Editors' Note: this post was originally published in December 2019 and has since been updated for relevancy and accuracy.
On average, 30% of customers will return what they bought online from you during the holidays, and the vast majority will do so within the first month of the post-holiday season.
Image via: Hubspot
Return rates vary widely by industry, sales channel, product type, and how return data is collected and counted. The trend, according to reports, is led by younger shoppers who often view online purchases as rentals. Returns can quickly reverse your holiday success when you adjust performance for returns and realize:
- Your sales are significantly lower than expected
- You converted fewer customers than originally thought
- Your cost of sales is higher, and your profit margins are lower
Here, we’ll show you how to reduce holiday returns, automate the returns process, and protect yourself from fraudulent returns.
Most holiday returns are fraudulent
- Returning stolen merchandise
- Returning merchandise purchased with fraudulent or stolen tender
- Returning items customers never intended to keep (but may have used)
The loss from return fraud is estimated at $18.4 billion. If you count return abuse, like returning items that have been used or items that aren’t defective, annual loss is estimated at $24 billion for the U.S. retail industry.
The holidays are particularly problematic. Research suggests approximately one quarter of holiday shoppers buy items specifically with the intention of returning them later.These customers are often referred to as wardrobers or renters. But wardrobers are just part of the problem.
Organized crime costs retailers nearly $800,000 for ever $1 billion in sales. Return fraud, according to loss prevention professionals, is responsible for a significant portion of organized retail crime (ORC). Protect yourself by spotting the signs organized crime rings may be targeting you:
- An ultra-friendly return policy that results in a significant spike in returns
- If you’re not strictly enforcing your return policy, investigate whether employees are involved
Offering exchanges and store credit can reduce the impact. Likewise, identify repeat offenders by tracking customer returns. Use advanced analytics software to instantly compare purchase and return history, if serial returners always purchase from the same salesperson (brick-and-mortar), or if a customer is repeatedly buying and returning the same item.
Protect yourself from fraudulent returns
The best way to prevent fraudulent returns is not to fulfill high-risk orders. But the expected influx of holiday orders can make it nearly impossible to determine if individual customers are serial returners or potential fraudsters. (You can do this by manually cross-checking orders with shopper purchase histories.)
Including automating the fraud detection process, here are five ways to protect your brand against fraudulent holiday returns:
#1: Fraud protection
Get fraud protection on your commerce platform. Fraud protection solutions protect against chargebacks and position you to fulfill holiday orders with confidence.
#2: Ecommerce automation
If your business is more complex, say you offer custom merchandise or print holiday merchandise on demand, ecommerce automation can instantly notify your team to take action. For example, when an order is flagged as high risk, automated workflows can be built to immediately notify printing manufacturers and request a halt in production, and the order to be canceled.
Leveraging fraud protection tools and automation can prevent you from absorbing the production costs and chargebacks of fraudulent orders.
#3: Tracking numbers
Include tracking numbers with each holiday order. Paying extra to require a signature upon delivery protects you against chargebacks stemming from customers who claim they never received their order. While tracking numbers will add to costs, they can also reduce fraudulent refunds.
#4: Like-for-like exchange
Instead of refunding a customer’s money, invest in reverse logistics that allow delivery drivers to exchange one item for another right there on the customer’s doorstep. It’s called a like-for-like exchange and you will not only preserve a holiday sale, but also ensure you receive the item being returned. Not only is the new item unpacked for the customer, returned item gets repackaged, scanned, and returned to your warehouse.
#5: Receipts and invoices
Demand that customers provide receipts or invoices with returns. Doing so allows you to cross-check the item being returned and ensure it was actually purchased from you. Returns accompanied by an original purchase orders are just the first step. Once you receive the return, ensure your warehouse team or third party logistics (3PL) partner inspects the item being returned to verify that it’s not a counterfeit. Identifying counterfeits prevents them from being returned to inventory, being sold again, and increasing risk to your brand reputation.
What’s your risk?
If you’re thinking about changing your return policy for the holidays, you’ve got to quantify your holiday return risk first by pulling and comparing the following:
- Non-holiday historical return rates of products similar to those you are promoting over the holiday
- The increase, or delta, between that historical rate and the historical return rate for those products during holiday months
These numbers, combined with your holiday sales forecast, can help you estimate total returns and the impact they’re likely to have on profit margins.
If returns are forecast to materially impact holiday margins, modify your returns policy. While a generous return policy can lead to higher conversion rates, it may be in your financial interest to implement restocking or return shipping fees for holiday purchases.
Use discretion as return fees will likely negatively impact sales. For example, be selective about the items to which you attach return fees. You might consider adding a restocking fee to deter wardrobing for particular items like:
- Seasonal or special occasion high-end clothing likely to be worn to seasonal or holiday events
- High-ticket electronics like TVs to prevent shoppers from returning big screens immediately after broadcast events like the Super Bowl
Your return risk will also vary by vertical:
Image via: Small Biz Trends
Overlay your vertical with historical return trends for holiday items you’re promoting to gauge your return risk. If the risk is higher than you’re comfortable with, consider eliminating returns altogether by not selling anything to high-risk customers.
Ban serial returners
It’s not the customer service you imagined offering, but refusing to sell to serial returners who have no intention of becoming loyal long-term customers isn’t so bad if you don’t consider them “customers” at all. In fact, even Amazon bans customers who return too many items.
If banning serial returners isn’t part of your strategy, identifying serial returners should be. There are two types of habitual returner personas:
- The wardrober or renter: People who buy items to wear once with 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 fitting roomer: Like the shoppers in brick-and-mortar stores who go into fitting rooms with different sizes and colors of the same item, pick their favorite after trying everything on, and return the rest, but online.
You won’t know immediately whether your new holiday customers are serial returners. But mapping their purchase journey will help you identify your new serial returners this holiday season, based on similar behaviors. If you plan on excluding your existing serial returners from holiday promotions, don’t forget about doing the same for customer research efforts around returns.
One of the most efficient ways to learn more about why items are returned is by automating the returns process.
Automate post-holiday returns
Automating the returns process, or at least portions of it, means you can focus on value-add tasks, like building more personalized customer experiences. Especially during high return times like the holidays, retailers should streamline the process through automating labels, tracking, and refunds or store credit. For example, a returns solution that automatically offers pre-filled return labels that customers can print on their own simplifies the process and frees your employees to work on higher value tasks.
Importantly, automation can drive future purchases. In fact, a 2018 Narvar survey reported that 96% of consumers would shop with a retailer again, based on an “easy” or “very easy” return experience. Streamline your post-holiday returns with:
- Returnly Returns & Exchanges by Returnly Technologies, Inc.
- Returns Management System by Spice Gems
- Return Magic by Alveo.io
These applications can instantly give customers store credit early on in the return process, which can motivate customers to purchase in the moment and save the sale. These solutions can also support self-serve returns, letting shoppers easily return items online. By adding automated returns and exchanges into your returns workflow, you eliminate shopper wait times. Customers can easily swap sizes or colors in real-time while reducing your staffing needs.
Modern Citizen uses Returnly to give their customers the choice of store credit, exchange, or a refund online.
Notably, part of automating the return process includes pushing customers to select a reason for the return. Understanding return trends can inform future promotions, drive how you describe your products online, and even pinpoint quality control issues. For instance, if a particular SKU is being returned for the same reason at abnormal rates, you can trace production back to a specific manufacturer to quickly correct the problem.
Earlier we wrote about segmenting serial returners and modifying the promotions they receive using Shopify Flow to track serial returners. Other brands can rely on their customer–relationship management (CRM) platform. First, 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 to exclude them from free shipping and/or full-refund offers. (You can do this in an onsite personalization tool).
- Or exclude them from free shipping at checkout by creating a Shipping Script based on one or more of your customer tags.
This is just one step in automating post-holiday returns. The possibilities are even greater when you integrate your returns solution into a well-developed return logistics process that includes warehouse, inventory, and parcel delivery solutions:
- First, establish a protocol to efficiently determine whether returned items should be sent to the vendor that manufactured them for repair, moved into inventory, or discarded. Your warehouse or distribution center must possess this capability
- Next, returned items that are moved back into inventory must be recognized by your inventory management system so it can be sold again
Last, both your warehouse management system (WMS) and your inventory management system (IMS) must integrate with your third-party logistics (3PL) so returned items can be transported appropriately
Modifying your return policy
Brands are increasingly adopting simple, transparent, and generous return policies that inspire confidence and trust in consumers. But brands shouldn’t shy away from adjusting their return policies to ensure returns don’t negatively impact their finances and operations.
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 time to return is typically the last 2–3 days before the expiration of the retailer’s return window
- This impacts inventory forecasting, budgets, and personnel as last-minute returns reduce visibility and strategic planning
Modifying the return window length can give retailers better visibility on returns and how they may or may not impact operations. The goal of altering the return window is to influence the average time to return and reduce uncertainty for retailers.
Remember that offering a return window of 30-days can increase conversions by 57%.
Consider temporarily shrinking the return window for holiday orders, or additional restrictions like adding a restocking fee on high volume items.
If you’re heavily discounting merchandise to drive sales during the holidays, major campaigns, or experimenting for growth, you might just adjust your return policy for specific SKUs.
For example, 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.
Using product tags for heavily discounted items to attach special return caveats will let you manage returns for specific items and protect profits.
Free return spending thresholds
Consider raising the bar in return for offering free returns. Requiring shoppers to spend a certain amount of money to qualify for free shipping aligns the interests of both the brand and the consumer. It also positions you to increase your AOV and recoup any margin sacrificed during holiday promotions.
Beware of shoppers adding items to cart to meet the free shipping threshold who later return part of their order. If this becomes a trend, identify the products most often being returned by customers who meet the free shipping threshold. Consider modifying your policy by not allowing these items to be returned. Or test different free shipping thresholds aimed at reducing partial order returns.
Notice how ECI, a leading women’s fashion brand in New York, prominently promotes free returns at the top of each page of its store. Like ECI, consider touting free returns as part of your free shipping policy as long as customers meet a spending threshold of your choice. Here’s how to calculate free shipping thresholds for your business.
Post-holiday return success
It’s important to develop a vision for what the right return experience looks like for your shoppers. Below are some best practices for returns:
- Since the majority of holiday returns are fraudulent or abusive, set up protections for your brand
- Identify serial returners, exclude them from post-holiday promotions, and use the path to purchase map they provide to identify new customers who are likely to become serial returners
- Automate the returns process, integrate your returns solution with your warehouse, inventory management, and logistics systems and partners
- Consider return policy modifications that shrink the holiday return window, prevent the return of heavily discounted SKUS, and implement spending thresholds in return for free shipping
Importantly, consider taking your customers’ point of view to get the return experience just right.
Buy and return items from your own site and your peers or competitors. What did you notice? How does your current experience compare? Testing your own approach to returns, and how it measures up to your peers, is a smart way to generate a return on your post-holiday returns.