It seems that free shipping and generous online returns will no longer be the industry standards everyone's used to — and for a good reason. If you're focused on profitability, just like many other omnichannel and e-commerce retailers in 2023, chances you're keeping an eye on the trends in returns processing today.
If you want to optimize your returns process to make it profitable, environmentally-conscious and better for your consumers, here are some ways to do it — with some background.
Free e-commerce returns — free for whom?
Post-pandemic e-commerce isn't as quick at making cash, and shipping companies are likely to increase prices even more — especially since many of the rising stars in the industry are venture capital-financed. Online retailers are exploring avenues for profitability and scalable growth.
In the 'new normal', profiting from an optimized delivery experience — up until returns — suddenly sounds like a great idea. Whether consumers send online orders back due to the buyer's remorse or because it's simply not a great fit, returns are an excellent opportunity for online stores to boost customer experience, repeat sales and the company's bottom line.
Then again, the demand for transparency and sustainability in retail is on the rise, so e-commerce companies will be doing more, although in baby steps, to minimize the environmental impact of online shopping and help consumers make more sustainable choices.
The state of e-commerce returns in 2023
If the average return rate in brick-and-mortar stores stands at only 8%, consumers return around one in four packages purchased online.
Online returns will surpass $620 billion in 2023. On an optimistic note, it's a modest growth rate of only 2.2% — partly because people returned to stores, and partly because retailers are getting better at minimizing returns through updated policies, innovative software, third-party drop-offs and AI.
On a less optimistic note, mass online returns are here to stay — three in four consumers say they returned at least one item from their recent online orders. Many of these returns are valid and well within a company's return policy. There are, however, several types of shopping habits that abuse free and unlimited returns to the extent that costs e-commerce merchants massive numbers in lost sales and return shipping.
'Serial', or 'chronic', returners are online shoppers who are habitually responsible for excessive returns, whether it's an honest intent to find the best-fitting pair of jeans, a messy shopping behavior or fraudulent intentions.
One type of such excessive shopping habits is 'wardrobing' — ordering clothing to wear just once at some special occasion, with tags intact, and then sending back the item for a refund. It's a competitive market where consumers hold the power, and so retailers prevent negative customer reviews and encourage repeat sales by accepting fraudulent returns with visible signs of wear.
Over 60% of e-commerce shoppers 'bracket' their purchases, which means they order multiple items in different sizes and colors only to keep one of them and send back everything else, if not the whole order — a logistical and inventory nightmare for retailers with doubled carbon emissions and overproduction risks.
We're seeing the slow end of free returns
High shipping and labor costs
Challenges in the global supply chain have made customer returns cost more than they did pre-pandemic. Higher fuel and transportation prices, coupled with labor-intensive processing actions, mean that returns are now eating up a larger share of retail earnings.
The average ecommerce return rate stands at around 30%, and each return costs businesses anything from 20% to over 60% of the original item’s price. Both omnichannel and e-commerce retailers are trying to rethink their returns strategy to retain more revenue.
More and more brands are doing away with free return shipping in favor of a flat rate for every return request. This doesn't mean, however, that putting the cost on the consumer is the only answer — there are other, less obvious ways of rethinking your returns process. More on that later.
It's not only shipping — it's also a massive cost to the environment
Every year, consumers return as many as 17 billion items, which equals to 4.7 million metric tons of CO2 emitted yearly. If the the e-commerce space was able to cut that figure by only 10%, it would create enough power for 57 thousand US homes for an entire year.
Now, some estimates say that only 50% of returns go back into store inventory, although it doesn't even mean that they'll be resold through the company's offline-online store network at original cost. They're as likely to end up with resellers, liquidators or — even cheaper — in landfills. Add that journey to the already existing impact of reverse logistics.
At the beginning of 2022, US biggest store chains — including Target (TGT), Walmart (WMT), Gap (GPS), American Eagle Outfitters (AEO) and others — reported they had too much inventory that was costing them tons of money in storage. They went as far as considering just handing customers their money back and letting them keep the stuff they wanted to return.
That pretty much paints the picture but doesn't solve the problem for anyone.
The responsibility for a massive environmental impact doesn't only lie with individual consumers and ethical shopping habits. It’s time retail businesses understand the footprint of their operations and bring more transparency and environmental sustainability into the whole product journey and supply chain.
If you're still not convinced or feel concerned over profitability in making your returns process sustainable for your business and for the future, do it before sooner or later the legislation forces you to do so.
"Eco-friendly practices in the last-mile delivery and profitability aren't mutually exclusive. It's quite the opposite."
Ben Lundberg, Supply Chain Manager at Nudie Jeans
— Short-term, there are, unfortunately, financial drivers that create bad incentives, but long-term, there’s no profitability without doing sustainable business, Ben says.
If your company's policy allows free and unlimited returns, even the chronic returners rarely enjoy the hassle of it.
Same as with online deliveries, the returns process may be unnecessarily complicated. Unclear expectations in regards to the return policy, additional fees, the need for a return label, packing slip and original packaging — and the list goes on.
None of that does much for the customer satisfaction, even among those who like to overindulge into a blank check for returns. As in many industries, customer loyalty equals to profitability, and it's not to be ignored. Depending on the industry, the cost of acquiring a new customer can be anything from five to 25 times more expensive than retaining an existing one.
Three out of four online buyers say their recent returns processes were indeed inconvenient. As high as 80% of consumers consider returns important to the overall shopping and delivery experience. According to Loop, between 60% and 70% of online shoppers will review the brand's return policy before shopping with it for the first time.
A great customer experience comes from free and hassle-free returns process as well as the overall consumer delivery journey, which keeps shoppers coming back for more. Your customer service team will certainly thank you, too.
How to optimize your e-commerce returns — consider these best practices with real-life examples
- Automate your returns management;
- Show your environmental commitment;
- Introduce and A/B test return fees;
- Display returns policy on a product page;
- Integrate an in-store return method;
- Implement circular C2C return;
- Convert returns to donations.
Automate your returns management process
Automated returns and exchanges are critical for efficient inventory management, capturing revenue and achieving scalable growth. Documentation and tracking may require a lot of manual input even if you're currently outsourcing customer returns to a 3PL. International returns and exchanges can get especially pricey, besides lacking the localized experience your customers are likely to expect.
Add a smart returns automation solution to free up your resources, reduce waste, save on supply chain costs and provide a first-class customer experience. Returnly, ReturnGO and Optoro are some market examples worth looking at.
Introduce and A/B test return fees
We're approaching the end of free shipping and returns. Many e-commerce stores charge customers for online returns by subtracting the cost of shipping and processing from the original product cost prior to refund.
Try this in your online return process. Create a hypothesis, run an A/B testing experiment, see what pricing and return methods work best. If consumers choose to have the package collected from their home or drop it off at a parcel locker/pick up point, they'll be charged a fixed return fee.
Communicate your environmental commitment
E-commerce companies need to show online shoppers that there's no such thing as free returns — not to the environment, at any rate.
Understand your carbon emission footprint
According to Ben Lundberg, transparency and environmental accountability in e-commerce are a long way to go but not impossible. Start sourcing partners that take environmental responsibility seriously and can provide data about their stage of the product journey.
In June 2023, for instance, Geopost and a group of strategic e-merchants have concluded tests on the new Carbon Calculator to measure CO2 emissions of deliveries in real time and help retailers meet the need for accurate, regular carbon footprint reporting. FedEx started offering a Sustainability Insights tool to their consumers for an access to emissions information for each parcel journey.
Such carbon emission reporting tools are slowly entering the traditional carrier market outside of the startup scene in the race for new customers and supply chain decarbonization. That's a good sign.
Present clear information about the environmental footprint of the purchase
Next, keep customers informed. You can incorporate environmentally-conscious practices with descriptive tags, like 'fossil free' or 'carbon neutral', in your delivery checkout and return method. Make sure you don't use any generic terms — the word 'sustainable' doesn’t really say anything.
This way, you can inform environmentally-conscious purchases among consumers and, in other cases, you'll able to reveal the hard facts about the impact each purchase, delivery choice and return request leaves on the climate.
Display your returns policy and additional fees on product pages
Aside from including detailed product descriptions — including colors, size guides, materials and so on — integrate available delivery options and returns policy as early as your product pages. In this way, you manage customer expectations before checkout, inform them of any additional costs, make an accurate delivery promise and manage returns expectations.
Offer Buy Online, Return In-Store service
Buy Online, Return In-Store (BORIS) enables customers to purchase goods online and make returns at a convenient brick-and-mortar store without any labels and additional documents other than original tags and receipts — as easy as traditional shopping would be.
It's part of a unified, omnichannel customer journey that can help you cut the costs of shipping, streamline your returns process, incentivize consumers to make environmentally-conscious choices and keep them coming for repeat purchases.
You get a better on-shelf inventory management without overproduction, aggressive sales and waste. In-store returns also incentivize a higher foot traffic and provide store associates with the opportunity to support exchanges and upsell.
Close the loop — build a circular capacity for your return requests
Circular returns are an emerging trend to keep an eye on in the next couple of years, and for the right reasons. Circular economy helps restore and regenerate resources by using these available resources for as long as possible to reduce carbon emissions and waste — and save costs, while you're at it.
Online shoppers normally send the items back to the warehouse in a reverse logistics process, which generates twice as many shipping, labor and packaging costs for retailers and twice as many carbon emissions for everyone involved. Will the returned items be processed and integrated back into the online and on-shelf stock?
If they're restockable, the returned products will have to be repackaged in order to be shipped to another customer. Some products may still need to be reconditioned or repaired to remove the evidence of the previous journey. How long will it take them to be resold? Or will they add to the inventory excess and subsequent waste?
According to data from Norwegian postal operator Posten Norge, tighter private spendings and higher environmental awareness has spurred growth in secondhand trade and customer-to-customer parcels. E-commerce businesses can equally capitalize on the secondhand marketplace model to optimize their returns management process.
Integrate a C2C returns system
With solutions like Turnr, a returns automation platform build for modern fashion, you can redirect returns straight to new buyers who live in the immediate area or convert up to 30% of returns into exchanges. During the pilot project, the transport distance was reduced by 95% and the return was sold twelve times as fast vs. sending it back to business for processing and repackaging.
Convert your returns to donations
Identify which items can be integrated back to your inventory and if you cannot restock the rest of the returned bulk, consider donating it to those in need. Brooklinen has partnered with a Good360 — a non-profit that aims to keep usable goods out of landfills — and Loop — a return management app for Shopify brands — to offer excess returned items to vulnerable communities. Loop itself reports a 50% retained revenue in their client portfolio.
Take a forward-thinking approach towards your return policy
If your retail business doesn’t already have an effective strategy for dealing with return requests, it’s time to take action. Of course, there’s no one-size-fits-all solution — online returns are one of the biggest, unavoidable challenges e-retailers face.
Though it's a challenge that opens many opportunities for increasing operational efficiency, securing future customers, retaining revenue and reducing the environmental impact. If you take a forward-thinking approach to your return policy, the numbers are in your favor.