While there are a lot of perks to operating a virtual storefront, you can't escape returns. With the holiday shopping season fast approaching, you might want to check your online return policies.
The National Retail Federation's 2015 Consumer Returns in the Retail Industry study polled 62 retail companies. According to the study, total merchandise returns accounted for more than $260.5 billion in lost sales for U.S. retailers. The amount of online returns rose by 2 percent during holiday shopping.
Online Returns Costs
Michael Lewis, CEO of retail data company RetailGo, notes that returns cost more to a retailer than just the value of the merchandise.
“There's an opportunity cost, [a] shipping, packaging and operational cost," Lewis says. "So $260 billion in lost sales is likely $500 billion after factoring in the entire cost of doing business."
According to Mark Astelstine, founder of wine club company Uncorked Ventures, online return policies are always a “hot topic" at his company.
“Returns are more common than anyone cares to admit," he says. “We end up getting about 2 percent of our shipments back, often due to no fault of our own."
Astelstine's company can't resell the wine that's returned, and since shipping charges represent 25 percent of order totals, he ends up paying that fee twice.
Online Return Policies Often Feature Free Shipping
In today's quickly changing retail landscape, online return policies often include free return shipping.
“Amazon has literally changed how people think of online purchases," says Astelstine. “It's important to keep track of how quickly Amazon is shipping goods and how they communicate. That's going to be the expectation moving forward when Amazon controls almost half of online sales."
—Chris Gronkowski, CEO, Ice Shaker
Lisa Chu, CEO of Black n Bianco, a children's clothing online retailer, agrees.
“Amazon return policies have changed the dynamics of the e-commerce industry," Chu says. "In order to stay competitive, a lot of e-commerce sites now offer free shipping and free returns. Thirty day return policies are the norm, as long as the product hasn't been used or damaged."
Chu has found that occasionally customers return used and damaged merchandise anyway, which further eats into profits.
“Many businesses will accept the returns and offer refunds, because doing so is better than negative reviews, or worse, chargebacks," she says.
Risk of Chargebacks
“As bad as returns are, they're still preferable to chargebacks," agrees Monica Eaton-Cardone, co-founder and COO of the risk mitigation firm Chargebacks911. "If this happens, you still lose the sales profits, interchange and shipping fees, as well as pay chargeback processing fees. It's unlikely you'll get your merchandise back. Worst of all, excessive chargebacks can result in your merchant account being canceled."
Though many online retailers offer free return shipping as part of their online return policies, it's still also common to charge for return service, adds Scott Zakrajsek, managing partner at the digital marketing and e-commerce agency, Sproutward.
“Many retailers have online return policies that include a flat-rate return fee or a restocking fee, usually a percentage, especially for large or bulky items," says Zakrajsek. “They'll often waive this charge if customers choose to exchange items for other products."
Tips for Effectively Handing Online Returns
You can help mitigate the negative effects of online returns by ensuring that the return process goes as smoothly as possible.
“Consider automating your return process," says Zakrajsek. “Customers want the ability to complete a return painlessly. They should be able to access their order, process the return and print the shipping label immediately. This is a win-win for online retailers, as return costs can be greatly reduced through automation and not involving customer service agents. There are many third-party companies that help retailers with this."
An easy return policy can lead to a positive experience, adds Chu.
“Make it simple," she says. "If the return process is a huge hassle, consumers won't return to shop on your website."
If you do end up on the phone with customers, finding out reasons for returns may help you sway them toward other purchases and help prevent future returns.
“We handle returns delicately with a 'no-questions-asked' attitude, but try to get as much information as possible," says Edward Hartley, managing director and co-founder of the online art dealer, Bluethumb. “Most buyers will happily offer information, and you can use this to help secure [a replacement] sale."
Chris Gronkowski, CEO of water bottle and protein shaker cup purveyor Ice Shaker, contacts customers to find out why they're returning his product.
“I deal with returns by offering reasonable solutions," he says. “If there's a small issue with the product, I can usually find a better solution or offer a credit for a future purchase."
6 Steps to Help Avoid Online Returns
Of course, preventing online returns in the first place is ideal. To help cut down on returns, consider trying the following tactics.
Make online return policies easy to locate and crystal clear. “Transparency regarding your return policy is key," says Zakrajsek. “Include what is covered, for example, [the policy] excludes clearance and final sale items. Also indicate for how many days a return is eligible, and potential costs."
Accurately represent your products. “The best way to avoid returns is to make your pictures and descriptions as accurate and informative as possible. Display every angle possible in the product images and videos," says Gronkowski. “You want customers to feel like they're holding the product in their hands."
Lewis suggests also adding reviews, proper sizing charts and colors, weights and measurements. “When a shopper understands exactly what to expect, this reduces the incidence of surprise and disappointment," he says.
Ship quickly. “Many customers buy items as gifts online, and if the items are received too late, they're returned," says Zakrajsek.
Expedient shipping is especially important for the first couple of orders, adds Aselstine. “After that, the pressure seems to abate."
Provide excellent customer service. “Try to provide live, round-the-clock assistance by phone, email and social media with trained staff ready to address customers' concerns," says Eaton-Cardone. “In many cases, you may be able to prevent a return by simply communicating with a customer."
Provide brick-and-mortar location returns. If you have a physical retail space, consider providing hassle-free returns there, suggests Lewis. “Foot traffic leads to sales. In many cases, shoppers will replace unwanted items with something else."
Collect feedback about why returns occur. “Use the data to influence future manufacturing and merchandising decisions," says Zakrajsek.
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