The Return Trip: How Returns Impact Online Shopping

ECommerce

Online eCommerce sales increased 14.7% this past holiday season. This in turn ratcheted up returns activity for all eCommerce sellers. UPS reports that it handled over 1 million return shipments in the month of December and expected more than 1.4 million packages on National Returns Day, January 3, 2018. In a CBRE report, it was estimated that this season’s online holiday returns could top $32 billion.  Where return rates for traditional retail average around 8%, online purchases are returned at a rate of 15%-30% depending on the category of merchandise.

If you are a typical online ecommerce consumer, chances are you have returned at least one purchase in the last year. According to the 2017 UPS Pulse of the Online Shopper™ study, 75% of consumers have shipped returns back to the retailer in the last year.  Clearly, returns are a significant issue for both consumers and retailers.

Although retailers would certainly prefer not to have returns and, in the past, had frequently implemented restrictive return policies, they have come to realize that consumer-friendly return policies and procedures boost sales and generate customer loyalty.  The UPS Pulse of the Online Shopper study found that 79% of those surveyed said free shipping on returns is important when selecting an online retailer and one of the top elements includes an easy-to-return online experience and a no-questions-asked policy.

Tobin Moore, CEO and co-founder of Optoro, a reverse logistics solution, says “Retailers are moving from an ‘avoid and prevent’ to an ’embrace and solve’ approach to retail returns. It’s true that some retailers are taking steps to prevent returns with better online descriptions, images and sizing guidelines. However, by and large, retailers have shifted from writing returns off as a necessary cost of doing business and have moved to investing in optimizing the returns process from a customer experience and logistical perspective.”

Many of the recognizable ecommerce players are taking innovative steps to improve the customer experience of returns.  Amazon, for example, has expanded options for in-person returns this year, with 2,000 “locker” locations, including 400 at Whole Foods stores, where customers can drop off items to be returned. Amazon also partnered with Kohl’s Corp. stores in several locations that accept returns of Amazon goods bought online.

Wal-Mart has launched its Mobile Express Returns, a program that requires just 2 steps utilizing a mobile app and cuts return times from 5 minutes to 30 seconds. For some items, such as beauty or personal care product, Wal-Mart will offer immediate refund with no need to return the item.  Wal-Mart and Target offer free return shipping in addition to drop off returns.

UPS and FedEx have greatly expanded access for consumers that ship online returns back to retailers.  FedEx now offers 10,000 drop off locations, comprising Walgreens, Kroger’s, Albertsons and its own FedEx office locations. UPS accepts packages at its 4,500 UPS stores plus Staples and most private Pack & Ship stores and other access points.

Equally important to ease of returning is the speed and means of the refund credit.  A Bizrate Insight study found that 72% of online customers expect a refund credit within 5 days of returning merchandise. In the same study, 88% of customers would limit or stop shopping with a merchant that took too long to credit the refund. Beside the immediate refund on a very limited selection of items Wal-Mart offers, Amazon is a leader in quick refunds with credit often being issued when the return shipment is turned over to UPS or the returning carrier.

Also, high on the list of customer preferences is the method of credit, with 34% of consumers citing a full refund (rather than exchange or store credit) as the most important feature of a refund policy according to a survey.

While these efforts improve the customer experience and tend to lower costs for the eCommerce retailers, other aspects of returns pose an expensive problem for retailers. According to Optoro, only about half the merchandise is repackaged and resold.  Merchandise that requires repackaging or repair is often liquidated at 5%-20% of retail prices.  The remainder is likely to be considered waste and is recycled or sent to landfills.  It is estimated that returns sold at discount or not resold cost retailers 4.4% of total revenue each year and, in a low margin industry, that is very significant.

For all the recent developments in return processes, both consumers and retailers have a great interest in continued improvement.

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