Product returns is getting unaffordable for most small online retailers. However, online retailers who don’t accept product returns will hardly sell any products – especially if it is clothing. That is because retailers need to accommodate the risk of their customers for buying their products online.
A reasonable return policy will give online customers ‘peace of mind’ since they can return products that they don’t like or can’t use. Yet, this reassurance that retailers give their customers usually comes at a high price.
Retailers spend big money to get unwanted products back from their customers because the “last mile” of fulfillment needed to be reversed. As a result retailers must arrange for the collection of unwanted products from customers.
Also they need to dispose of the products or, alternatively, refurbish, restock and resell them through their own channels or through an inventory liquidator. And they’re losing lots of money and time in the process.
Moreover, there are criminals that can use your lenient product returns policy to their advantage. The costs are sadly for your account…
The cost and occurrence of product returns for online retailers
The occurrence of product returns is indeed a big headache for online retailers. Adam Minter, a columnist at Bloomberg reported recently that about 25% of all the products that are sold online are returned. And, continues Adam, 50% of these returned products are clothing.
In fact, online retailers have little choice but to offer lenient return policies to their customers. They can’t expect buyers to take the risk of buying clothes or shoes online that doesn’t fit. Moreover, the shape and color of clothing looks sometimes much different in real life as what it appear on a computer screen.
Therefore some online retailers receive as little as 15 c to a Dollar spent back on returned good (Bloomberg).
Reasons for product returns
So why is the incident of product returns so high with online retailers?
- Customers aren’t happy with the merchandise because it looks and feels different as what they have expected;
- With clothing, it may be the wrong size or colour;
- It may be an unwanted gift from somebody;
- Or it may be that a wrong product has been send;
- Or, more sinisterly:
- The customers are wardrobing – they purchase the product, use the item once only to return it again to the retailer (e.g. an expensive evening gown);
- Sometimes criminals return stolen goods to retailers that are willing to accept goods without a receipt.
How can online retailers solve the product returns problem?
The occurrence of product returns can impose substantial costs on online retailers. If the returns are getting out of hand, it may even cause the closure of the retailer. Here are some suggestions to tackle the problem:
- Get a physical store – if you are a pure play online retailer or if you plan to include the online channel in your retail start-up. A Bricks and Mortar store can serve as a place where online customers can return their purchases and gives them a chance to try and buy other product in the store.
- Use outsourced drop-off spots – it’s a service that most Logistic Service Providers offer;
- Identify those customers who tend to abuse your return policies. Don’t sell anything to them. However, make sure you don’t penalize customers who have legit reasons to return their products.
- Make your return policies more stringent. You will most probably have fewer returns and unfortunately also fewer sales. Your customers won’t take the risk of buying your products online if they can’t return it.
- Charge for returns. It seems the logical answer to all your product return problems. However, one comment read the following “Unless amazon takes away free returns I doubt anybody else will be able to.” And that says it all…
- Incorporate the cost of your returns into your pricing. You can do it only if you run your business cost-effectively. If you price your products too high, your customers will find the same product at a better price online.
Much has been said about how the advent and growth of online retailing have caused the demise of Brick and Mortar retailers. The huge cost of product returns may however prove to be the greatest leveler in the retail industry.
It’s no surprise that pure play online retailers, for example Amazon, are now acquiring physical stores. They’d realized that their customers need to feel and fit their products and a Brick and Mortar store may at the same time serve as a collection hub for returned products.
Lastly, if your competitor doesn’t charge for product returns, so should you.
Laseter, T.M. and Rabinovich, E. 2011. Internet retail operations: integrating theory and practice for managers, CRC Press.