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[25 comments]

Are Easy Returns Online's Achilles Heel?

December 27, 2013

With free shipping and other lenient return policies becoming common practice, as much as a third of all online sales gets returned, according to a report from the Wall Street Journal.

Interviewing retailers such as Rue La La, QVC and fashion retailing startup Modnique.com, the article explored many ways e-commerce companies are trying to reduce returns based. The strategies included:

  • E-mailing fewer discounts to serial returners and better offers to those who return less;
  • Sending chronic returners coupons for categories seeing fewer returns (beauty, jewelry) over those seeing more (apparel, footwear);
  • Recommending likely size and fit options based on purchasing and return history;
  • E-mailing follow-up instructional videos or instructions for items that face a learning task, such as using an at-home facial toning device;
  • Empowering customer agents to offer "appeasements" — gift cards or small discounts — to persuade customers to keep products they would otherwise return due to slight damage or other reason.

But getting much of the attention on blogs was the claim that online returns can amount to up to 30 percent of sales, an estimate from Kurt Salmon Associates (KSA).

Implicit in the KSA estimate was that some categories face minimal returns while those on the higher side included apparel, footwear and others in which trying-on, touching and seeing close-up becomes critical to the purchasing process.

The e-commerce execs interviewed all agreed that returns were a costly and growing problem as consumers get more comfortable with lenient return policies. Paula Cuneo, a 54-year-old teacher who recently ordered 10 pairs of corduroy pants in varying sizes and colors on gap.com and returned seven of them, he told the Journal. "I feel justified. After all, I am the customer."

Despite the return inducement, e-tailers apparently have no plans to tighten policies given increasing expectations around hassle-free online returns.

According to the 2013 UPS Pulse of the Online Shopper survey, 62 percent of online consumers had returned an item in 2013, up from 51 percent in 2012. If an online retailer offered a hassle-free return policy, 67 percent of respondents would shop more with that retailer, 64 percent would recommend the retailer to a friend, and 48 percent would drop another retailer with a less easy returns process.

Discussion Questions:

Are hassle-free returns becoming a requirement? Will e-commerce players eventually have to tighten return policies? What can e-tailers do about habitual online returners?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Do you see free shipping and other lenient return policies as more of a benefit or drawback to the e-commerce business model?

Comments:

Hassle-free returns are a cost of doing business. There is no way that a company like Zappos could have gained consumers' faith in shoe buying online (for example) without a liberal return policy. That being said, there is plenty of opportunity to apply data mining to e-commerce transactions, at least to lower the chances of returns.

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Dick Seesel, Principal, Retailing In Focus LLC

E-commerce firms definitely should tighten up their return policies - but they should do so in a smart (i.e., customer-centric/data-driven) manner. It's pretty easy: we'll give you a generous return policy if you buy using your loyalty card, but we won't if you don't. Maybe add in an extra tier or two based on projected customer value.

Plus, firms should take past returns history into account when coming up with these tiers of customers.

This should be true for all retailers and should be independent of which channel they use.

If only retailers had the skills and courage to do something like this....

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Peter Fader, Professor of Marketing, The Wharton School of the Univ. of Pennsylvania

There is little question that e-commerce players will need to diligently work through ways in which they will can control wasted resources and shrinkage that occurs with excess returns.

By data mining the "high returners," and developing more efficient ways in which to satisfy these customers' needs, e-commerce can find ways in which to strengthen bottom lines. Take the example of the Massachusetts school teacher quoted in the Wall Street Journal article. Depending upon the patterns of returns this "entitled" customer takes, it might well be worthwhile to ease her away from the e-commerce relationship. Having an arrogant customer who chooses to order 10 outfits, only to return the majority, "because I'm the customer," is not the loyal client base on which to build.

E-commerce is clearly going to continue its upward trajectory. Having the right mix of customers will be the leading platform to drive lower returns and higher profitability for retailers who want to drive their e-commerce future.

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Roger Saunders, Managing Director, Prosper Business Development

Consumers expect retailers to take returns on every item. E-commerce is no exception. It's a cost of doing business.

Retailers can help minimize returns by providing plentiful information about a product, how to use it and how it should fit.

Retailers need to evaluate the cost effectiveness of keeping a consumer who habitually returns purchases. If a consumer consistently returns what she buys, the retailer should try to determine the reason. If a customer becomes a cost center, rather than a profit center, the retailer should confront the situation directly by explaining the cost of returns and seeing if something can be done to make the consumer happy with the first purchase. As a last resort, the retailer can choose to not do business with the consumer.

Returns aren't going away. They are a cost of doing business. Retailers should adjust their cost analyses accordingly.

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Max Goldberg, President, Max Goldberg & Associates

Returns are not hassle free now, so what is a hassle free requirement? Each company has a slightly different process, so you have to read through the process, make sure you fill in everything, pay the shipping fee, and send it off hoping the company receives it and credits your account.

Before punishing the customer for returns, the companies need to make sure their sizing information is accurate, the colors presented online are accurate, and the material is described accurately. From my perspective as a customer, the information provided to the consumer needs to be accurate, the process needs to be straightforward, and fulfillments needs to be accurate before punishing consumers for returning merchandise.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

Hassle-free returns are certainly a requirement for e-commerce. But it comes with its own set of problems, as shown above. Zappos has worked it out and so will others in time. Amazon does not seem to be complaining about it. Maybe it has something to do with the lessons learned from Zappos.

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

One of the hazards of the direct selling industry is a typically high returns rate. I can recall in the catalog biz, a return rate of 20% was considered "Awesome" so "up to a third" doesn't do much to shock me. And "chronic returners" are like cherry-pickers in stores. They exist, but it's part of the cost of doing business.

Bottom line, I think the article is a lot of noise about nothing. Could they reduce returns by a small amount? Maybe. But it isn't worth it.

Amazon just took an exchange on a camera I bought 8 months ago, with just about no questions asked. I was awestruck by the service. It definitely gained even more of my loyalty. Hassle-free returns are table stakes.

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Paula Rosenblum, Managing Partner, RSR Research

Nothing is FREE, but in consumers' minds they now think everything should be free, and now online has to deal with it. Amazon has promised much, and others are scrambling to create the same thing.

The only way to keep this free thing going is to build it into the price, as there is no way to go backwards with the expectations the consumers are already receiving. Brick and Mortar have their own problems, but could possibly use this as an opportunity to gain back some trust after the Christmas package delivery crisis.

No free lunch folks, and let's see how the online merchants deal with this, as shipping is definitely going higher next year, with the additional costs of doing business.

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Tony Orlando, Owner, Tony O's Supermarket & Catering

While returns currently appear to be "free" for consumers, returns are major cost factor for retailers, whether they be store based or sell online.

The consumer does not directly "see" the effect on retailer's operating costs, but they will ultimately see the impact of rising return rates reflected in rising prices to cover declining net margins.

The best strategies for online at this point seem to be returns prevention. The article posted by Tom Ryan mentions a number of strategies enabled by online retailers' treasure trove of "big data" including:

  • targeting chronic returns offenders
  • offering incentives to best customers who return less
  • ultimately targeting specific categories and even individual SKUs with the highest return rates.

Nothing in this life is free ... including returns. Individually or collectively consumers will pay for the cost of returns via specific fees or rising prices.

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Chris Petersen, PhD, President, Integrated Marketing Solutions

Are hassle-free returns a requirement? It depends on the market position you want. Looking to be the go-to low-price clearance/flash-sale site? Consumers will understand and accept an all-sales-are-final policy. Angling to be the default starting point for affluent, fickle, but price-insensitive consumers buying high-end products? Then handling returns with a smile just comes with the territory.

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Ben Sprecher, Business Development, Google

Hassle free returns are not a requirement - if you don't care that your customer ever does business with you again. Companies like Zappos set the standard. The create a "demanding customer," meaning that if customers have a great experience with Zappos, and for whatever reason they decide to go to another retailer, they will "demand" the same level of service that they receive at Zappos.

Returns need to be factored into pricing. Zappos doesn't have the lowest price, but they have some of the best service. It's the service that brings people back. Not the price. There is a balance, and Zappos has mastered it.

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Shep Hyken, Chief Amazement Officer, Shepard Presentations, LLC

Easy returns aren't the problem with online shopping. "Mystery sizes" are. Until the industry decides to give shoppers (especially female shoppers) better information about fit, they'll endure frequent returns. Oddly, though, there appears to be little appetite for fixing this problem.

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Cathy Hotka, Principal, Cathy Hotka & Associates

Without a physical store a shopper needs some way to feel comfortable about an online purchase of shoes, apparel, etc. Online retailers will just build the return shipping costs into their prices. As far as habitual returners, I am sure the online retailers can write an algorithm or two into their loyalty/merchandising/online commerce engine that recognizes individuals with excessive returns. Many physical stores have systems that recognize excessive returns and put policies in place to handle this issue.

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Larry Negrich, Vice President, Marketing, nGage Labs

This is just an extension of the habitual "returners" in stores. I remember when I was a store manager that there were customers that I actually remembered because they brought back items so often. I think there are checks and balances that merchants can make to help filter some potential returns.

The wrong thing to do is tighten return policies for everyone, including legitimate customers. Instead, keep records of customers whom return items more than twice. Direct the customer service team that handles returns to have a set of questions ready to "challenge" the habitual returner just a bit. If the problem persists, I believe it is appropriate to tighten policies on those habitual returners.

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Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM

In a word, "Yes."

I'm not sure how e-tailers can realistically tighten their policies without driving people back to physical stores. Habitual returners just have to be viewed as one of the costs of doing business.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

Way back when I used to shop in stores for presents, especially for my wife, I would always ask about the return policy. If it was anything but unlimited, credit to my credit card, I would leave the store.

I don't find that problem with my online merchants. Why would anyone buy anything if it wasn't easily returned? The one line in the discussion says it all: "67 percent of respondents would shop more with that retailer, 64 percent would recommend the retailer to a friend, and 48 percent would drop another retailer with a less easy returns process." Every retailer should read it, and read it again.

I also have to ask about the 30% statistic. When you have one retailer who encourages 90% plus returns (Zappos), how much does that skew the overall? (Note: the 90% statistic is not fact, but observation from my household and those of my family. And, be assured that the 90% number is not a problem, but an expectation when one orders the products.)

The other challenge is sizing in apparel, especially women's apparel. Some sites have started to describe the sizes rather than just go along with the number. Since number sizes have become somewhat meaningless, these sites have added "this item runs large" or "this item runs small", etc.

The above recommendations also point to some answers to the problem. Data will show who the serial returners are. They can be treated differently via promotion. As they say at Staples, "EASY".

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Gene Detroyer, Professor, Independent

The problem still is that people decide to buy based on the "IF" they will need to return. If so, no matter how it happens, it is a hassle. This often will tip the scale to the in-store product experience.

Sid Raisch, President, Advantage Development System

"Having items properly sized, free from defects and making sure they match the colour/description shown online."

I didn't see this in the list of strategies for minimizing returns, but I think it should be (maybe even #1)...in short, a great many returns are the e-tailer's own fault. Liberal returns are a necessity in a business where you can't see the merchandise until it's delivered. Are there people who abuse this? Of course, but much as was said yesterday to whining customers (and their unrealistic expectations): get over it already.

'notcom'

E-commerce retailers rushed to free and unlimited returns in order to compensate for the consumer having to supply their own fitting room or floor sample of product. Few successful e-commerce companies would trade shopping costs for the money needed to own and staff a Brick & Mortar (B&M) facility. There is a much lower shrink risk doing e-commerce business than there is with B&M business which adds a lot of money for use in the cost of doing business and of course the profit line.

If shipping and handling costs are eroding profits exponentially as a result of growth and/or expansion, then the executives have simply no concept of their business expenses and how to monitor and maintain them. Hiring an accounting firm to audit and report the businesses' finances is a good place to start the repairs of a dilemma such as this. Switching or expanding into a new form of retail would only incur additional line expenses and expand the possibility of profit losses due to a lack of cost controls.

Reducing the opportunities presented to customers by restricting offers may cause a slowdown in sales which is too risky in these economic times. Keeping a keen eye on expenses and making improvements in the handling of returned goods is the best way to endure these expenses and protect against profit erosion.

'gjarnoldjr'

It's not enough just to punish the habitual returners; a smart retailer should also use a customized return policy to reward its best customers. It is foolish (and often unprofitable) to provide overly generous terms to all customers. Of course the base level of the return policy should be fair and reasonably aligned with market expectations, but the kinds of long-timeframe, no-questions-asked policies that many retailers use don't make sense for most customers. Save the best for the best - and encourage other customers to earn it....

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Peter Fader, Professor of Marketing, The Wharton School of the Univ. of Pennsylvania

Fact: Consumers who buy apparel online return over 50% of their purchase due to fit issues. Make no mistake; the initial online purchase is only a commitment to try-on the item. The final buying decision is made when the item does or doesn't fit.

Giving customers the opportunity to return items that don't fit is the only way to give them the confidence to buy online in the first place. The minute online apparel retailers start limiting the ability of their customers to return items that don't fit, they will see their customers run not walk away.

The fitting room experience is the brick and mortar apparel retailers' biggest opportunity. Getting the customer into the fitting room and providing service that helps them make their FINAL buying decision and reduce in-store returns.

I don't care how good the online virtual fitting room is, low conversion and high return rates will always plague online apparel retailers, because no apparel buying decision is final until the try-on!

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Marge Laney, President, Alert Technologies, Inc.

Yes. Returns are a cost of business, and represent the relationship between the retailer and the customer. Great customer service makes returns easy. Go to any world class retailer and this is one thing that they all share in common. "Once a customer, always a customer" is the true driving phrase behind any great customer service organization. Without this consumers will shop elsewhere....

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Kai Clarke, President, Kowa Optimed, Inc.

Hassle-free returns are not a requirement, but rather an element of strategy like any other. That said, they have become an expectation for consumers. As stated, returns happen more often with apparel, which makes sense since it can be challenging to know in advance how well something will fit. As Cathy stated, the better that apparel retailers can outline the specific measurements of their various sizes, the better decision-making that consumers can make, and thus the fewer items they will need to return.

I don't believe that e-commerce players will necessarily need to tighten their return policies, but rather get smarter about how they apply them. The better that retailers can track individual customers, the more specific that retailers can get in devising and applying policies for habitual returners - such as placing limits on the number or percentage of returns that can be made in order to ensure profitability.

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Alexander Rink, CEO, 360pi

If returns become a cost of doing business, then pricing must go up or discounts must decline, for ecommerce merchants to stay in business. It is simply a "math thing."

Retailers can tighten up return policies, but that will be difficult given competitive pressures. Remember, free returns exist to get customers to purchase something with less risk. Reduce the returns, reduce revenue. It is just that simple. You can tighten up and improve margin, but at the cost of new customers.

Improved customer experience, leading to customers returning more frequently, is the key to improving margins while still offering free returns. Help customers better size their purchases and better understand colors, etc., and returns will drop somewhat. Get customers to repeat more and returns will drop some more. Loyal customers have fewer returns (see Reichheld).

Never back to the way things were, but back to a "new normal" that is sustainable and profitable.

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Mark Price, Managing Partner, M Squared Group, Inc.

The companies with lenient policies are certainly using algorithms to review trends, patterns and oddities both globally, regionally and by product type.

As with retailers, those abusing the returns policies will be flushed out and, if severe enough, weeded out.

These lenient e-tailers will always have the advantage of avoiding types of confrontations that occur at the retail level. With pre-printed shipping labels and a clear record of purchase, the extreme types of returns, e.g. products purchased elsewhere, stolen product returned, etc. can be minimized if not entirely eliminated.

Competition affects sales and competition affect returns policies as well, always, with an eye on the bottom line.

Alan Cooper, Contract Trainer/Training Consultant, Independent/Freelance

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