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08 Mar 2021

Ecommerce Returns Rates and How to Reduce Them

Many online sellers consider parcel returns the bane of ecommerce retail. After all, it is hard to manage them efficiently, reverse supply chains can be complicated and costly, and returned products represent lost sales.

Some ecommerce enterprises prefer to embrace returns by finding innovative ways to benefit from them. This article briefly touches on that angle, while focusing primarily on steps you can take to bring your return rates down.

So, if, like many professionals in the ecommerce trade, you'd like to know how to reduce the percentage of parcel return, you'll find the guidance you need right here.

How do Ecommerce Returns Impact Sales?

Shoppers have always guarded their prerogative to return their purchases and exercise the privilege for various reasons. It would be a more straightforward matter if the only returns were those arising from errors by the manufacturer, retailer— or logistics partners.

However, shoppers also expect the right to return goods for purposes that suit them. Perhaps a buyer doesn’t like the product after receiving it. Maybe, in the case of clothing, it’s not a good fit. It could be that a mechanical or electronic item does not perform to the buyer’s expectation.

Whatever the reasons, the effect of package returns on ecommerce sales is profound, primarily due to the cost impacts, which, assuming the customer returns an item for a refund, might include:

  • The cost impact of the lost sale

  • The operational costs of returning the item

  • The loss of revenue on the product if you can't resell it at full price

  • The administrative cost of the return

  • The costs of restocking and/or reselling the item through secondary markets

Product Return Rates Higher in Ecommerce

The multitude of return reasons has expanded further along with the rise of ecommerce. Online shoppers have increased expectations, and stringent or restrictive returns policies can turn them off.

Some online shoppers will deliberately buy several variants of an item and only keep the one that best suits them. As we will discuss briefly a little later in this article, a few ecommerce retailers even choose to encourage this to entice customers to shop more liberally.

In the main, though, accepting parcel returns is not the easiest way to encourage sales. That's why many online retailers establish and maintain conservative return policies.

Assuming that your objective is to minimize, rather than openly welcome, ecommerce returns, you'll need to get a handle on your returns rate and set goals for reduction.

What is a Product Return Rate?

Are you monitoring the rate at which your customers return their purchases? If not, you're constraining your ability to manage, reduce, or even potentially benefit from them.

As with all aspects of business management, the adage "if it's not measured, it can't be managed" is true of product returns. That's where the product return rate—an aid to quantifying the impact of returns on performance, revenue, and profitability—becomes an invaluable metric to track.

Calculating the Product Return Rate

Most merchants will measure return rates either as a percentage of items sold or a percentage of the sales value. For example, if, during the course of a month, you sell products worth $15,000, and products returned amount to a value of $4,500, the return rate would be 30%.

The parcel, or product, return rate gives you a baseline measurement that you can then use to set a target for reduction and monitor progress towards that target.

But is reducing parcel returns the right thing to do? For many vendors, keeping return rates to a minimum is the healthiest approach to maintaining profitability.

Low return rates are also a sign that customer satisfaction is… satisfactory. There can be exceptions to the rule, though, so before delving into strategies for reducing return rates, let's take a moment to consider those exceptions.

Can Returns be of Benefit to Sales Performance?

Some ecommerce companies have made liberal returns policies a feature of their sales and marketing strategy and exploited them for increased profitability. Shoe and clothing brand Zappos is perhaps one of the most notable examples of a retailer employing a generous returns policy.

The prevalent belief behind this approach is that by letting customers return purchases freely and making it easy to do so, they will buy more and generate more revenue.

However, it can be a risky gambit. Success depends on several factors, including effective control to discourage serial returners, the product's price point, and highly efficient reverse supply chain management.

Assuming that you will not plan such a bold approach, then, and choose instead to seek minimal ecommerce returns through your enterprise’s reverse supply chain, let’s move on and look at how to reduce returns rates.

How to Reduce the Percentage of Parcel Return: Fix What You Can Control

So you’d like to know how to reduce returns in ecommerce. The first thing to be aware of is that it takes a two-pronged strategy. One prong requires an internal focus, while the other must concentrate on your customers. We’ll take a quick look at each of these strategic forks in turn.

The internal element of your reduction strategy should be all about removing the causes of returns. According to an article by The Robin Report, 65% of returned goods arise from issues that are under the seller’s control.

There are two paths to success here. The first will lead you to your products and the way you present them, the second, to your governance of returns.

Key steps to take in sharpening your internal focus on returns include:

  • Your product pages: Create clear, comprehensive descriptions of your products, provide lots of high-quality images, and perhaps produce videos with product guidelines and explanations. These steps will give shoppers details to assess if they are purchasing the most suitable product.
  • Tools to help shoppers: Try to provide tools such as size guides for clothing or shoes, room planners for furniture, and other aids to help shoppers better evaluate their planned purchases. After-sales service: Buyers will sometimes return products because they can’t figure out how to use them or think they are faulty or broken. Make it easy for your customers to ask questions after the sale and get prompt answers. That might head off some returns that are borne out of frustration or impatience.
  • Perfecting your fulfillment: Returns are not always the customers’ fault. Mistakes in order capture, product picking, and delivery will lead to products coming back more often than not. Every step you take towards perfect order performance will decrease your cost-of-goods-sold (COGS) as well as reduce return rates.
  • Protective packaging: To minimize damages in transit, which will inevitably result in returned products, it’s worth reviewing your packaging and preparation for shipping your customers’ purchases. A little extra investment in packaging that offers robust protection will likely pay for itself in the savings gained on returns costs.
  • Measuring, monitoring, and targeting: It's not sufficient to understand your parcel return rate. It's better also to track the reasons for returns and target those that show up most frequently. After all, there’s little point prioritizing action against serial returners if most of your returns comprise faulty or broken products. If you’re serious about reducing those pesky returns, you can’t underestimate the value of continuous measurement and analysis. Always grab the lowest-hanging fruit first.

A Policy for Return Rate Reduction

Now to the governance issue. Your returns policy is one of the most critical weapons in your return-reduction arsenal. Setting the right policy is a delicate balancing act between discouraging casual returns and alienating shoppers.

Whether you decide to err on the liberal or conservative side in setting your policy, though, there are a couple of points on which most experts agree:

1) Long Return-Time-Windows Work Best

It’s better to have a longer, rather than shorter, time limit within which customers can return their purchases. With a shorter timescale, a sense of urgency can add encouragement to return purchases, especially for shoppers experiencing a sense of buyer’s remorse.

With more time at hand, the possibility is higher that the customer will get used to the item—or even emotionally attached—and decide not to send it back to the vendor.

2) Include Measures to Deter Serial Returns

Your policy should include measures to discourage serial return behaviors. Even those etailers with liberal returns policies find that some customers get into the habit of:

  • Buying items on approval (to have several alternatives from which they intend to keep only the one they like best)

  • Buying for one-time use (treating the purchase like a short-term rental, with no rent). Both of these habits are most prevalent in apparel markets.

The External Focus: Addressing Customer Behaviors

As we turn our focus to customers, it's worth noting that several of the internally focused measures mentioned above will help to minimize serial-returning behaviors. Nevertheless, some customers engage in more determined practices to exploit their return options.

They include return fraud, which involves consumer abuses as blatant as sending back items, such as potatoes... Yes, potatoes!... or other fake items packaged in place of those products that the customers received.

Of course, this practice is a crime and better discussed in an article about general retail fraud. Then there are the fitting roomers and wardrobers.

Foiling the Fitting Roomers

Those customers that order one product in several colors and sizes, intending to return most of them, have become known in the retail industry as bracketers or fitting roomers. Their behavior is driven by the inability to see, feel, and try items before buying, as they would in a brick-and-mortar retail environment.

Therefore, any steps you take that provide customers with more insight and information about a product can discourage fitting room behavior or the temptation to buy on approval.

It's a worthwhile mission. Let's not forget that aside from the costs your business incurs in processing returns, you may be unable to sell returned products for their full retail value. A Gartner survey, quoted by MarketWatch, found that fewer than half of all consumer returns can be resold at their full price.

Weeding Out the Wardrobers

If fitting room behavior is somewhat understandable, given the tactile limitations of ecommerce, another form of serial returning is less excusable. Wardrobing is a pernicious and prolific practice among a specific subset of online shoppers.

What is Wardrobing?

Wardrobing is the term applied to shoppers who buy merchandise online with no intention of keeping it. Instead, they "buy" an item and use it once before returning. They may order a product to show it off on social media or in video blogs, or for a one-time event or task, effectively taking it on a rent-free loan.

The wardrobing practice is notably hurtful to online vendors. It's no less so even if the perpetrators never remove any price tags or other labels from their purchases and replace them in their original packaging for return.

They are still returning used items, which, as mentioned previously, might no longer be possible to resell at anything but a fraction of their full price. That adds insult to injury, especially for an ecommerce retailer that offers free shipping and foots the bill for the return logistics, as so many do today.

How to Combat Wardrobing

Again, your ecommerce returns policy is your best friend when it comes to slowing the wardrobing activity scourge. However, it remains critical to strike that all-important balance between deterring serial returners and deterring purchases. Some options to include in your policy are as follows:

  • Buyer pays for return shipping: You might insist that all return shipping fees, or shipping fees for specific types of return, must be paid for by the customer.
  • Buyer must provide a reason for return: Whether your business or the customer pays return shipping costs, you could mandate that returns are only accepted for specific reasons. Your policy might state that the customer must notify you and provide a reason for return before sending the item back.
  • Restocking fee: Your policy might include the application of restocking fees, either by default for all returns, for specific return reasons, particular products, or on a case-by-case basis. The restocking fee could be applied in addition to, or in place of, return shipping charges.
  • Steps for Sanctioning Serial returners: Perhaps the most vital inclusion in your policy is a statement notifying customers that you monitor returns. It should also outline the possible sanctions for customers you believe are abusing your return facilities. For example, Amazon has warned consumers that it will ban serial returners from shopping on its sites for life. Many other online retailers are considering similar sanctions.

Be aware, though, that some, if not all, of the above options, could be considered draconian by your customers. If you decide to implement them, you should outline them clearly in your returns policy, which should be displayed prominently on your ecommerce website.

It is essential to be sure you are up-front and that customers know about returns procedures and rules before they make a purchase.

Sanction with Care

Suppose you expect to actively sanction wardrobers or anyone who makes returns at a ratio above a certain threshold. It's inadvisable to do so without first equipping your business with tools to analyze returns at a granular level. You'll need sufficient and accurate data enabling you to issue warning emails only when warranted.

Similarly, evidence should be indisputable before you take the ultimate act of closing a customer's account if you believe they are breaching the terms of your policy.

The need for safeguards to avoid miscategorizing customers as serial returners cannot be stressed enough.

Other possible wardrobing deterrents include attaching prominent security labels or devices to your products, which, if removed, render the item ineligible for return. Again, it’s crucial that you provide clear instructions for customers to follow regarding such labels, either in the event of a return or when committing to keep their purchase.

Set Your Course for Fewer, But Happier, Returns

If you've ever wondered how to reduce the percentage of parcel returns in your ecommerce enterprise, you're not alone. Etailers the world over are facing the same conundrum.

Some merchants have accepted high return rates as the price of selling online. Others have implemented stringent return policies at the risk of losing sales to more liberal competitors.

Still, the ecommerce market is vast, and there is room for merchants to choose their position on product returns.

How to do it: A Summary

The ideal approach to reduce ecommerce return rates is probably to strike a balance, and focus on:

  • Slowing the rate of returns through a right-first-time culture in order capture and fulfillment
  • Maintaining a service offering that simplifies returns for genuine cases
  • Ensuring that serial returners are identified through careful monitoring and analysis, and given the opportunity to desist before you take the ultimate measure of refusing their patronage

The alternative is to consider accepting higher return rates, and seek innovative solutions to benefit or profit from them. However, that’s a topic for a future article, so if you think it’s a strategy worth considering, remember to keep visiting the Shipa Blog for more tips on parcel returns and reverse logistics management.