Returns has been identified as the $761 billion albatross around retail’s neck, with as many as 91 percent of merchants reporting that returns are accelerating faster than revenue, a recent survey from Appriss Retail and Incisiv indicated. One reverse logistics platform, Optoro, even said October’s returns processed through its operations leapt 74 percent from 12 months ago, totaling 8.63 million units.
But despite the escalating volume of returns, brands can still find ways to leverage the recurring problem to their relative benefit.
Roughly 25 percent of shoppers are willing to pay for more convenient ways of returning their purchases, according to Narvar’s sixth annual State of Returns consumer survey.
Thirty percent of the 2,023 respondents said they would pay for scheduled pickup, while 24 percent would accept a fee in exchange for not having to box up a return or worry about printing a shipping label. Another 22 percent said they would pay to use return lockers.
Having said that, more retailers are charging a return shipping fee since last year, indicating that they are actively looking to mitigate the losses associated with returns. Whereas only 33 percent of retailers charged for return shipping in 2021, the number increased to 41 percent this year, according to Narvar’s separate analysis of 200 retailers.
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These fees aren’t exactly what either Narvar or the consumer has in mind when they are talking about paying for added convenience. The post-purchase technology provider considers “Gold Medal Policies” to skip the shipping or restocking fees. Such surcharges cross the threshold into “Silver Medal Policies” at $6. “Bronze Medal Policies” count for shipping fees above $10, indicating that tacking on a surcharge is still discouraged and that brands should consider alternatives that don’t saddle consumers with extra costs.
“Our research shows that shoppers are undoubtedly benefiting from retailers’ generous return policies,” said Narvar CEO Amit Sharma. “Return windows are getting longer, refunds are happening faster, and technology is making returns easier than ever before—boosting customer satisfaction. There is a significant opportunity here for retailers to increase loyalty and retain revenue by offering differentiated and personalized return policies that meet different customers’ needs.”
Appriss Retail chief data scientist David Speights said it makes sense for retailers to implement return fees in certain circumstances, such as when a customer shows excessive or abusive behavior in trying to wiggle out of too many purchases. But he warned against universal policies that could have “serious negative consequences.”
“It seems like most retailers are taking a blanket approach to returns fees using a simple methodology, such as value of the original order, to determine which consumer has to pay and which doesn’t,” Speights said. “Return fees are unpopular with all consumers, and from our experience are overridden frequently by the associates at the return counter. Therefore, being strategic in how and when you charge fees can be a competitive advantage. Retailers should reward the most profitable customers by waiving the fees and add friction into the process for other shoppers who misuse returns to influence a different behavior in the future.”
Narvar also said that publicizing the returns policy is a major opportunity where retailers simply aren’t sufficiently taking advantage. Roughly 20 percent of the retailers researched by Narvar made their returns policy visible in the top navigation bar of their website.
To the surprise of no retailer, returns are common and widespread: 26 percent of shoppers surveyed said they had returned more than four items in the last six months, with apparel and footwear accounting for 46 percent. Clothing alone accounted for 31 percent, nearly doubling the 16 percent of consumer electronics returned.
And these consumers are increasingly using third-party drop-off locations: 37 percent returned their most recent online purchase by dropping it off at a UPS store, unaffiliated retailer or similar alternative partner. The trend has grown over the past four years, from 11 percent in 2019 to 19 percent in 2022, Narvar said.
Once again, convenience is key here: 85 percent of shoppers that used third-party drop-off locations preferred them because of convenience of hours and location.
For retailers to capitalize on potential revenue-saving opportunities, they will have to figure out how to make exchanges more enticing. The majority of shoppers still request refunds rather than exchanges: 63 percent of respondents said they asked for a refund when making their most recent return with a non-Amazon retailer. This suggests that retailers have a material opportunity to improve the bottom line by converting these refund requests into exchanges, even if they are for items of different value.
AI can help provide better incentive to return
Narvar says retailers should incentivize returners to seek an exchange over a refund—that could be through a coupon, promotion or other offer. While this potentially helps save the sale, it also encourage shoppers to make their next purchase faster than they might have otherwise, the report noted. For example, three in 10 shoppers would accept a refund on a gift card if they could get it immediately, the survey said.
Speights believes AI technology may be the answer to delivering a more personalized returns experience. The technology can play into these incentives by leveraging data that better understands consumer shopping patterns, further helping forecast trends.
“AI can also provide enhanced A/B testing for incentives,” Speights said. “Artificial intelligence models are self-learning and as they learn, lower-performing offers are removed from the library of offers. As new offers are added, random distribution happens in a fraction of the time until the model learns how customers react to the new offer. This is a highly efficient approach that allows the retailer to maximize the profitability of its incentive programs.”
The Appriss and Incisiv study noted that 66 percent of retailers said they want to incentivize shoppers at the point-of-return, but just 22 percent are doing so.
“Lack of ownership of returns is certainly one issue contributing to that statistic, and competing IT initiatives and cross-channel data silos don’t help. Without insights from integrated data, incentives are often static—like blanket return policies—so offering BOPIS might be risky since it may not make sense for every consumer,” Speights said. “With AI-driven incentives, retailers can use a holistic set of data and a library of offers to push the right incentive to the right consumer based on historical characteristics, including incentives to pick up or drop off in nearby stores. With today’s technology, those types of recommendations can happen instantaneously and more effectively.”
In many ways, handling these problems seems to be an organizational issue, according to Appriss and Incisiv study. While 64 percent of retailers reported that returns are an issue they’ve been tasked to take on, just 27 percent have appointed an executive to manage returns performance, echoing findings from rival returns innovator Newmine.
Similarly, only 29 percent said they have a strategic returns management program in place, while only 21 percent believe their current processes are effective.
“We believe having a single executive in charge of returns is a necessary component to protecting profitability of the retailer,” Speights said. “Additionally, instead of focusing solely on what consumers buy, retailers should focus on what consumers keep. Consider returns through a sales lens. If returns are 18 percent of sales, for example, then think of how the business would behave if that was a product line or sales channel delivering 18 percent of revenue. A retailer would have an army of people managing that channel or product and identifying ways to improve the number.”
Poor fit remains the top reason for returns, according to Narvar. For the sixth year in a row, “fit and size” accounted for 45 percent of returns, up from 42 percent in 2021 and 38 percent in 2020. “Fit and size” was tops among both first-time shoppers (22 percent of respondents) and loyalists (the remaining 78 percent). The trend indicates that retailers have yet to maximize their augmented reality (AR) and fit technology investments or unlock the full value of the sizing data customers are providing.
Optoro reaches 100 million processed returns
Some of the technology providers in the returns space like Narvar, Newmine, Appriss and Optoro are finding their own ways to solving the returns problem, with the last of three saying that its platform has now processed more than 100 million returns.
Optoro has recently expanded its technology and footprint to meet increased demand from mid-market retailers in the apparel and home goods spaces after getting a $25 million investment led by Zebra Technologies to close out 2021.
To support the increasing number of returns processed through its platform, Optoro opened new distribution facilities in North America this year. In June, the partner to Ikea and American Eagle launched its software at a Canadian facility for the first time. In tandem, Optoro expanded its managed service offering to the West Coast as part of its nationwide processing network.
Going forward, the reverse logistics provider wants to further help retailers meet their circularity goals. Since 2015, Optoro says its retailer customers have kept 95 percent of returns and excess inventory out of landfills, diverted 14.7 million pounds of waste from landfills, and prevented nearly 52 million pounds of carbon emissions.
“Optoro is applying the core tenets of circularity to create lasting impact on the retail industry,” said Adam Vitarello, co-founder and president of Optoro. “Our technology doesn’t just do good — it creates a scalable and sustainable process that benefits business operations, consumers, and the planet. At the end of the day, it’s our responsibility to address the massive issue of returns. If we can do that while making the process a business driver, then that’s a win-win.”