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First comes holiday shopping, then come the returns.
These end-of-year shopping seasons have long been defined in the retail calendar. After all, it's to be expected that people will want to exchange or bring back items that they received from someone else. Yet, like so much else in retail, ecommerce has made preferred customer options even easier and sped up the pace of these cycles. Free return policies and fast shipping have had the effect of changing up the long-held retail calendar to gel with the pace of the web.
This year, the shopping season was spread out over months as brands offered early deals. But many gifts will still be opened around the same time, so returns could come quickly, and all at once.
When it comes to return volumes, there are mixed signs of what to expect.
But there are signs that returns are beginning to moderate. The National Retail Federation recently projected that the 2022 return rate for ecommerce will decline to 16.5% for the year. That's down markedly from 20.8% in 2021, but still well above the 8.1% return rate for overall retail in 2019.
What’s clearer is that brands and retailers must be prepared, operationally and even mentally. Leaders who just spent all of their energy making the most of holiday sales have to find a little bit left in the tank to serve customers who want to send an order back. While it may seem frustrating to deal with what could be a lost sale, winning a sale and loyalty later may depend on offering an experience that leaves everyone feeling good.
To learn more about what’s expected for the holiday season and the growing number of options people have for returns, The Current caught up with Tasha Reasor, SVP of marketing at Loop, a software company that helps Shopify brands like Allbirds, Chubbies and Brooklinen manage returns.
Check out the Q&A with Reasor:
The Current: With ecommerce sales showing growth, what should retailers expect this holiday season when it comes to returns?
Tasha Reasor: Given that Black Friday sales broke records this year, retailers are naturally expecting a fair amount of customer returns.
According to one of our recent surveys, 31% of shoppers will return at least a few gifts this holiday season. And Loop’s merchants are expecting to process about $200M in returns in December alone. That can mean significant losses to brands unprepared for this returns spike, as 57% of shoppers are willing to abandon a brand entirely when provided a poor post-purchase experience.
Retailers should also remember that most returns do not happen because a customer dislikes their brand, but rather because they dislike a particular product. A return is a chance for brands to re-engage with customers and repair a broken promise, whether that be a damaged item or one that didn’t look as expected or didn’t fit.
Therefore, it’s important that brands invest in their returns experience as this will not only save them time and money, but also drive revenue and foster brand loyalty. If a brand offers a flexible, personalized return experience, it will attract and retain happier customers. It’s that simple. This includes options like free returns, extended return windows, in-person drop-offs, and so much more.
TR: Bracketing has long been an issue when it comes to online shopping as consumers, by default, can’t physically try and feel the goods in an ecommerce environment.
This, in addition to the current economic climate, is largely why we’ve seen numerous major retailers, such as Zara and H&M, scale back on free returns and have started charging customers to restock merchandise.
However, curbing this behavior is a delicate balance between saving money and keeping customers happy, as our survey found that 96% of US consumers believe that a retailer's return policies directly reflect how much the brand cares about its shoppers. This is why offering alternative options such as product exchanges is such a vital practice. This can deter a customer from purchasing three different sizes and colors since they know they can simply exchange the product for something else if they are unsatisfied.
This is one method for ecommerce merchants to strike that all-important balance between managing costs and inventory and provide customers with a delightful experience in which they end up with the item they’re most happy with. But again, it’s a fine line that retailers must carefully manage, and there are numerous other options they could consider such as offering in-store credit or creating a tiered valuation system.
What are 1-2 strategies that can help to keep reverse logistics under control in the here and now of the holiday season, especially as many items are being shipped out for first-time sales?
TR: One strategy merchants can practice this holiday season to keep their reverse logistics under control and save a sale is to offer additional options beyond exchanges. Options like store credit or bonus credit all help keep costs down and drive more dollars for brands. Plus, brands can also offer more desired return options like at-home pickup or box-less drop-offs. All of which help increase revenue, lower costs, and improve customer loyalty.
Customer loyalty tiers are another way retailers can optimize and manage returns this holiday season and beyond. Some retailers have begun to create tiered systems of customer valuation, where specific return processes are offered to customers based on their past return and purchase history. This is an excellent way to reward your best customers, encouraging them to come back and shop again.
A final strategy that retailers can employ to keep their reverse logistics under control is to work with top 3PL partners, many of which are already integrated into Loop’s return platform. By utilizing expert partners in the logistics space, retailers can be certain that they’re getting the most out of their returns. But even more important, 3PL providers can greatly improve the sustainability of ecommerce returns. We believe that a great post-purchase customer experience and a healthy planet aren’t mutually exclusive, and partners like Loop empower merchants to adopt a more sustainable returns process.
Here’s a new one: Amazon is offering return dropoff at Staples locations. Why would Amazon want to partner with another retailer, and offer dropoff specifically for returns?
TR: Data shows nearly 62% of shoppers have stated that they are more likely to shop online if they can return their purchase in a physical store. Given that Amazon doesn’t have any physical locations, this is a very smart partnership. We’ve personally experienced success with drop-off returns, which is why we partnered with Happy Returns by PayPal in May. This allowed our merchants to offer box-free, label-free return drop-off at more than 5,000 locations across the U.S.
Not only will this move help Amazon decrease costs related to returns, but it also provides greater flexibility for consumers. Our data show that many consumers greatly value flexibility and would rather eat the cost of unwanted products than engage with a confusing or inconvenient returns process. Additionally, 42% of shoppers prefer to drop-off return items at a shipping partner like UPS or FedEx. Nearly a quarter (24%) opt for at-home pick-up, and a significant chunk (18%) prefer to return products directly to a retailer’s storefront.
Furthermore, more than half of consumers (56%) care about the environmental impact of returns "somewhat" or "a lot", and over 35% of consumers have opted out of returning a product due to the potential environmental impact. In-person options can greatly decrease the environmental impact of a return, and by alleviating this concern for consumers, retailers naturally improve their post-purchase experience. Nobody wants to be stuck with a product they have no intention of using or wearing; it’s vital that brands offer greener options to consumers.
In the end, retailers must provide flexible return options like home pick-up, return bar locations, directional online return transparency, and flexible return policies like free in-person returns, and extended return windows. This results in retailers gaining consumer confidence while simultaneously turning their costly returns into a profit generator for their business. And what we’re seeing from Amazon clearly validates these ongoing trends.
Trending in Operations
"Fashion ecommerce is one of the most cumbersome customer experiences that exists," said Rent the Runway CEO Jennifer Hyman.
The rise of generative AI is bringing with it a groundswell of interest and concern about how the capability to automatically synthesize information and create something new will change how we work.
Given that AI will sit within the architecture of our digital lives, it’s also worth considering how the technology will introduce new tools for other aspects of life, as well.
For two ecommerce innovators in the apparel space, it’s a time to explore how it will transform shopping. Rent the Runway is set to roll out new AI-powered search capabilities, while Stitch Fix is drawing on a long history with data science and machine learning to personalize the inventory buying process.
Here’s a look at the initiatives underway at each company, and their visions for the future:
Rent the Runway: From search to concierge
Rent the Runway is putting a focus on the customer experience this year as it seeks to retain more subscribers and continue a yearslong push toward profitability.
This is resulting in the introduction of a variety of new initiatives, from the addition of an extra item to all orders to speeding up page load times. Yet as CEO Jennifer Hyman zooms out, she sees change being necessary on an industry-wide level in fashion. Beyond adding new features, AI can play a transformational role.
“I think that fashion ecommerce is one of the most cumbersome customer experiences that exists. You are searching through pages and pages and pages of content to find the items that you like and no one likes doing this,” Hyman told analysts on the company’s earnings call this week. “As an industry that still is selling physical products, AI is going to be -- fashion is going to be a major beneficiary as an industry.”
As a rental service, Rent the Runway has a distinct niche in fashion that lends itself to AI’s advantages, Hyman said. As opposed to a retailer that a consumer may visit a couple of times a year, RTR is used frequently by customers. So Hyman said there are opportunities to turn Rent the Runway into a “utility” by creating a more seamless experience.
This frequent use also provides a “highly unique” dataset, Hyman said. They know what a customer is planning to do based on what they rented. They know whether she liked or disliked an item, and many customers are reviewing 10 items per month. They know her size and how an item fits. This can be put to work in tools that allow customers to ask questions, and find answers.
The first application that combines AI and these advantages will appear in the coming weeks, when Rent the Runway plans to launch a beta of AI-driven search. The tool will allow customers to search for common terms or use cases for an item. So a person will be able to write “Miami vibe,” “‘clambake in Nantucket,” or “tropical motifs,” and receive results about what to wear for such an occasion.
The goal is to help customers sift through the endless aisle, and instantly finds what's right for them.
“I think that across all fashion sites, all over the world, the way that people are searching for product is fairly vanilla, it's fairly functional, right?" Hyman said. "You can go to a site and search for a T-shirt, you can go to a site and search for a black-tie gown. The fact that we're going to be able to enable our customers to search how they actually want to use this closet in the cloud, to search for items to wear to my beach bonfire this weekend, that is a completely different way to search, and I think that it really brings out the value proposition of what a closet in the cloud is all about."
Hyman sees this as a first step in the company using AI models to improve the product experience, and expects more tools to appear in the coming months. RTR is also introducing an SMS concierge experience for onboarding that allows customers to text with a member of the customer service team. The company is already exploring ways that AI can be incorporated into that tool, as well.
In the longer term, Hyman said the company has a vision that will leverage AI to allow customers to communicate with Rent the Runway asynchronously across different modalities, and have a stylist that is constantly available to recommend items, pick out new inventory and answer questions.
“If we are utilizing AI appropriately over the next few years, I see no reason why someone even has to come to our website,” Hyman said.
Stitch Fix: Inventory buying and beyond
Stitch Fix has long married AI with human curation to provide outfits on a subscription basis.
“For years, we have utilized capabilities in generative AI, injecting scores and language into our personalization engines and, more recently, automatically generated product descriptions,” CEO Katrina Lake told analysts. “We have also developed and implemented more advanced proprietary tools such as outfit generation and personalized style recommendations that create a unique and exciting experience we believe is unmatched in the market.”
A new area where the company is applying AI is inventory buying.
“We have historically utilized a number of tools to make data-informed decisions with our inventory purchases,” Lake said. “Now, directly leveraging our personalization algorithms, we have developed a new tool that creates an exciting paradigm shift, which will utilize math scores at the client level to drive company-level buying actions. We expect the clarity of demand signals at the individual client level to drive more proactive and efficient inventory decisions as a company. And because of this, we expect to see higher success rates on fixes and drive increases in keep rates and [average order value] over time.”
Early results are promising. When compared with existing buying tools, testing showed a 10% lift in keep rate and AOV. By the end of this quarter, Stitch Fix expects 20% of all purchase orders to be algorithmically informed.
With experience using AI and a team in place to build, Stitch Fix is investing in the technology. Like Rent the Runway, it also has a unique dataset that offers an immediate advantage.
Here are Lake’s thoughts about how Stitch Fix’s AI strategy:
One of the things that I love about our experience is that we have generative AI that's really in more of a visual format. And so, the outfits that we have in our app, those are actually taking into account your preferences, what we know about you, and then in combination with what we know that you own in your closet. And to be able to kind of continue to push that technology and to be able to continue to give people more value in their experience with Stitch Fix, that's a really good example of, I think, a capability that is, firstly, really aligned with our capabilities around data and personalization and really unique to us.
And then I think it's also really compelling because I really think that pushes us as we think about what that addressable market is. I think if we can push outfits to be something that can be an asset to everybody, I think that is a universal thing that people would love to be able to have, is to have access to advice on a daily basis around what to wear and how to wear it.
While these are distinct companies, their plans lead us to a common conclusion: While the talk around generative AI might be new, many technology-forward companies already have assets sitting inside them that can be leveraged to build new tools. Uncover what’s already there, learn about the AI’s capabilities and develop a solution that's right for your organization. Then, talk to customers to determine how to improve it. It might mean commerce looks different, but that’s okay. The point is to create a better experience.