Photo: RetailWire
Will return bans burn retailers that impose them?
Product returns represent a tricky situation for retailers. On one hand, research shows that generous return policies are a factor that drives retail sales. On the other, processing returns is expensive, particularly when fraud is involved. To address this negative aspect, some retailers including Best Buy are turning to third-party vendors to track and limit the amount of merchandise accepted as returns.
A Wall Street Journal article, citing a National Retail Federation survey of 63 retailers, reports that 11 percent of sales are returned, with 11 percent of those being fraudulent.
In the case of Best Buy, the retailer is working with The Retail Equation, a firm that tracks consumer shopping and returns behavior to determine if it fits the profile of fraud. If a customer is flagged, the system will impose a ban on returns and exchanges for a period of time. Other retailers that work with the firm include Home Depot, J.C. Penney, Sephora and Victoria’s Secret.
While limiting returns may help reduce costs, there’s also the potential for alienating good customers. The Journal article pointed to customers who were frustrated by a policy that is essentially hidden from plain sight until a ban is placed.
Dave Payne, a public relations professional, was one of those highlighted in the article. He received a warning after returning items with receipts to a Best Buy store in Orlando. “Best Buy advertises a 15-day return policy, but they are not advertising that at some point when you’ve crossed an arbitrary line, that policy no longer applies,” he said.
Product returns made the news recently when L.L.Bean revised its lifetime satisfaction guaranteed policy to cover items for a year after purchase.
“A small, but growing number of customers has been interpreting our guarantee well beyond its original intent,” wrote Shawn Gorman, L.L.Bean’s executive chairman, on the company’s Facebook page. “Some view it as a lifetime product replacement program, expecting refunds for heavily worn products used over many years. Others seek refunds for products that have been purchased through third parties, such as at yard sales.”
While some retailers placing more limits on returns, others are looking to simplify the process. Walmart introduced Mobile Express Returns last October to enable customers who purchase items from the retailer online to process returns in 35 seconds or less. The retailer is adding the feature to its mobile app this year so customers can more easily return items bought in its stores.
Discussion Questions
DISCUSSION QUESTIONS: Do you think that retailers using in-house or third-party systems to limit returns are on the right or wrong track? Do companies such as Best Buy need to be more transparent about the system they have in place to track returns to avoid alienating customers?
Poll
BrainTrust
Anne Howe
Principal, Anne Howe Associates
Mark Price
Adjunct Professor of AI and Analytics, University of St. Thomas
Returns are costly and retailers need to do what they must to protect themselves from those customers who attempt to take advantage. Unfortunately, some innocent customers become inconvenienced because of someone else’s wrongdoing. When I heard about how individuals were going to garage sales, purchasing used L.L.Bean products and then attempting to return them for new items it came as no surprise that the company had to put their foot down and change their policy. So it’s just something customers are going to have to accept. We live in a world where most of our laws and policies happened because of the few that were abusing the system. Retailers have to protect themselves for the same reason.
This is truly the time when retailers are caught between a rock and a hard place. In an era of razor-thin margins and escalating shipping costs, returns become a huge drag on profitability. Especially if the returns are fraudulent. Yet at the same time Walmart has an app to automate returns in-store and Amazon has return facilities in Kohl’s stores. L.L.Bean did not suffer too much backlash when they took the time to explain their policy and the rationale to their customers. Returns remain a fact of life in retail. Whether retailers use third-party systems or better internal controls, they must reduce fraudulent returns to a bare minimum without alienating core customers.
Stores have long used generous return guidelines to lure more customers, but such policies also invite abuse. Retailers estimate 11% of their sales are returned, and of those, 11% are likely fraudulent returns, according to a 2017 survey of 63 retailers by the National Retail Federation.
Someday, technology will improve this process. However, today, In the new retail landscape, when Amazon and other retailers have frictionless return policies, can a restricted policy succeed? Or will it turn away customers?
Managing returns to account for customer abuse, product wear beyond normal or simply poor purchase choice is a contribution to the bottom line. Retailers should state their return policies clearly and add some frustration to the process. Those who make returns a regular part of the purchase process add costs borne by more conscientious shoppers.
I’m with Lyle here that implementing fraud or overuse detection is a smart step. Having those policies clearly communicated is a must, but dialing back on the sensitivity of the detection to avoid alienating top customers or integrating it with credit or loyalty data to make better assessments would help as it’s introduced and people get more comfortable with the idea.
Returns are a fact of life for retailers and it makes sense to try to streamline and simplify the process. Third-party systems or imposing limits on returns is not necessarily a problem, but it all depends on how the retailer implements it. Ultimately, the goal should be to reduce abuse, but also make it easy for customers to process legitimate returns. While it’s not surprising that some customers will take exception to a change in a return policy (and may even be negatively impacted by it), as long as the retailer is being fair and transparent in their policies, I see no issue with adjusting/modifying returns policies from time to time.
Product returns or reverse logistics is a critical part of the retail process. Companies should be very transparent when it comes to the returns process, as any uncertainty could create some unnecessary friction, and potentially lead to losing loyal customers. At the same time, we should expect that consumers also do not violate company’s trust and faith by taking advantage of a liberal returns policy.
Returns, as we know, are already factored into the razor-thin margins. It’s a natural and expected part of the business. Yet a bad returns experience, whether online or in-store, could alienate and frustrate customers. The returns process is not going away anytime soon and will remain a key component of the shopper and retailer relationship. Going forward, it will be key for retailers to find the right balance between ensuring a solid customer relationship and setting up a strict returns policy.
You can’t blame retailers for trying to protect themselves against fraudulent returns. It’s an unfortunate circumstance of a seemingly growing number of shady people out there. Transparency is key, however, as return policy can have a major effect on the perceived experience. Retailers do need to do a better job of communicating return policies and explaining why they are in place.
Retailers need to find a return policy that strikes a balance between their desires and those of consumers. Once they determine that policy, retailers should be completely transparent about it. It will help them avoid consumer backlash and alienation.
Max’s comments goes right to the heart of the situation. There has to be a balance between a necessary return and a fraudulent return. A business will not survive with a policy of any return for any reason. L.L.Bean found that and did something about it. Their business continues to be strong despite putting a stop to bad returns. Strike a balance and be completely open and honest with your customers about it. They will understand.
They are on the right track financially, but not necessarily quite so right from a customer service perspective. Of course every retailer should do whatever it can to limit shrink and fraud. But if a policy isn’t transparent or can be interpreted as “targeting” a particular group of shoppers the potential savings will be eclipsed by lost sales. Let’s also remember that third-party services are only employed as long as a problem continues. No fraud — real or otherwise — no need for a third-party fraud management service. So it is in the long-tern interests of these companies that the problem persists, and at levels that make their services price competitive. As to transparency, return policies need to be as clear, transparent and as well-posted and/or advertised as possible. Anything less is just asking for trouble.
What complicated territory. Most fundamentally, though, if a company is going to limit returns in some way, they need to explain that to customers — even if it’s a ban because the company declares someone as “abusing the system.” Consumers need fair advance warning and courts would probably agree.
That said, this is a problem of retailers’ own creation. “The customer is always right” extremes have been highly publicized for years as PR teams try to grasp headlines.
And now there’s online — where the return problem and impact of cost is far higher. Yet here there are highly-publicized efforts to INCREASE the rate of returns — like shipping three clothing sizes so the customer picks the one that fits and returns two — a 66 percent rate of return baked into the program.
Retailers need to take a deep breath. Consumers need fair warning of your return policies. Don’t go for easy headlines that will burn you down the road. And online, perhaps a system-wide re-stocking fee would be appropriate. Retailers can’t continue to race after sales that lose them money.
Retailers need to be both transparent and careful not to alienate shoppers with obscure rules on returns. It is highly unlikely there can be a win-win. Walmart has the right idea, keeping it simple.
Returns are part of doing business in retail. Retailers can look at it as an opportunity to learn more about purchase behavior or treat it like shrink and frame it in fear and doubt. Of course some customers will take advantage of any returns policy, but any internal or third-party system can be viewed as suggestive rather than making binding decisions. The human element should not be understated or taken out of the loop.
I’d like to know the level of fraudulent returns versus legitimate returns. Something tells me it is quite low.
If so, every effort must be made to satisfy the customer, including ease of returns. If a retailer makes a return difficult, do you come back at all?
It does not matter if the return is handled in-house or by a third party. If a consumer becomes dissatisfied with a return issue — the retail brand gets blamed.
In a world economy moving at a hell-bent pace towards online purchases, limiting a return policy should be adopted at the retailer’s own risk. It IS a cost of doing business.
Return policies are necessary and some companies tie their brand to standing behind their products with a lifetime-guaranteed return policy. That is not for everyone. What is most important is to be transparent about the return policy with your customers. Nobody likes the return process, so it is important to make it as efficient as possible for everyone involved.
There are two old dances that are playing themselves out here:
The Retail Equation is a good company, but I honestly don’t believe this is the best use of their technology. Too much risk of collateral damage.
ALSO — the NRF number is not useful for me or, in my opinion, anyone else. When you know that apparel returns for direct-to-consumer sales are always at least 25 percent — if you’re doing well — and that the apparel category is the largest percentage of goods sold online, a blended rate of 11 percent is not surprising. The problem here is that buying replaces the fitting room, and returns are the items consumers decide they don’t like, whether size or color or styling. So to me that 11 percent blended number is deceptive and presumes you can do more about it than you really can. I think it’s click bait. Break out stores vs. DTC and we’ll have a conversation. But the number on its own is meaningless.
My spouse was head of loss prevention for a grocery chain for a number of years, and has amazing stories of return fraud, particularly for diapers and formula. When using third-party services, retailers must strive for continual improvement of true fraud detection and communicate clearly with customers, who will likely be sympathetic.
Returns are an opportunity for retailers! It’s crazy but true. UPS showed that around 66 percent of customers who return a product in-store also end up buying another product. With that in mind, remember that it is a hyper-competitive market, and if customers want longer return periods they will gravitate to the retailer offering them the terms they want.
As for transparency — this is always a good policy. If Best Buy has tested their systems (I am sure they have), and found that customers are all good with 15-day returns, then so be it. However, the opportunity lies with the other electronics retailers who offer a similar portfolio — with 30 to 60 day returns. Hmmm.
Nobody in retail likes returns. But we need to deal with it, and make the most of it. “Returns” is NOT a four letter word. Do it right and it could be the retail differentiator your business needs!
Returns are a tough part of the business reality for retailers. It’s an unavoidable cost while at the same time retailers need to treat the process as a positive customer service opportunity rather than a negative one. Retailers need to both provide transparency on their return policies and reduce friction in the overall process (as Walmart has done) to keep their customers coming back. A bad return experience is the quickest way a retailer will lose a customer. In the age of social media, losing one customer isn’t really one customer lost — it will translate into many when posted to social media for that customer’s friends to see!
Using an outsourced provider to manage the process is a business cost decision for retailers, but they need to understand that they still need to be transparent to their customer. If a third party is involved, that doesn’t relieve the retailer from describing the full process to their customers.
11 percent of 11 percent does not seem to be a high number. However, averages mean that the number is much higher for some and much lower for others. This seems like a policy that penalizes everyone for the bad behavior of a few. If making the policy transparent may drive away good customers, the retailers need to consider whether this is a good way to address the problem. If a retailer has a big problem with fraudulent returns, publicizing this policy may encourage the customers abusing the return policy to shop elsewhere. Using this return policy without publicizing it risks alienating good customers. Each retailer needs to weigh the size of the problem against the cost of changing their policy.
It’s simple. Be easy on the customer. It doesn’t matter if it’s direct returns, third-party returns or any other way of making a return. Just make it easy. If you don’t, you’ll lose customers the next time they want what you sell. Whatever or however you choose to handle returns, don’t penalize honest customers for the dishonesty of a few. There needs to be a system in place to mitigate or eliminate dishonest returns, but consider the cost of losing an honest customer because the system is built for dishonesty.
Amen brother. See my examples below.
Best Buy? Years ago when they demanded a driver’s license to return an $11 iPod armband within the return period, with a receipt, from someone who had maybe returned at most one prior item ever before that, they were met with a resounding “Go [something or other]!” They permanently lost my family’s business.
Due to the nature of construction and the need to overbuy materials, I return about 20 percent of purchases to Home Depot. Except when they mess up (which they do swimmingly at the nearest store) it’s a relatively no-hassle experience. They are rewarded with a net of thousands of dollars in revenue.
So as a UX strategist by trade, I’ll make it “simple” (as Gene and others said): retailers can join with Best Buy or Home Depot and expect consumers to respond accordingly.
I think retailers are well within their rights to adjust their return policies when it’s apparent a proportion are taking advantage. It’s my view that becoming stricter won’t deter a great number of consumers except maybe the fraudulent ones.
As already noted, it’s important that retailers are clearly promoting their returns policy at the time of purchase so it’s not open to confusion and interpretation, which is when consumers feel most hard done by.
Free returns are a critical part of the retail equation. Consumers will purchase more and more often if they feel that they can return products that do not work out for them. One of the key parts of the analysis that is left out of the article is the value of the customers who return these products. If a customer is a frequent returner but also a frequent purchaser of products that they do not return, then that customer is high cost, but also high value.
There is danger in a “one size fits all” policy towards returns. The goal should be to provide differentiated experiences to differentiated customers. Best customers who return should not be penalized, that is clear. Now a retailer must develop systems and processes to address such personalized experiences.
Retailers should try and be open about the fact that they are trying to protect the benefits of the returns system for customers who are using it for the purpose it was intended. As in most walks of life a few individuals will take liberties; most customers are mature enough to understand the trade off that is happening of control versus an open-access process and that from time to time they may get caught up in this.
Reliance upon a summary statistic to guide retail returns policy is not adequate. The dynamic is likely to vary greatly by retail channel or product category, as Paula smartly observes.
Retailers who pay active attention should be able to identify specific items that are commonly associated with returns abuse. Why not label those items as “subject to limited returns policy” with associated fine print, while leaving the broader, more liberal policy in place for the rest of the assortment?
Tracking frequent returns behavior in the context of a frequent shopper program should enable very bad actors to rise to the top. Where a liberal return policy engenders stronger loyalty, it may be in the interest of the retailer to minimize obstacles.
I’m confused as to what we’re talking about here: is it stores formally tightening their policies, or no longer applying them in a clear manner? (The way I’ve phrased this probably indicates how I feel about it.)
So let ME be transparent: stores should have clear guidelines that everyone can understand and will follow; as for how a 15 day policy can ever “cross a line” — other than by being 16 days — I don’t particularly like the sound of that.
Tracking returns is a good idea. Retail theft is a huge problem. Thieves need to understand returns will be tracked.
While at Eddie Bauer, returns were manageable and considered a cost of the selling model. An overwhelming majority of customers do not abuse the return policy.
Consumer recourse is an essential aspect of the brand promise. Especially true nowadays with trust in doubt. Retailers need to allow shoppers choice on many levels.
When at Sears, the Craftsman brand was tarnished when return policy was changed. Internally, folks were trying to offset losses from broken tools acquired at garage sales being returned. Should have been viewed as a cost and built into the model.
L.L.Bean has its first outsider as CEO. I think the recent decision to alter the return policy is a mistake.
Even Leon Leonwood Bean would say, “Retail ain’t for sissies!”
As is typical of these discussed issues, we need to look at this holistically vs. in isolation. The question shouldn’t be whether or not retailers should use a service like this, but rather how a retailer could use the service as part of their overall customer care strategy. Using the L.L.Bean example, rather than discontinue their iconic lifetime return policy, which I believe was a core symbol of their brand DNA, they could have kept the policy, but added the services of The Retail Equation to stop those who abused their generous policy. Instead, they are chipping away the foundation of their brand promise.
I don’t know if Walmart uses similar technology, but I would guess they do. Adding in the ease of mobile returns from their Mobile Express Returns system, it would seem they are taking actions more likely to build customer trust over the long term.
Customer care includes serving the 99% of best customers who don’t fraudulently return product. Your important customers don’t want to, nor should they, pay for those who are dishonest.