In many ways, retailers are in a no-win situation this holiday season.
More consumers than ever are buying online, which typically means reduced profit margins. The overwhelming majority of those receiving gifts plan to return at least some of them, further cutting into retailer profits. Finally, many consumers returning gifts will be unhappy with the process, which could lead to consumer alienation. Talk about being up against it.
In an Oracle report published in September, 77 percent of consumers said they anticipated returning some of the gifts they would receive. Twenty percent of those plan to return at least half of the gifts they receive.
The growing volume of returns is nothing new to retail, particularly online, in categories such as apparel and footwear.
“They have given a retailer their money, but they haven’t given them the promise of keeping it,” Kit Yarrow, a consumer psychologist, told CNBC. “There’s a whole different mentality around ownership.”
“Consumers are making it clear that returning and exchanging gifts is okay,” she added.
A return replaces the fitting room, really. Try it on. If you like it, keep it. If not, send it back.
For many on the RetailWire BrainTrust commenting in an online discussion last week, the consumer sentiment which has developed, especially around e-commerce, looked like an unavoidable part of doing business.
“Free returns have become a basic expectation for shoppers across every category, and so I don’t think there’s any easy way to claw back this benefit when other competitors happily provide it,” wrote Mark Ryski, CEO of HeadCount Corporation.
“Honestly, returns are just part of the cost of doing business direct to consumers,” wrote Paula Rosenblum, principal at RSR Research. “… I don’t see any way around it — a return replaces the fitting room, really. Try it on. If you like it, keep it. If not, send it back. Think how many more items you try on in-store that you don’t buy. That’s what happens online. But it is a bit worse, as the product doesn’t get dirty or wrinkled on a trip to the fitting room. It can be both when it has made a round trip to the consumer and back.”
Overall, according to National Retail Federation statistics, 11 percent of purchases are returned. Eight percent of those are fraudulent. According to research conducted by Appriss, retailers lost $6.5 billion due to return fraud during last year’s holiday season.
Retailers with stores have an advantage when it comes to returns. Handling returns in stores costs about half of what it does for products going back to a distribution center, according to AlixPartners.
In the past, some retailers using data analysis have opted to ban returns from some customers who they see as having abused the process.
Some on RetailWire’s BrainTrust pointed out that using data in other ways could be the way forward in return reduction.
“By now, retailers have the data on what categories or items have the highest probability of being returned,” wrote Jeff Sward, founding partner at Merchandising Metrics. “There must be a way of being smarter about marketing online, but promoting in-store purchases and returns.”
Others pointed to backend technology as a way to cut down on the most egregious, illegal ways that bad actors take advantage of return policies.
“Serialized inventory is a way to reduce/eliminate fraud in this area,” wrote retail thought leader Ken Morris. “This is a technique currently used in big ticket electronics that tracks the serial number of the product sold to a consumer. When the product is returned, the returns management system matches up the product sold to the serial number on the e-receipt and rejects any mismatch. Retailers need to move to this technique for all product types as quickly as they can.”
More generally, content marketing strategist Laura Goller sees hope in user-facing technologies to cut down the cost of returns.
“More retailers are investing in augmented reality (AR) to minimize returns by encouraging consumers to try before they buy,” wrote Ms. Goller. “Retailers like Sephora, IKEA and Warby Parker use AR to give consumers a personalized, realistic preview of the products they’re considering buying.”