As the glow of the golden quarter begins to dim, retailers face a surge of returns. What can they do to keep the spiralling cost of processing returns down?
The Royal Mail predicted that on January 2, which was dubbed ‘Takeback Thursday’, returns of online purchases would have spiked by as much as 72% compared to the average number of returns per day in December.
As consumers seek to return a mountain of unwanted Christmas purchases, the costs of processing goods and paying out the refunds predominantly fall on retailers.
Data from third-party returns processing firm B-Stock indicates that as much as £60bn of products are returned to UK retailers every year, and about £21.2bn of that is sent back between January and March following the Christmas period.
“The overall volume of returns continues to grow. Those most affected are the ecommerce retailers that don’t have a store estate available to process them”
Carl Moore, Clipper Logistics
The costs are also being felt by logistics companies. According to figures from reverse logistics specialist Happy Returns, 10% of goods sent back are either donated to charities and similar organisations or incinerated at a loss. Logistics companies also incur costs through holding returned goods in warehouses, a particular issue in the UK where such space is limited.
Clippers Logistics chief commercial officer Carl Moore explains: “Returned goods tie up a huge amount of stock and working capital, and can become a retailer’s biggest single inbound source of supply, presenting significant operational challenges.
“The challenge is that online is continuing to grow, so the overall volume of returns continues to grow. Those most affected are the ecommerce retailers that don’t have a store estate available to process them. What is needed now, more than ever, is an efficient and cost-effective way of dealing with returns on a timely basis in order to maximise value.”
As both retailers and logistics companies attempt to address the issue, multichannel retail and logistics consultant Neil Ashworth – former Tesco supply chain director and former CollectPlus chief executive – says returns have simply become “a feature of modern retail” and brands need to understand ”that the consumers’ bedroom is now the traditional fitting room”.
Founder of NBK Retail Natalie Berg agrees and says that “no one has cracked the problem yet”.
Holding back the tide
The issue is particularly prevalent among online fashion retailers. Marketing director of technology company Rebound, which helps retailers manage returns, Charlotte Monk-Chipman says “the rate of return for online is much greater than return rates for in-store purchases. Typically, 30% online versus 10% in-store.”
Spiralling returns have become such an issue for some pureplay retailers, they have resorted to drastic measures.
Asos is not alone in attempting to shift customers away from wardrobing. Adidas trialled a ‘wait while you try’ service in Russia last year – a delivery driver would wait outside a customer’s home while they tried on purchases.
Others such as UK fashion titan Next charge small fees for returns.
Some pureplays such as AO.com and Missguided have sought to deal with the issue by teaming up with national bricks-and-mortar retailers such as Asda, with the supermarket benefiting from its involvement in the returns process through associated footfall.
For Berg, there is still more that retailers can do. She predicts that this year, retailers will “rethink how they reward shoppers or incentivise behaviours” around both deliveries and returns.
“Well-managed returns and refunds can actually generate an increase in revenue”
“On deliveries, retailers could offer loyalty points or money-off vouchers if shoppers accept slower deliveries. On returns, the costs mount up the longer a product sits with a customer before it comes back. So, what if retailers incentivise customers returning products within a week of purchasing?”
Another option she highlights would be using fulfilment companies such as Doddle, which works with numerous retailers including River Island, New Look and Prettylittlething and has partnered with Morrisons on returns kiosks, bringing efficiencies for all involved.
Other forms of partnership are being piloted. Dutch pureplay grocer Picnic, for instance, has moved into return logistics. The grocer has linked up with German ecommerce fashion giant Zalando to utilise its empty delivery floats to pick up unwanted clothes for return. Picnic has worked with Dutch etailer Wehkamp in a similar partnership since 2018.
For Ashworth though, returns “is not just a logistics process”. He says that retailers could reduce the level of returns through a mixture of better marketing and improved product details of goods sold online.
He observes: “It’s about the way retailers present products to the consumer and ensure quality in the item – not just in the construction or manufacture, but the way it’s presented. The quality of the photography, the text supporting it, the descriptions. It’s about making sure the product is fit for purpose, selling solutions to consumer’s needs.”
Ashworth wonders whether some retailers are becoming overly “hung up on reducing returns”. Brands should instead focus on managing returns to “an appropriate level for the proposition” they offer, he says.
“It might be that a customer orders five items and returns three but if that’s the cost you have to pay to get a customer to buy two items, that might be the right thing to do,” he says. “Well-managed returns and refunds can actually generate an increase in revenue”.
Worse before it gets better?
Whether retailers view returns as an opportunity or a curse, the fact is that the percentage is only going to increase concurrently with online sales growth.
New and emerging buy now, pay later payment services may exacerbate the issue. Payments specialist Klarna now works with more than 190,000 retailers worldwide and the success of this method has seen other competitors emerge, including New Zealand-native Laybuy and Australian-based service AfterPay.
Such payment services, which allow customers to acquire products immediately while paying the full price in instalments, in turn, lower the bar for wardrobers further.
As Ashworth points out: “These organisations can actually generate more returns as a consequence. The impact on a customer’s finances are delayed and that can encourage customers to add more items to their baskets on the basis of them having a look, rather than a real desire to purchase.”
Berg agrees, adding that such services may well be “adding fuel to the fire” of returns in future. She also raises the growing issues around the environmental impact of returns, but questions “how willing consumers are yet to sacrifice convenience” at the altar of sustainability.
Monk-Chipman thinks retailers will begin to look at more “sustainable solutions” – such as using bicycle carriers rather than delivery vans to curb this.
However, she points out that serial returners “can actually be some of retail’s most profitable customers” and argues there is a link between repeated returns early in a customer’s journey with a brand “while they get used to sizing and fabrics”.
Ultimately, it comes back to the consumer and what they want. As Monk-Chipman says: “We shouldn’t be fearing returns and shouldn’t advocate a knee-jerk reaction to make it more difficult.”
It seems, unlike a two-sizes-too-big sweater or ugly T-shirt, there is no going back when it comes to returns for retailers.