The Plague of Ecommerce Return Rates and How to Maintain Profitability

returrates

Illustration by Jennifer Tapias Derch

Ecommerce returns can be a disease—aggressively attacking profit margins, gutting conversion rates, and ultimately threatening your business. 

Collectively, consumers returned products worth $428 billion in 2020—just over 10% of total retail sales. The National Retail Federation estimates the cost of returns amounts to $101 billion

It paints a bleak portrait, especially for online retailers. But the real cost driver is this: many customers buy with an explicit plan to immediately return some or all of their items.

In response, businesses are adding workers, increasing warehouse space, and establishing separate departments to handle reverse logistics. Returns are the new normal and central to customer experience. But they don’t have to be a plague.

In fact, how you deal with ecommerce returns—before and after purchase—can differentiate your brand, create a competitive advantage, and even make you more profitable.

Table of Contents:

  1. The state of ecommerce returns in 2021
  2. Strategies for handling ecommerce returns
  3. The best software for handling ecommerce returns
  4. Ecommerce returns best practices

The state of ecommerce returns in 2021

Ecommerce return rates by industry

Ecommerce returns happen across all industries. In fact, a quarter of all consumers return between 5% and 15% of the items they buy online. (That supports why more than a quarter of retailers have seen a rise in the number of online-purchased items being returned by a customer.)

Automotive retailers struggle the most, with customers in those industries returning more than almost 1 in 5 purchases. That’s shortly followed by apparel retailers (12.2%) and home improvement and houseware brands, whose customers return 11.5% of online orders.

We also see differences between the number of returns and the payment method a customer used. Shoppers that purchase an item using a credit card were most likely to return an online purchase. Those buying with a debit card were the least likely.

Why do people return items?

Data suggests that 20% of online-bought products are returned, compared to just 9% of items bought in a brick-and-mortar store. Let’s take a closer look at why that figure is so high. 

Consumer preference-based returns (e.g., size, fit, style, etc.) tend to drive around 72% of all returns in fashion product categories. Non-preference-based reasons (e.g., defective) and “not as described” account for 10% in total.

  1. Size too small: 30%
  2. Size too large: 22%
  3. Changed my mind: 12%
  4. Style: 8%
  5. Not as described: 5%
  6. Defective: 5%
  7. Other or not specified: 18%

When customers know that they can get their money back just as easily as they can spend it, they’ll shop with more confidence and spend more.”

— Sanaz Hajizadeh, Happy Returns

Ecommerce returns and the holiday season

Unsurprisingly, the number of returns mirrors peak ecommerce sales periods. The holiday season, for example, is the most popular time of year for online shopping. 

A quarter of holiday shoppers buy items with the intention of returning them at a later date. Whether it’s gifts a friend doesn’t like or trying to reclaim some money they spent in a holiday-inspired splurge, it’s why ecommerce brands receive the most returns throughout December, January, and February.

The COVID impact on ecommerce returns

Shipping courier DHL saw a 20% decrease in average weekly return volumes during the start of the pandemic. It reports that “drop is likely attributed to consumers wanting to avoid extra stress during the pandemic; to return a product, they must leave the house to visit the local shipping store, a risk many are reluctant to take during lockdown, especially when advised to self-isolate.”

Interestingly, we see similar trends in the time it takes for brands to process a return. Pre-COVID, it took retailers 4.53 days to register a return. Now, that’s bumped up to 8.17 days.

The impact of returns on customer loyalty 

When people do decide to return their online purchases, most retailers opt to refund the purchase price to a customer post-return. Some 18% offer exchanges; the same amount give a gift card to redeem on a future purchase.

Regardless of which refund type a retailer is offering, there are strong customer expectations to compete with. Some 62% of customers expect an exchange or refund within 30 days of purchase.

But put a foot wrong in this return experience and you’ll add a hurdle in your mission toward getting repeat customers. Data from Rebound shows a quarter of shoppers think a delay in processing their return contributes toward a negative experience. 

Get the returns experience right and 92% of customers will return to buy again. You’ll make future purchase decisions easier and increase customer lifetime value. 

Strategies for handling ecommerce returns

Post the item back to your warehouse

This is the most popular returns process for ecommerce-only brands without a brick-and-mortar store. When a customer wants to return an item they’ve bought online, they post it back to your warehouse or fulfillment center. From there, the merchandising department inspects the product and confirms it’s eligible for a refund.  

Retailers can save time on manual returns with return management apps. They’ll speed up the process, give customers a status of their return, and update your inventory management system automatically (more on that later).

Return items to store

Research shows that 62% of shoppers are more likely to shop online if they can return their purchase to a physical store. If you have one, consider allowing ecommerce customers to visit the store to return their item. The returned goods can then be inspected and put back on the shelf for future customers.

Not only are store returns more convenient, but enticing customers to enter a store could prevent future returns. If a customer is returning a t-shirt that doesn’t fit, for example, they’ll have the opportunity to try on other sizes during their visit. That gives them more confidence in future purchase decisions—both online and offline—because they know their size.

Outsource reverse logistics

Returns management is a lengthy process. But it’s one you don’t have to handle in-house. Third-party logistics (3PL) partners handle the entire order fulfillment process—including returns. A provider offering reverse logistics stores a retailer’s inventory in a third-party warehouse. 

When customers return an item the 3PL has previously shipped, it arrives back at their warehouse. Their team inspects the item and processes a refund. The approved returned item is then put back on the shelf to be picked for another order.

Best software for handling ecommerce returns

Brands can handle ecommerce returns by using one of the many returns and exchanges apps available in the Shopify App Store. These apps track and fulfill orders, get your products out the door, and protect your business from risky transactions.

When the customer experience team is spending the majority of their time manually creating shipping labels and answering questions like “Where is my refund?” instead of helping the shoppers find the right item to purchase, it’s a clear indication that it’s time to automate returns.”

—Sanaz Hajizadeh, Happy Returns

Across all Shopify businesses, 65% of refunds are performed manually; the remaining 35% via apps. Here are three of the most popular.

Happy Returns

Happy Returns is an ecommerce returns management software used by retailers like Rothy’s, Everlane, and Andie. 

Sanaz Hajizadeh, Happy Returns’ Director of Product Management, explains, “Happy Returns offers box-free returns for online merchants through a combination of software and reverse logistics—pioneering in-person, aggregated returns that can help dramatically reduce shipping costs and the impact on the planet.”

“Happy Returns covers all aspects of post-purchase: from tracking orders as they are fulfilled to providing flexible return options for merchants, no matter where their warehouse and shoppers are located.”

In addition to its returns software, Happy Returns also provides buy online, return to store and mail returns services for hundreds of leading merchants. It maintains a network of over 2,600 Return Bar locations where online shoppers can drop off their returns in person. 

“Every merchant should focus on selling and increasing revenue. By using tools that automate the post-purchase process, they can reduce operational headaches. Of course, merchants can use one tool for each task, but combining them in one powerful tool makes it easier to gather data, manage their return policy, and keep everything seamless and on-brand.”

Loop

Loop is another returns management tool for Shopify Plus sites. Customers submitting a return are incentivized to exchange the item, rather than return it. They can exchange an item for another size or color in one click. 

Should a customer still want a refund for their purchase, Loop helps retailers streamline their returns process. It uses data from a returns form and your returns policy to automatically approve or deny requests. 

"We like Loop because it is incredibly user friendly, so it’s super easy for customers to return items. We like this because it makes us look good and lets the customer leave with a positive experience. Because of the way that it’s set up, it makes it easy to swap out returns for other products in our shop, which helps keep the customer and the money.” —Lanai Moliterno of Sozy.

Returnly

If you’re managing ecommerce returns from international customers, Returnly is a good option. It automatically creates return labels to get packages through customs. Shoppers can also request refunds (or credit) in their local currency.

Not only that, its Green Returns program helps retailers reduce waste. It makes real-time decisions based on a retailer’s returns policy to judge whether an item can be resold if returned. If it can’t, the customer doesn’t need to waste their time shipping it back. Fewer shipments mean less waste, cheaper shipping costs, and better customer experiences.

Ecommerce returns best practices

Now we know the process for handling ecommerce returns and the options available to you, there are still things you can do to reduce the number of returns you’re handling. (That’s the end goal, after all. Fewer returns means happier customers and more revenue.)

Here are six ecommerce returns best practices to boost efficiency and cut costs.

Make product information accurate and easy to find 

It’s standard practice to check that all public-facing content—including product descriptions—are accurate and detailed. If the product arrives differently than expected, there's a high chance of it being returned. 

To reduce returns and improve conversions, make sure the following information is included on every product page across your ecommerce site:

  • Product weight and dimensions
  • Materials used to make the product 
  • Size guides, including the size a model is wearing (if appropriate)
  • Your ecommerce returns policy (i.e., how long they have to return an item, any costs associated with it, and the types of product eligible for return)

Rothy’s highlights its returns policy on each product page to increase conversions and prevent returns.

Take Supplement Warehouse, for example. It ships 300 supplement packages daily through its warehouse, all of which are ordered through its ecommerce store. Its marketing manager, Brian Anderson, explains that most people return their items because customers didn’t notice that their product contained a specific ingredient.

“Because we sell vitamins and supplements, many people order the product and wait until they have it in hand to review all of the ingredients. Some are allergic or their doctor told them not to take it, so they end up returning it. We have made sure that all product labels are large and visible on product pages. This makes it easier for potential customers to read the label before they purchase.” —Brian Anderson, Marketing Manager at Supplement Warehouse

Automation helps solve most of these issues. Use plug-ins like Low Stock Alert to see when items are running low. It prevents you from selling an item that isn’t available—and shipping the wrong item in its place.

According to Josh Wayne, VP of Commerce Products at TrueCommerce, “A lot of brands try to manage all their product information manually, and with ecommerce channels growing so rapidly, it’s just not feasible to avoid mistakes that way.”

“What ends up happening is, a customer orders a product, and when it arrives, it’s the wrong color or size or compatibility, because there was incorrect or missing information online. It’s an immediate return, and can also result in low ratings and reviews, which impact future sales.” —Josh Wayne, VP of Commerce Products at TrueCommerce

Use 3D/AR on your ecommerce website

Shopping in-store naturally has some advantages over shopping online. Amongst the biggest is the ability to see, try on, and interact with products before a customer decides to buy it.  

Augmented reality (AR) technology helps online shoppers experience the same thing. Retailers can use it to show what their products look like tried on, in a customer’s home, or next to an item they own for a size comparison.

Each of those things prevent the reason behind 22% of returns: the fact the item looks different in-person than it did online. 

Gunner Kennels, for example, uses augmented reality and 3D technology on its ecommerce store. It knew it’d be difficult for customers to see the size of a dog crate and whether their pet would fit inside it—which would inevitably lead to returns. 

With the help of Shopify Plus, Gunner Kennels developed 3D models of its crates. 

With this technology, buyers can now use their device to place the crate right next to their dogs to confirm sizing, decreasing our return rate by 5%. We would like to use this feature on future products and other accessories moving forward.”

—Macey Benton, VP of Marketing, Gunner Kennels 

The retailers’ investment in 3D and AR technology paid dividends: 

  • Return rate reduced by 5%
  • Cart conversion rate increased by 3%
  • Order conversion rate increased by 40%

Pack and ship items securely

It’s easy to think that once an item has left your warehouse, it’s off your plate. The truth is, some 30% of items are returned because they arrived faulty or damaged. But you wouldn’t ship them in that state. Something went wrong in transit. 

Granted, your delivery carrier plays a big role in this. But there are steps you can take to minimize the chances of an item becoming broken or faulty through shipping—and therefore, being returned:

  • Inspect every item of clothing before it’s dispatched to a customer
  • Use protective material, such as bubble wrap, in a delicate package
  • Add Fragile labels to parcels with easily breakable items inside (like glass)
  • Use the correct parcel size so items don’t jolt around in transit

Make your returns process sustainable 

Data shows that three-quarters of customers intend to shop more with retailers that are making their returns process more sustainable. Another 71% would be willing to pay more to return with a sustainable option. 

But most companies’ existing returns policy doesn’t fit that bill. It’s estimated that return shipping in the US alone creates 15 million tonnes of carbon emissions per year. That’s the same amount produced by five million people. 

Preventing the likelihood of returns help to reduce your ecommerce brand’s carbon footprint. The fewer packages that come your way, the less fuel and resources you use. 

Unfortunately, you’ll still deal with returns. Make sure your ecommerce return policy is more sustainable by ditching the prepackaged free-return labels in your parcels. Printing those labels—even for customers who don’t need them—is wasteful.  Instead, ask customers to go online and print their own labels when needed.

We donate customer returns to charity or other institutions that need them. Not only are we addressing the issue of returns, but we are also helping people who badly need a product like ours.”

—Stephen Light, co-founder of Nolah

Keep customers informed about the status of their return

For ecommerce businesses, brand perception and reputation is everything. Just one tweet like this can influence another customer’s decision to purchase from you or a competitor:

“The most important question to ask when assessing your reverse logistics process,” says Andrew Bowden, Senior Manager of Product Marketing at TradeGecko, “is whether or not you’re designing and optimizing the experience for the customer or for your business—ideally, it’s a mix of both.”

“When in doubt, default to the customer. First, keep them up to speed on the returns process while in the flow, either by email or, preferably, via Facebook Messenger or SMS. If your OMS facilitates this, incredible. Second, get feedback and ratings on the returns process itself—that’s where you’ll find gold nuggets to set yourself apart from the competition.”

Find a shipping carrier that supplies tracking information. Most offer tracking numbers for customers to see the location of their returned parcel. Once it arrives at your warehouse, send the customer an automated message to confirm you’ve got it. Give them an ETA on how long they should expect to wait for a refund. 

Apple’s return confirmation email. Source: Really Good Emails

Protect your business against ecommerce return fraud 

Did you know that for every $100 in returned merchandise, retailers lose $5.90 to return fraud? It’s costing US retailers more than $18 billion a year, and happens when people return stolen items, claim an item never arrived, or use the item and return it later.

It’s crucial to separate the types of returners and track them automatically. A tool like Shopify Flow can help. Establish refund thresholds based on per-order dollar values or the number of returned items. Second, use that threshold to automatically:

  • Tag customers for identification and segmentation
  • Notify your customer service team via email or Slack to investigate
  • Add those customers as a segment within an onsite personalization tool to exclude them from free shipping and/or full-refund offers
  • Exclude them from free shipping at checkout by creating a Shipping Script based on one or more of your customer tags.

Some retailers—including Amazon and ASOS—are reportedly updating their returns policy to blacklist serial returners. While extreme, such actions are often necessitated by the first type of habitual returner. 

If blacklisting customers isn’t an option for your ecommerce business, there are other things you can do to prevent return fraud:

  • Choose a delivery carrier that supplies tracking numbers or proof of delivery. For example, a photo inside a customer’s open doorway.
  • Substitute cash refunds for exchanges or store credit. There’s less incentive for someone to try and return a stolen item if they’re getting a like-for-like back. 
  • Offer a longer exchange window than you do for a refund. This ensures your customer still has ample time to return but makes an exchange more likely.
  • Ditch free return shipping to make it harder for fraudsters to push their luck with return fraud. 
  • Only process returns if the item comes with a receipt or proof of purchase. This prevents people from returning stolen merchandise, or items purchased from another retailer. You’ll also see the exact amount they paid for the item to process a refund. 
  • Don’t accept returned items of clothing without the original tag or protective seal. This prevents wardrobing: when a customer wears an item and returns it as if it were new.

Ecommerce returns are inevitable, but manageable

With 10.6% of all online purchases eventually diverting back toward the retailer’s warehouse, ecommerce returns aren’t something you can ignore. 

Do everything you can to prevent returns—from writing accurate product descriptions to picking and packing items securely.

Remember that a small number of returns is inevitable. When it happens, keep customers informed about the status of their return. Choose sustainable options. Prevent return fraud by offering online store credit instead of cash refunds. Consider outsourcing reverse logistics if it’s becoming too time consuming to handle in-house. 

The returns process might be the final part in a first-time customer’s journey with you. But it’s still just as important as the first part.

About the author

Elise Dopson

Elise Dopson is a freelance writer for leading B2B SaaS companies. She teaches everything she knows through Peak Freelance.