Retail returns are the simple practice when clients return items purchased for a refund or store credit. This practice is a given in retail but increased with the rise of e-commerce. On average, e-commerce has an 18.1% return rate, while physical stores experience returns of only 8-10%.
Although returns are expected, they can still cause a loss to retailers. Here we’ll explore the causes, consequences, and potential solutions to reduce return rates.
Understanding the causes of retail returns
To reduce the return rate and address the problem, it's important to understand why clients return the items, which can be divided into two groups: consumer-related and product-related.
One of the main reasons of returns is if an item wasn’t as expected. For example, if the client buys a computer bag but notices later that his laptop cannot fit. Or online it can also be because the color/ material doesn't meet expectations.
Another reason can be emotional, usually from impulse purchases. Sometimes people make emotional purchases due to their mood but later regret their decisions. Nowadays so many struggle with shopping addictions that cause them to buy things they can’t afford or even need, and when they think rationally, they decide to return it.
As previously stated, e-commerce incurs a greater percentage of returns, brought on as you cannot feel the item before making the purchase as well as a shipping process to consider.
Many returns are due to shipping damages, so of course a client who receives a damaged item will want to return it and get his money back. Although this is not necessarily the seller's fault, the client won’t bear the cost, and if the seller won’t as well, the clients won’t order again.
Another common reason comes from bad descriptions and product defects, so if the item isn’t as described or expected, they will be disappointed and return the products. This is unfortunate but since clients cannot touch, check, and feel the product before buying online, aa detailed and correct description is a must to reduce return process costs.
Consequences of retail returns
Returns in retail are common and expected to accrue from time to time, but if too frequent, it can be problematic and cause additional issues.
Financial burden on retailers
When a company made sales, paid bonuses on sales, calculated earnings, and made sourcing plans accordingly, a requirement for a refund and money returns causes an undesirable loss to the company.
This is even worse when clients are dishonest with returns, for example when they cause damages but return it claiming it arrived damaged; In fact, 7.5% of online returns are fraudulent. This increases the financial burden since those items cannot be resold, yet their production, processing, and shipping costs have already been paid.
Operational challenges and increased costs
Dealing with inventory inevitably comes with its own set of costs. Similarly, managing returns also incurs expenses, and the introduction of online returns could potentially amplify these financial burdens. This might occur due to the necessity of covering double shipping costs or the extra workload placed on retail employees who have to process returns unrelated to the physical store purchases.
Environmental concerns and sustainability
Returns are not only bad for the smooth sales flow for retailers but also have bad consequences for the environment. The double shipments as well as the products that are never resold, all contribute to preventable waste. Being an unsustainable business damages the environment and the brand image; therefore, it should be the business goal to reduce returns to the absolute minimum.
How to address the retail returns problem
Retailers cannot fully eliminate the returns as this can make it hard for them to keep doing business, but they can reduce the amount of returns they see.
Analyze and improve return policies
Return policies can play a significant role in reducing the return rate for businesses. Retailers must ensure that return policies are clear and easily accessible, also written in simple, concise language, explaining the conditions, timeframes, and procedures for returning items. Such transparency builds trust and helps customers make informed purchasing decisions.
At the same time, a reasonable timeframe for returns must strike a balance between accommodating customers and preventing abuse.
Additionally, offer responsive customer support to address any pre-purchase concerns or questions, helping customers make the right choices and minimize returns resulting from misunderstandings or incorrect purchases.
Furthermore, consider implementing reasonable return fees or restocking charges for certain types of products to avoid exploiting the generous return policy for fraud.
Enhancing product information and transparency
To reduce returns caused by inaccurate information, ensure all products have very detailed and accurate descriptions including high-quality images. Don’t try to give clients false promises just to close the deal because once they realize an item is not as promised they will return it, and you will have to bear the cost as well as the bad reputation it may bring.
Leveraging technology to tackle retail returns
Another kind of return that must be addressed is when a business refunds a client on items that couldn't be delivered due to being out of stock or inappropriately promoted. This problem is usually caused when a business has inefficient inventory operations and a lack of transparency across its supply chain.
Thankfully this problem and many others can be resolved with the help of technology, such as cloud-based inventory management systems integrating technologies such as RFID, BLE, NFC, and more. Such solutions can provide up to 98% inventory accuracy and prevent out-of-stock situations.
Sustainable solutions for retail returns
Choosing sustainable solutions for returns does not necessarily solve the returns problem, but it can help handle those in the most positive way. First, use the most environmentally friendly packaging methods, to reduce the carbon footprint when packaging orders. Second, consider donating or recycling the returned items, especially if they cannot be resold. This might not help with the financial burden but will do good for the brand image and for society.
In conclusion, the issue of retail returns poses significant challenges for retailers. Understanding the causes, such as consumer-related factors and product-related factors, is crucial in addressing the problem. The consequences of high return rates, including financial burdens, operational challenges, and environmental concerns, highlight the need for effective solutions. Retailers can tackle this issue by Improving return policies, enhancing product information and transparency, leveraging technology for efficient inventory management, and adopting sustainable practices. By implementing these potential solutions, retailers can reduce return rates, improve customer satisfaction, and mitigate the negative impacts of retail returns.