To retailers rethinking return policies: Stay flexible

54% of consumers won't buy from an online retailer that doesn’t offer free returns, Loop study finds.

tilt-shift lens photography of woman holding candy cane-print gift box in a well-lit room
The post-purchase is a key time to build loyalty. (Photo by Kira auf der Heide on Unsplash)

As certain modes of doing business become more widespread, they can become best practices. But that doesn’t mean they have to stay the same forever.

Brands and retailers in ecommerce often show how change is necessary. They are constantly evolving based on shifts among consumers, technology, partners and even the economy.

It means that even some of the most ubiquitous tactics can come under review.

Over the last several months, there are signs of a groundswell for change beginning to foment in the area of returns. For years, brands and retailers have been willing to cover consumers’ costs of sending unwanted products back. The free returns policy was a cornerstone of customer experience design that aimed to remove hassles. But in 2022, a period where return rates jumped alongside ecommerce demand is running headlong into an economic environment that’s leading many brands and retailers to examine every part of their business.

“Retailers are facing rising costs associated with supply chain challenges and increased transportation and labor costs,” said Hannah Bravo, COO at Loop, a returns platform that works with Shopify brands like Allbirds, Chubbies, Brooklinen and others. “Combine that with excess inventory and slowing retail consumer demand, and it’s the perfect storm. Brands are taking a close look at margins and returns are not immune to that inspection.”

As a result, this year’s holiday season is doubling as a test period for new approaches to returns. As is often the case with experimentation, differing approaches are on the table. Some are considering ending the practice of free returns. Executives at H&M, which is the second-largest clothing retailer, said they would test return fees in several markets.

Meanwhile, Walmart is offering more flexibility. The world’s largest retailer rolled out a new “No Concerns” return policy for the holidays that extends the return window, allows returns to be dropped off curbside and offers at-home pickup for members of Walmart+, which is the company’s membership program.

This difference in approach suggests there is plenty of room for brands and retailers to work out approaches that are right for them. When considering such a shift, it’s important to weigh the reasons for making a change, and the implications. There are short-term and long-term effects to consider, as well. And there’s the risk of doing too much. After all, an overcorrection now could harm prospects even when the environment changes.

Point of no return?

At the center of it all is the customer, and how they will respond. While retailers like H&M and Walmart are still collecting feedback on their particular programs, data already shows that returns are an important area for shoppers. Data released by Loop in August found that 96% of US consumers believe that a retailer’s return policies directly reflect how much the brand cares about its shoppers. Additionally, 54% of consumers said they won’t make a purchase from an online retailer that doesn’t offer free returns.

That suggests there’s a connection between the policy, and a consumer’s view of a brand. Making a change to an area that is integral to the purchase decision could alter the relationship in decisive ways.

“Brands that are considering the elimination of free returns see it as an avenue to cut costs,” Bravo said. “However, that’s a debatable long-term strategy. Your best customers will feel punished by the introduction of return fees, and you’ll run the risk of losing them forever.”

It’s not just existing customers that brands need to worry about. Return policies also have a huge impact on whether or not a shopper buys from a brand in the first place. Bravo said. According to Loop’s study, free returns and exchanges are the #1 offering that makes consumers more likely to make an online purchase.

“Once they make that first purchase, their experience actually returning a product could determine whether or not they buy from a particular retailer again,” Bravo said. “Ultimately, offering a generous and flexible return policy can help brands get in the door with new customers who might not otherwise give them a try, and it can keep existing customers coming back.”

That speaks to why Walmart is taking extra steps to make returns easy. The retailer has built out its logistics and delivery network over the last year. Now it is putting that to work in service of customers who it wants to build relationships with. Since they already pay for a membership, Walmart+ customers are particularly likely to spend more if things are easy for them.

It’s a reminder that the post-purchase period is an important arena in which to win favor with customers. In fact, Bravo called it a “make-it-or-break-it moment” in the customer journey, adding that, “if done wrong, it can result in sunk acquisition cost and the end of the relationship.”

“It’s important to remember that the majority of returns happen not because the customer didn’t care for the brand, but rather that they didn’t care for the product,” Bravo said. “And that creates an opportunity to build a lasting and valuable relationship.”

The return policy is just the start. Remove it, and that may take away other chances to engage them later.

Data-driven alternatives

While the reality of the economic times means that retailers have to choose how they invest carefully, it’s worth considering options that don’t require completely foregoing a key building block of that bond.

Bravo suggested a couple of ways to reduce costs while keeping generous return policies intact.

For one, retailers can turn to the data. Retailers have lots of it on their customers, and it indicates that not all customer segments are equally valuable. Just like they would be in a marketing campaign, customers can be segmented for the post-purchase experience, as well. Create tiers that offer different levels of service.

“For your best customers, invest in the very best post-purchase experience just like you would in a loyalty program – free or cheap, fast, convenient, and with optionality,” Bravo said. “For customers that you’re still learning about, introduce a reasonable amount of friction into the returns process. And for the small subset of customers that have displayed troublesome purchase or return behavior, protect your margins by adding the most friction to their returns process.”

Another key area to examine is logistics, and how the load on networks can be lightened at a time when costs are high. Returns shipping, in particular, has been in focus. While allowing customers to send packages back is key to convenience, rising rates put stress on available budgets to deliver a service that puts an item back into the supply chain.

But there may be alternatives that can bring about cost savings, or at least cost neutrality. Loop’s study found that 42% of shoppers prefer to drop returned items off at a shipping partner like UPS or FedEx, while nearly a quarter (24%) opt for at-home product pick-up. Meanwhile, 18% prefer to return products directly to a retailer’s storefront.

The fact that significant numbers of customers are willing to handle part or all of the transportation of their return suggests that there are opportunities to engage them more fully in the shipping process. It helps that providing options in a return policy can be part of building a great experience, as well.

These decisions aren’t easy. To be sure, it’s likely going to be tough during the holiday season. Bravo expects a “stingier” holiday shopper in 2022, and it’s important to be ready for that and adjust along the way. But it doesn’t mean retailers need to take away what customers like about them, especially when it comes to those shoppers who have already shown loyalty.

“Consumers will still be buying goods, but they will be far pickier with the goods they choose to hold onto,” Bravo said. “The brands that will achieve the best near- and long-term results will be the ones that create curated experiences for each customer segment, investing in the retention of their most valuable customers in the future and protecting their margins elsewhere.”

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As returns pile up, retailers are seeking solutions to help them manage all of the items coming back. While it’s paramount that returns continue to be treated as a customer-facing proposition, it’s possible that the answer lies at least in part in the retailer’s own operations.

Retailers have long struggled with returns, but the customer-friendly and flexible (read: free) policies of ecommerce are only making the issue more acute. The return rate spiked to 16.6% in 2021 as online shopping surged, according to the National Retail Federation. While the return rate was roughly flat in 2022, this still sustained the marked growth from pre-pandemic times.

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