A "returnless refund" is a refund granted to a customer without requiring them to return the merchandise.
Sure, this may sound like a win for the customer, but it's also a win for retailers. For retailers, returns are a constant source of stress: about 8%–9% of brick-and-mortar purchases and 20%–30% of ecommerce purchases are returned.
These returns result in added costs (think shipping, processing, and restocking processes). Even worse: sometimes the returned merchandise can’t be resold because it’s broken or single-use only.
It’s an expensive practice—according to UPS data, the cost of processing returns can often be between 20%–65% (or more) of the cost of the goods sold.
All of this contributes to why returnless refunds are gaining traction. Here’s what you need to know about them.
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What are returnless refunds?
Retailers opt to offer returnless refunds for items that are expensive to ship (especially for those retailers who offer free returns) as well as for products that are difficult or unhygienic to repackage.
Amazon first introduced the concept in 2017 to reduce costs and friction associated with returns. Now, when a customer requests a return, Amazon sellers have a choice to tell the customer to keep the product.
In the intervening years, returnless refunds have increased in popularity as store owners continue to look for ways to cut down on the costs associated with returns and to boost customer satisfaction.
“With ecommerce remaining at all-time highs, it’s likely return rates will remain high, and that’s an incentive for retailers to reconsider their returns approach.” —Ricardo Belmar, retail marketing strategist
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Benefits of returnless refunds
Even though returnless refunds might seem like a bad deal for the seller, they can provide a surprising number of benefits for both customer and retailer. Here are a few to consider.
1. Lower costs in the long run
Returnless refunds can actually be cheaper for the retailer than having customers ship the product back. Data indicates that 11%–13% of returned purchases cost twice as much as their sale price to process. Sometimes, you lose less money in the big picture by removing the return equation.
“I believe returnless refunds will begin to become more prominent for lower-priced items and items that do not always make sense to ship back due to cost or inconvenience.” —Nicole Leinbach Reyhle, founder of Retail Minded
2. Less friction for customers
The returns process is often full of friction points for the customer. More often than not, returning a product means initiating a return on-site or over the phone, printing out a shipping label, finding a suitable package for the product, packing it, and then driving to a drop-off location or post office to send it back. And that’s if returns are free for the customer. If not, customers have to wait in line to purchase return postage, too.
Returnless refunds remove every one of those steps except the first, which vastly improves the process. And if there’s one thing every store owner should know, it’s this: a customer who has a positive experience making a return is more likely to, well, return—as a repeat customer.
“When you have that data, it’s only logical to ask the question: how can we treat these customers even better? Returnless refunds is just the latest, and certainly won’t be the last, example of merchants making customers’ lives easier during the returns process.” —Jonathan Poma, CEO at LoopReturns
3. Faster refunds
Refunds often take weeks to reach a customer’s bank account since they don’t get processed until after the item is back on warehouse shelves. Customers find it exceedingly frustrating to have their funds tied up by a company whose product they don’t even have. A returnless refund releases the refund almost immediately, thus eliminating this negative experience entirely.
“I expect we’ll begin to see more retailers start to offer this; we saw an increase in it during the pandemic/holiday shipping season to ease the load on USPS and other shipping services (among other reasons).” —Trish Carey, marketing consultant
4. Improve customer loyalty
Returnless refunds that encourage shoppers to donate their would-be returns are a simple way to boost customer loyalty. By allowing shoppers to donate the item, you remove the hassle of going through the returns process and instead create positive feelings of goodwill (which they’ll then associate with your brand). Those positive experiences can create brand evangelists and transform first-time shoppers into long-term loyal buyers.
Casper, for example, does a version of this with its returned mattresses (as long as they’re clean and in good condition.)
5. Opportunity to reach new customers
For items that aren’t broken, allowing the customer to keep the item gives them an opportunity to pass the item along to someone else who may end up loving the product.
In that way, a returnless refund can act as a sample to bring in a new customer, meaning it can actually increase margins rather than eating away at them with a costly returns process.
5. Good for the planet
Returnless refunds are better for the environment. Skipping the return shipping process conserves natural resources such as gas and plastic.
Examples of retailers that offer returnless refunds
Several large to mid-size retailers with ecommerce arms already offer returnless refunds, and their use cases illustrate various ways this approach can be deployed by store owners of all sizes.
Glossier is a cosmetics brand whose policy is to make returns as easy as possible. While it doesn’t mention returnless refunds in its official returns policy, its approach is set up to get each customer personalized support for the return. This makes it easy for customer support agents to make the call around whether or not the customer should just keep the product.
“Returnless refunds can be such a strong retention play when the brand tells you to give it to a friend or something. I ‘returned’ something to Glossier and then it just sat in my drawer long enough that I eventually started using it…and now it’s my go-to concealer.” —Kristen LaFrance, host of the Resilient Retail podcast
The Wall Street Journal recently reported Target has officially joined the ranks of returnless refunders. A spokesperson for Target said they only offer returnless refunds in a very small number of cases where it’s easier than returning the item and that the practice has unofficially been used since 2018.
Chewy, an online pet supply retailer, has a very generous return policy. It officially offers returnless refunds on a case-by-case basis for prescription medications. However, the internet abounds with stories of its generous returnless refunds.
For instance, it’s common practice for the brand to refund a bereaved pet owner’s final automatic food purchase, telling them to donate the food. But it’s been known to offer a returnless refund for other reasons as well. At one point, it told a customer to donate a cat harness that was purchased but too large to her local shelter (and sent her a free replacement).
Chewy uses returnless refunds as a way to stoke goodwill with its customers and gain a bit of positive social chatter at the same time.
Thinx is a retailer that sells period underwear. The nature of its product is very personal and certainly single-person use (made to be reused by the same person). Returnless refunds are not officially a part of its policy, nonetheless, Thinx occasionally offers them.
“It just makes good business sense to reward our best customers instead of moving forward with a return that cannot be resold.” —said Brendan Hastings, Thinx vice president of engineering and digital product, in a statement.
Best practices for implementing a returnless refunds policy
So how do you implement returnless refunds? Let’s look at a few best practices you’ll want to consider to get the most out of a returnless refund program.
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1. Use AI to determine when a returnless refund makes sense
With the endless data we have at our fingertips these days, it only makes sense to leverage it when determining if and when a returnless refund makes sense.
Walmart, for instance, uses an AI formula to help it determine if a product is resellable. The technology looks at a variety of aspects, like the customer’s purchase history, the cost of processing the returns, and the price of the products. With this information, AI can determine whether it would be better for the customer to keep the item.
“An easy strategy for companies to experiment with returnless refunds is by using artificial intelligence to determine if a SKU or category is performing below expectations. If an item is falling behind, cut your losses and refund those purchases without a return.” —Taylor Daniel, retail merchandising and product strategy consultant at FOMO agency
If it is, you may consider cutting your losses and refunding those purchases without return. The KPIs you can use AI to pull are:
- Stock-to-sales Ratio = (Beginning Inventory / Net Sales Revenue)
- Weeks of Supply = (Total Unit Sales / # of Weeks Selling)
- Inventory Turnover Rate = (COGS / Average Inventory Value)
There are a few products now on the market (like Returnly’s Green Return technology we touched on earlier) that are also capable of making these complex decisions for your team.
2. Consider the customer’s purchase history and offer on a case by case basis
If you have an active customer service team, consider allowing them to offer returnless refunds at their discretion. They can use this process to reward loyal customers or to improve a particularly negative experience.
Here you can also use AI to help guide a rep’s decision by leveraging your CRM to automatically highlight high-value customers (or to flag potential fraudsters).
3. Offer on single-use/no-resale products
Many stores sell items that aren’t resellable once a customer has received them, like cosmetic items. Sephora, for instance, often has to throw away returned makeup (even if it’s still sealed) for health and safety purposes.
These products are ideal for offering a returnless refund because there isn’t a way to resell the product. You will be paying for shipping just so you can throw the merchandise out. At least if it stays with the customer, they may give it to a friend and forge a new relationship with a customer for you.
“Our return rate is very low, but in the case when a customer isn’t happy and wants to return their lashes, we cannot accept and resell those products. We sought out a solution with flexibility around requirements for a physical return to allow us to be as sustainable as possible, but also manage our businesses needs. This has been helpful, and it also catches any customers who may try to abuse our flexible return policy.” —Lauralynn Drury, head of ecommerce and operations at LoveSeen
4. Use this policy alongside returns reduction technology
Returnless refunds are easy for fraudsters to exploit, which is a concern for many sellers. With that in mind, it’s a good idea to use this method of increasing customer satisfaction alongside some returns reduction software.
There are a variety of options available on the market (like ReturnGO’s Shopify app), but the overall idea is that they use some type of AI to determine the likelihood that a certain return is fraudulent, recurring, or outside the normal realm of a return policy. These systems are also often set up to persuade the customer to opt for a store credit so the retailer doesn’t lose out on the revenue from the sale.
The caveat to returnless refunds
The major issue that retailers worry about when it comes to returnless refunds is, of course, abuse of this generous policy. If customers were to take advantage of this return policy, it could have major financial ramifications for store owners.
“The big problem with this approach is one of moral hazard: retailers are essentially training customers that there is no cost…even an advantage…to buying things they don’t want. Ultimately, this could simply increase the problem rather than resolve it.” —Neil Saunders, managing director of retail at GlobalData
Colin Daretta, CEO at Innovation Department, says that they’ve been testing the returnless refunds approach for "several retail brands within our portfolio." He shared that "while there are undoubtedly people who will try to commit fraud, our rationale is that these claims are only a small percentage relative to the big-picture cost of managing returns."
Plus, they’ve found that it results in powerful positive reviews and yields high customer satisfaction, another testament to it being a strategic approach long term.
So, are returnless refunds right for your business?
It might be time to consider offering returnless refunds to your customers.
Even if you only offer this option as a value-add for your very best customers, it can be a smart way to increase your customers’ loyalty and deepen relationships long term.
That said, retail is changing rapidly, so it might not be much longer before customers expect this kind of treatment.
Returnless refunds are just one component of the rapidly-changing retail environment.
Do you know how retail is changing?