High return rates challenge both e-commerce and brick & mortar retailers alike. It is a problem that exists across all categories and business types, especially when it comes to fashion. “For every dollar in sales, a retailer’s net profit is between a cent to five cents. With returns, for every dollar in returned merchandise, it costs a retailer between 15 cents to 30 cents to handle it,” said Burt Flickinger of Strategic Resource Group.
BRICK & MORTAR
The retail environment can be frustrating. Stores have shortened hours and less staff. Selling floors are usually found unorganized, and register lines are either very long or no one is working at checkout. It would be reasonable to say that is the outcome of the pandemic, however these issues existed prior, as the economy and retail businesses were all struggling. For these reasons, plus others, many customers have turned to online shopping, where they can very quickly and easily find what they are looking for.
There are a different set of challenges with online shopping 1) the customer does not have the physical product in front of them at the time of purchase; 2) the lack of immediate gratification. The former is a large contributor to high return rates. In addition, consumers that shop online usually make larger purchases than they would in a physical store. These purchases might include the same item in multiple sizes, also known as bracketing, or over buying knowing that they have the assurance of returning later.
There are concepts key retailers are using to create
value in their returns:
1) ATTAIN AND RETAIN CUSTOMERS BY UNDERSTANDING THEIR BUYING NEEDS
Return policies can play a large role in customer spending, loyalty, and retention. According to Richpanel “8 in 10 consumers read your returns policy before purchasing, and 72% of consumers say a simple return experience makes them more likely to shop from a merchant again in the future, the importance of an effective return policy cannot be overstated”. Retailers with lenient return policies give customers the trust and comfort they need, it also gives them time. Time to take the product with them, try it in the comfort of their home and hold onto it to decide if it is what they really want. In today’s economy where consumers are purchasing less frequently and more conservatively, stricter return policies might turn off a customer on their purchase or for good. Seel, a post-purchase guarantee platform, partnered with 400+ merchants to offer a refund-by-Seel option on otherwise nonrefundable items. “74% of shoppers that add Return Assurance said they would not have placed their orders otherwise” says Co-Founder Zack Peng. “A good return policy increases conversion, especially with Direct-to- Consumer brands and second- hand marketplaces, where it can also increase TAM”.
“Second-hand”, “Pre-loved” and “Thrift” shopping increased during the pandemic due to a lack of availability, and it unknowingly reduced the stigma of buying used items. According to ThredUp, “Secondhand is becoming a global phenomenon, expected to grow 127% by 2026. Nearly half of Gen Z and Millennials are spending a large portion of their apparel budget on secondhand compared to 5 years ago”. Sustainability is the second reason for Gen Z to buy used clothing.
“Eco-Friendly” and “Sustainability” are values that more companies are addressing in product, marketing and in their returns. Retailers like REI are using this as a strategy to extend a product’s life cycle, and also to keep the customers that might typically turn to secondhand marketplaces. REI Co-op cites they inspect “gently used items that have been returned and selects the best” that they put up for sale. “We're trying this out as a way to help more people get outdoors while keeping useful stuff out of the landfills”. Eileen Fisher has Renew, where customers receive $5 reward per Eileen Fisher item returned, regardless of the condition. These items are processed, and if in good condition are resold, the rest are transformed into unique pieces. “In 2021, the fashion industry accounted for between 8-10% of global carbon dioxide output, and 20 percent of the world’s plastic production — largely due to the industry’s reliance on petroleum-based polyester” (Vogue Business, Sustainable fashion: Where the industry is heading in 2022).
2) DRIVE FOOT TRAFFIC
Return collaborations like the Kohl’s & Amazon partnership, which launched in 2017, can be very successful. Qualified Amazon returns can be brought to a Kohl’s store and returned, no box or label printing needed. They consolidate Amazon’s returns leading to large savings in return shipping costs. Kohl’s benefits because this brings the customer into their physical stores. In 2021, “Kohl’s said it added at least 2 million new customers last year thanks to an unlikely friend that it has found in Amazon”. (CNBC, Kohl’s says it added 2 million new customers in 2020, thanks to Amazon) “A third of these new customers are millennials”. Now at the Amazon return counters, Kohl’s is promoting Sephora, whose largest target customer is the millennial. Another perk the customer receives with their return is a discount coupon for a future Kohl’s purchase.
3) REACHING NEW CONSUMERS THROUGH THE VALUE CHANNEL
There are different types of retailers, both new and existing, that are successful with return resale. This can be a great option for a brand or retailer that does not have a way to resell returns within their own business model. In some cases, this is where they will see the highest recovery rates while reaching new consumers.
Bin store chains have been popping up all over, mainly selling product from Amazon, mass-merchant and big box retailers. Some bin stores work on a pricing cadence that drops as the week progresses. By Saturday, an item which started the week at $10 may just cost a dollar or under. Then the next week, new merchandise is received and the process repeats.
In the off-price or value channel, buying returns is not a new concept. With retailers like Burlington, Ross and Marmaxx, part of the product mix is store stock, which can include new and returned inventory, but essentially product that has been at another retailer. Brands like Zara, Macy’s, J. Crew and Express apparel and accessories can inconsistently be found in these stores, enriching the treasure hunt model. Social Media platforms like TikTok have accounts that post Zara Alerts when new flows of the brand hit TJMaxx stores.
In Fall 2020, eBay and Optoro, who works with retailers such as Best Buy, Ikea, Target, and Staples, announced their partnership. These retailers now sell returns and other inventories to eBay sellers through a wholesale model. Product across clothing, shoes & accessories, home & garden, consumer electronics and toys & hobbies can be purchased in BULQ lots which will be shipped directly to the seller’s home. They also have easy access to product information to use for their listings. "[W]ith 185 million buyers, the odds are a seller will find the right person to purchase an item that may have previously been returned,” Ashish Chhabra, eBay’s vice president of selling, North America, said in emailed comments.
As retailers continue to look at ways to create better processes for returns and tackle the challenges that they create for themselves and the consumer, there are still ways to create value in them.