in the warehouse, perhaps only considered as available inventory at a later date during physical counts.
That’s a pile of avoidable waste in the making.
A report by the Reverse Logistics Association explains that managing the “return and repair” process accounts for 10% of total supply chain costs. But, if the supply chain gets stuck (due to some inefficient processes), it can compound the cost and reduce profit by 30%.
Establishing a standard procedure for handling the returns can make reverse logistics less challenging for companies.
For instance, Estee Lauder Companies Inc. used to dump about $60 million worth of its products into landfills annually. But after setting up a reverse supply chain, it was able to cut the volume of destroyed goods by 50%.
Also, the company has created a $250 million product line from the returns goods flow according to a report. It now represents the third most profitable product line within the firm. Separately, a UPS report says that high-tech manufacturers without a well-developed reverse logistics process could be losing more than 50% of returned inventory value since most of the returned products can be sold in secondary markets.
Rather than viewing returned items as a cost, you can streamline reverse logistics to get the most out of the holiday return influx. A recent study showed that when businesses invested in improving reverse logistics processes, they saw a 12% increase in customer satisfaction and a 4% decrease in cost.
You’ll certainly need a sophisticated reverse logistics solution when you consider that people who routinely return ecommerce items often have no intention of keeping what they originally purchased.
However, the reasons for habitual returns often vary.
Here are three return customer personas to consider when segmenting your customer base and determining which segments deserve discounts and which may not:
People who buy items to wear once and who have no intention of keeping them afterward. These people may not be able to afford to own the item or are taking advantage of generous return policies.
The “Try It On” Consumer
People who order clothing online with the sole purpose of trying them on at home. These people have no intention of keeping the items they purchase.
The Fitting Roomer
People who replicate the process that occurs in brick-and-mortar stores in which consumers go to fitting rooms armed with different sizes and colors of the same item, pick their favorite after trying everything on, and return the rest.
With these personas — and your own customer segments in mind — we wanted to make it quick and easy for you to see how you stack up against your peers and competitors with regard to returns.
It’s why Return Magic, a Shopify Plus solution that optimizes the return touchpoint for revenue and profit for more than two thousand brands …
Surveyed 1,000 businesses in multiple industries and compiled proprietary data from Shopify merchants to reveal:
State of Returns in 2018: Refunds, Reasons, Carriers & Costs
As noted, the overall ecommerce return rate is roughly 20%, with season spikes over the holidays hitting 30%.
- 65% of all refunds are performed manually
- 35% of refunds are done via apps like Return Magic
How does an app like Return Magic impact the customer experience as well as your overall return rate?
Businesses that offer a generous and easy-to-use return policy often derisk the purchasing decision, increase sales, and lift customer loyalty. Return Magic makes this far easier to track and optimize by offering consumers an enjoyable, streamlined, and hassle-free return experience.
Likewise, the app also positions businesses to embrace returns as a differentiator or competitive advantage since returns may be automated and scaled without friction, hassle, or the inefficiency that can come with manual processing.
Return rates fluctuate mainly based on (1) product category — apparel with 20%-30%+ the norm — and (2) return policy — free returns tend to drive higher rates.
Overall consumer preference-based return reasons (e.g., size, fit, style, etc.) tend to drive around 75% of all returns in fashion product categories. Non-preference-based reasons (e.g., defective) and “not as described” reasons are around 10% in total.
Refunds by form
- Payment method: 64%
- Exchanges: 18%
- Gift card: 18%
Top reasons for returns
- Size too small: 30%
- Size too large: 22%
- Changed my mind: 12%
- Style: 8%
- Not as described: 5%
Logistics carriers and label costs
- Leading carriers: USPS (81%), UPS (11%), and FedEx (6%)
- FCM is top mail class (47%) and PM (33%) is second
- Effective average cost of a label is around $6.75
10 Ecommerce Return Best Practices for a Profitable Holiday Season
Now that you know how you stack up against your industry peers and competitors, it’s time to revisit your policy and determine whether it might be optimized.
Brands are increasingly adopting simple, transparent, and generous return policies that inspire confidence and trust in consumers. However, some retailers are also implementing clear limits regarding the length of time consumers have to return unwanted items.
Here’s what’s happening:
- Consumers often wait until the last minute to return items
- Average return time is typically 2-3 days prior to expiration
- This impacts inventory forecasting, budgets, and personnel
Modifying the return window length can give retailers better visibility on returns and how they may or may not impact operations. The idea behind altering the return window is to influence the average time to return and reduce uncertainty for the retailer.
Remember though that offering a return window of 30-days can increase conversions by 57%.
But reducing the time a consumer has to make a return doesn’t provide retailers with all the data they need to better understand why an item is being returned. In fact, apparel industry veterans say even if you ask, customers may not tell you exactly why they’re returning an item:
- Customers are unlikely to admit an error while ordering
- The majority default to the “it doesn’t fit” crutch
Even worse, a consumer using an inaccurate online sizing tool or measurement calculator may not know it’s inaccurate and thus be unable to tell retailers. It’s why you can benefit from technology like Return Magic — which helps brands identify exactly why an item is being returned — to integrate a sophisticated reverse logistics solution into your supply chain.
1. Learn from the best by testing them
Should you offer a free label or not? What is an appropriate time window to return the item? Is it better to include a return label in the box or not?
Spend time — just as you are now — doing a bit of research on the return experience, taking your customers’ point of view to understand what is the right return experience for your store. For example, you can buy and return items online on the site of large retailers such as Nike, Zara, etc. to understand what makes their return experience interesting.
You can also buy and return items from your site and your peers or competitors. What did you notice? How does your current experience compare? Sounds simple to do, but testing your own approach to returns is a great starting point.
2. Create a simple, trustworthy return policy
Most return policies look like contracts with fine print and complex terms. The harder it is for a shopper to understand your policy, the harder it is for them to trust your brand, and to trust that you care about them.
How does a simple return policy help to build brand trust? Given that more than 80% of people will look at your policy, it is absolutely worth optimizing the wording for conversion.
A clean, short, and simple policy that can be understood in less than one minute inspires more trust from shoppers. It reduces chances of misunderstanding and confusion. Take a look at Midori Bikini’s as an example.
3. Protect profit margins with smart rules
If you’re heavily discounting merchandise to drive sales during the holidays, major campaigns, or experimenting for growth, you might consider adjusting your return policy based on specific SKUs.
Having a specific strategy for specific discounted items is one way to ensure big markdowns don’t result in returns that crimp profit margins.
Some retailers will make heavily discounted items non-returnable. Others allow customers to exchange items that have been marked down significantly for store credit only. And others will increase the restocking fee for heavily discounted items.
Also with Return Magic, you can integrate product tags to alter your return policy for specific products that have been marked down. Using product tags for items you wish to attach special return caveats to will allow you to manage returns for specific items and protect profit.
4. Automate the return process
In the same way that Shopify Plus brands automate flash sales, product launches, and put back-end workflows on autopilot, so too should you automate much of the return process.
During seasonal spikes in sales — like Black Friday and Cyber Monday — automating portions of the return process will save you time, allow you to do more with less, and focus your time and attention on higher value ROI-generating tasks.
With return automation, you can ensure a compelling customer experience even during the busiest of times. To keep on top of increasing returns, retailers should streamline the process by automating labels, tracking, and refunds.
5. Put your policy front and center
Promoting free and easy returns across your site can help increase conversions and build brand trust. If you are not able or willing to offer free returns, promoting easy returns can still be a viable strategy.
Fashion Nova prominently promotes free shipping at the top of each page of its store. For the holidays, consider adding free returns as part of your free shipping policy — so long as customers meet a spending threshold of your choice. Here’s exactly how to calculate free shipping thresholds for your business.
6. Offer refund flexibility and choice
Shoppers like the freedom to choose. This is especially true when it comes to refunds as they’ve been conditioned by retail behemoths to expect refunds in the form of their choosing.
Instead of handcuffing your customers, give them the freedom and flexibility to choose from:
- Reordering and receiving a new item of similar value
- Receiving their original payment back in the form of a refund
- Receiving a store credit, gift card, or other form of currency that may be used later to purchase something from you
Offering gift cards is especially valuable for both parties when you consider that they allow you to keep the money in your store. Encouraging gift card refunds can improve your cash flow position.
For example, some merchants will deduct a fee for cash refunds, while offering gift card refunds for free. This gives an incentive for the shopper to opt for gift cards while staying in control.
Shopify Plus brands have a myriad of options in this respect with powerful tools like the Gift Card API, Shopify Scripts for discounts, as well as BOGO and quantity discount solutions. Offer a variety of refund options and give your customers the control they desire.
7. Give customers the power to track returns
Making the return process transparent can deliver many benefits. Confusion erodes brand trust. Uncertainty increases customer contact and depletes resources. By giving customers the means to track orders and returns themselves, you free your customer service team to focus on more important loyalty building tasks.
Here again, ecommerce automation can help you offer a world-class customer experience that puts the customer in control. Sending automated order and return confirmation emails that inform customers when their orders ship with the ability to track their packages builds anticipation for the arrival of the order.
You can also use Shopify’s native integration with Facebook Messenger to make tracking even more conversational and delightful:
8. Make return management a priority
Falling behind is the cardinal sin in the return game. It’s easy to do though during seasonal spikes in returns like right after the holidays.
Being proactive — and using ecommerce automation — will help you keep the promises you make to customers and offer a customer experience that differentiates your brand.
Don’t disappoint. You have their money — trust is at stake.
Carve out extra time to stay on top of new requests that come in. Things can evolve very quickly, so it’s a good idea to check in daily and make sure nothing is on fire. As for customer contact, customers that are trying to return tend to be easily irritated if they do not receive a response within a day.
9. Co-create the perfect return policy
You likely don’t make product, merchandising, or storefront design decisions without some form of customer feedback, behavior, or input. The same then should be true of your return policy.
It doesn’t have to be static — the policy isn’t etched in stone. Rather, think of your return policy as a work in progress that may be adjusted for the benefit of both parties — you and your customer.
Getting customer feedback can be tremendous for improving the return experience. You can survey NPS specific for returns. This will likely identify any friction that exists and how you can mitigate it. For instance, you could find out that you have a specific inventory sizing issue in a specific category. Or you could learn that you have specific quality issues with a manufacturer.
10. Routinely investigate, analyze, and optimize
After the holidays or major campaigns that result in abnormally high returns, it’s crucial that you examine return data so you can intelligently improve your policy, processes, and reverse logistics.
A post-mortem can unearth insights you can spread across your team and inform technology purchase decisions — like selecting the right SaaS returns solution for your business.
Identify three pain points or areas in which you might improve. Focus on those three until you’ve optimized the return process. And don’t forget to test the adjustments by comparing before-and-after analytics and getting real customer feedback.
In some cases, you may even discover that special policy adjustments are beneficial to you and your customers during major sales events — think tagging heavily discounted products which come with more stringent return rules.
Returning the Favor
Blame Amazon if you want for forcing you to do business in a world where customers expect free shipping and returns. Understand though that consumers are willing to return the favor when offered a generous return policy in the form of:
- Higher average order values
- Increased purchase frequency
- Incremental conversion rate lifts
Combine these insights with the fact that 89% of repeat customers who have a good return experience are likely to buy again … and a generous return policy — even with profit protecting guardrails — can earn outsized customer loyalty.
In fact, the return experience is a leading indicator for customer loyalty and overall customer retention.
When you offer and execute returns like this — you create an enduring competitive advantage — and customers are significantly more likely to return the favor by spending more money, purchasing more often, and pledging their loyalty to you.