Photo: RetailWire
Online shopping exacerbates return headaches for retailers
The rise in online shopping is worsening the returns burden for retailers.
The three underlying drivers are seen as:
A high online returns rate: With consumers unable to try or directly experience the product, as much as a third of online sales are returned, estimates Kurt Salmon. Returns at physical stores are estimated to be closer on average to 8 percent. As online shopping expands, returns for the industry are expected to keep growing.
High-return expectations: Free online returns have now become an expectation. Ninety percent of all retailers are providing free delivery for at least some online purchases, up from 78 percent in 2014, HRC Advisory told Bloomberg. While shipping costs are rising due to new pricing policies from UPS and FedEx, “free returns” have to be baked into e-commerce fulfillment costs.
Online returns to stores: Many stores now enable online purchases to be returned to stores. While that eliminates the “free returns” shipping expense for retailers, it creates logistical and channel attribution issues. Should the item head to the sales floor or back to the online warehouse? Do store staff, including any on commission, gain any credit for handling the online return?
At both the store and online level, lenient return policies — including extended holiday return windows and returns without receipts — are already opening retailers up to margin risk for items that have to be sold off at deep discounts. The National Retail Federation also estimates that 3.5 percent of holiday returns this year will be fraudulent, up from 3.0 percent in 2014.
- Retailers Estimate Holiday Return Fraud Will Cost $2.2 Billion In 2015 – National Retailer Federation
- Some Stores Naughty, Most Nice; Many Now Offer Free Return Shipping on Internet Purchases – ConsumerWorld
- 15 Stores With the Best and Worst Return Policies – gobankingrates
- More Retailers Offering Free Shipping on Returns – Wall Street Journal
- Rise of Online Shopping Adds to Retailers’ Gift Return Headaches – CNBC
Discussion Questions
Of the challenges imposed by online returns, which do you see as greatest for retailers? What advice would you have for operators struggling to handle online returns at the store level?
Poll
BrainTrust
Ken Lonyai
Consultant, Strategist, Tech Innovator, UX Evangelist
Dick Seesel
Principal, Retailing In Focus LLC
Returns are always part of the retail landscape, but especially when customers are buying from nothing more than a terse description and a few photos. If retailers want to venture into e-commerce waters, they have to expect that high returns are part of the cost of doing business.
So rather than fight it, they can do a couple of things immediately: 1.) create a dedicated online-only return line for people with online-only purchases looking for a speedier experience (maybe only at certain seasonal times) 2.) only offer their very deep discounts with a no returns or restocking fee clause, to help weed out habitual returners.
The number one challenge is to make the return process user friendly. Just last week, two days before Christmas, I had to return something to Best Buy. Nine people in line and one person working. No one was happy. I went to the manager and said, can you do something? She did.
In two minutes, two more people were helping with returns. Everyone got a lot happier.
Why did I have to tell the manager they needed help? Managers need to stay aware and make the return process as easy as the buying process.
The 800 pound gorilla has to be the free shipping.
As both outbound and inbound merchandise is moving from store/warehouse to consumer and back, this fee or lack thereof has to be addressed. Should one fee apply to all, or do preferred customers receive special consideration for store credit card use, volume discounts, loyalty points, etc.?
Weaning customers from a benefit that has become second nature (based on the Prosper Monthly Consumer Survey, free shipping is now the number one care-among consumers making e-commerce purchases) is going to challenge retailers. It is a decided cost, and once energy costs return to higher levels, fees will rise.
Returns are part of the cost of doing business online. People purchase online for its efficiency so the return process should be the same. As part of maintaining a good consumer experience, it will be important to staff up in-store to make the return process efficient. At the same time, the retailer should offer the option to return online with free shipping.
Returns are a fact of life for retailers, always have been always will be. However with the volume being substantially higher for online, one of the challenges is to quickly get the products back into inventory and available for sale. The longer it takes to make a return resaleable, the greater the chance that the sales price will end up being lower. So a slow return process = back to stock + markdowns.
Given the volume of returns for some retailers, particularly apparel, the retailer will also need to plan for some percentage of inventory to be “unavailable for sale” for a period of a week or more. This will also mean carrying additional inventory to make up for the goods unavailable for sale to insure availability of full ranges in the stores for purchase. Customers win, retailers gain some complexity and slower stock turns.
As stores strive for more omnichannel integration, it becomes a double-edged sword when customers return goods to brick-and-mortar locations that are only carried online. (And this is true for most retailers, who don’t have the space for the breadth of assortment they can offer on their websites.) What happens to this merchandise, which was never planogrammed and will simply clog the aisles with more clearance?
Kohl’s is testing a concept (“Off Aisle”) intended to absorb this merchandise but is rolling it out slowly. Obviously it’s an issue that most national retailers with liberal return policies need to deal with more aggressively.
I am always concerned with the bottom line, so I feel retailers are especially challenged by holiday return fraud. This impacts retailers’ bottom line, it also impacts consumers who then bear the brunt of either not having items available because of some scam artist, or the fact that price increases due to covering losses make the purchase of products out of reach. I also feel it is unfair to the shareholders whose livelihoods depend on profits for annual dividends. Imposing tighter controls over loss prevention is very challenging. How does the stores’ agent know how to identify fraud all the while maintaining the composure and thoughtfulness required when executing exceptional customer service?
Websites should engage customers at the point of sale to make them fully aware of their responsibility in purchasing, accepting and returning items they have bought online. Stricter return policies should be stated at the get-go. A restocking fee for iffy buyers is not too much to ask.
Businesses need to hire individuals in this role who are emotionally removed from the situation and well-trained in conflict resolution as conflicts will arise when a customer is rejected. Businesses tend to take the path that the customer is always right. Great philosophy, but as we have learned not always good for the bottom line. I suggest keeping the customer returns in a separate area as to not interfere with legitimate customer service. Stricter return policies.
I suggest hiring seasonal customer refund reps for this purpose. Refund claims can be daunting, but there is no way around it. As the article states, there is a high demand during the Christmas season for workers to process refund claims.
Returns are part of (retail) life. So get over it. If you extend your brick-and-mortar brand to online, expect that customers will return the item to whatever they find most convenient.
If a customer returns an online purchase to a store, the retailer has a choice. The store can send it back to the warehouse or distribution center. And they were gong to probably have to pay for the return shipping anyway. Or the store can save on the shipping and resell the item in their store. Either way, it needs to be easy for the customer.
As a consumer, I love that retailers are making online returns so quick, easy and free. As a retailer, processing those returns and getting them back in stock is a real challenge, especially returns to store. You can turn returns into a treasure hunt for shoppers by dedicating space to “last call” items — it’s a great way to not only get rid of returned merchandise but to trial other lines that may not be carried in-store(s).
Online returns to brick-and-mortar locations will always be a problem for the retailer. Many items are bought online with the expectation they can/will be returned. This is nothing new. But it has been exacerbated because of free shipping and the knowledge there is a store nearby to return it to before it even hits your credit card. Online sales are going to continue growing. There will be a point when the retailer understands there has to be a line in the sand where returns come with a cost. That cost could be a return fee for restocking.
Online purchases returned to the stores are not a challenge, THEY ARE AN OPPORTUNITY!
If a customer buys online and returns the purchase online, the deal is done. If the customer buys online and returns it to the store, the opportunity for additional sales while the customer is in the store is greatly enhanced.
Retailers are complaining that online is taking away from store traffic. Well, here is an opportunity to encourage store traffic.
My advice: see this an a chance to get a customer in the store and promote it.
For retailers, it’s time to go back to the focus of customer service that was a driving force during the pre-holiday shopping season. Your ultimate goal is to get the customer making a return to consider other options from your store. Making returns as seamless as possible will serve you better in the long run over having a difficult return process. Whether that process is online or in-person, retailers need to make sure they are staffed to handle demand and have a solution for inventory overflow. Returning online purchases to physical stores can impact a store and its appearance, so ensure you have a system that guarantees a pleasant shopping experience for customers and soon-to-be customers.
The downside of handling online returns at the store level is the cost of staffing to process them in a location that will have a return counted against them without ever having the benefit of the sale.
The upside is, THE CUSTOMER IS IN YOUR STORE!!! So take advantage of it and do everything you can to turn the return into an exchange or better yet, an even bigger sale. Make the process convenient for them, offer to hold the return while they look around, make sure they can do a sale at the same time they do the return.
It may not be the ideal situation for the brick and mortar locations, but providing excellent customer service can help each store make the most of it.
This is another solid discussion topic that retailers struggling with or starting an e-commerce business effort need to be aware of. The initial inquiry for the tricks, trips and traps in the e-tail industry are usually misguided and/or misunderstood. Many of the large e-commerce only giants order process “only” a large portion of their sales. The returns are the responsibility of the company that owns the merchandise. This shows the percent of returns and relative costs as severely diluted. If retailers are using these tempered results to plan and price into the e-commerce market the result may cause serious diminution to the net profit line of the company. The need to know what to expect from the market and what vendor support is required for success is nothing less than imperative.
Getting the online and brick and store IT systems to be in sync at all levels for all activities including returns. If the person doing returns at the store has access to the customers’ purchase history and the overall inventory database, there would be no problem and it would save return shipping charges. If the system was efficient, the system could also offer the customer a special (based upon their past purchase history) as a reward for returning the item in store. Any retailer not integrating their IT and databases will continue to experience challenges and fall behind.
This is an important discussion that becomes all the more challenging as online sales expand. The biggest concern for retailers must be the product that is “lost” to sales during the return process and therefore ends up on clearance when it well could have been sold at full price had it been in stock. If several “Marys” order shoes in both sizes 7 and 7 1/2 hoping that one will fit, but end up returning one or both, and the store disappoints other potential buyers in the meantime because those sizes were not available/show out-of-stock, that amounts to a huge misallocation of resources that affects both the retailer’s bottom line and customer satisfaction. It’s even worse if all the Marys got free shipping both directions.
In my 40 years in the retail industry, I must say that I have seen little or no innovation to the in-store return practices. Yes, with eCommerce, if the customer receives the package and wants to return it, the retailer can provide a return package with all the needed info already attached and the customer can simply drop it off for mailing somewhere.
Why haven’t retailers thought about providing in-store shoppers with a return receipt option that has all the required info along with a return package? The returner can simply go online and issue a return request that will either send them a check or credit an account once confirmation of the package is received. They then simply drive by the local retailer and have the package scanned and dropped off.
Easy-peasy and with a lot of self service! Yes, I know it is a bit more complicated, but not that much.
And that is my 2 cents.
Processing returns is a way of life in retail. Rather than viewing it as a challenge, turn it on its head. Retailers need to address these 2 things:
1. Reduce the cost of processing returns (whether in store or via DC)
2. Reduce the returns by understanding the root causes of returns and minimize them (Returns CANNOT BE ELIMINATED)
By acting on the above, a retailer can maximize the contribution to EBITDA from returns.
Now to the positive in-store: Increase in foot traffic. Leverage the customer’s presence in your store to create a sale. Since these customers placed an order online, the retailer knows them (at least in the system) and should be able to look up customer history in real time (provided systems support it). You don’t need an IBM Watson to make this happen. A simple product recommendation engine for the store associate based on the customer’s historical purchases and leveraging the store’s inventory availability can do the trick.
Look at the math:
So you have reduced the net impact of returns. Not to mention, customer satisfaction positive impact as well.
This discussion illustrates that the biggest challenge is internal — rethinking how you do business and where you may find hidden opportunities.