How to unlock the hidden value of returns to strengthen profits

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By Angus Knight, Head of Product Success at parcelLab.

As people were locked inside their houses during the pandemic with mandated lockdowns and stay-at-home orders – ecommerce understandably grew at unprecedented levels. But as we emerge on the other side, Insider Intelligence reports that total retail sales growth worldwide in 2023 will come in at just under four percent, shrinking the gap between ecommerce and retail sales growth.

Economic factors, including rising inflation and the potential for a recession, have made some consumers more cautious about retail purchases. 61% of economists reported they expect the US to enter a rescission over the next 12 months. As such, retailers need to begin preparation for significant economic downturn and take steps to best position themselves for a period of economic downturn. And a pivotal place to look is the returns process.

Returns: pain point or opportunity?  

Returns are an inevitable component of retail sales and can hurt a company’s balance sheet, especially with inefficient processes. Manual returns processing is time-consuming, and as returns are up, expected to surpass $620 Billion in 2023, inefficient processes can harm a company’s bottom line. Fast fashion brands like Zara and Urban Outfitters to the furniture retailer Big Lots! and pet goods retailers, including Petco, have already started charging returns fees to discourage consistent returns.  

But our research shows that 92% of shoppers are influenced by a retailer’s return policy when purchasing a product, and 62% will not be likely to return to a specific brand if they have poor returns experience. As free returns have become the norm over the past several years, customers have become accustomed to seamless returns processes, and brands must keep this in mind when deciding to change their returns policies.  

Brands must take a strategic approach to changes in their returns processing to enable heightened profitability from fewer returns and cost savings on reverse logistics while maintaining a strong customer experience.  

Strategies to heighten profitability

An efficient returns management process that prioritizes the customer experience and transparency is critical to reducing the impact of returns as the value of returned items continues to grow. Here are strategies brands can leverage to strengthen their purchase experience while reducing the economic impact of returns: 

  • Begin before customers add items to their cart with product descriptions: Reducing returns begins before customers purchase the product – and customers often make purchasing decisions solely based on the product detrition, including images, sizing charts, and written descriptions. With this in mind, brands should strengthen their online descriptions and assets with high-quality photos, including model sizing and a detailed sizing chart with specific measurements. By providing customers with this crucial information before they make a purchase, consumers can make more informed purchasing decisions and may refrain from ordering more than one size to reduce the volume of returns.  
  • Boost transparency of returns processes at checkout: Often, customers will not take the extra steps to investigate a company’s returns process before they make a purchase, which can leave customers with unwanted merchandise and a poor sentiment toward the brand if they try to return items outside of the policy requirements. Retailers must be transparent with their returns process by including it at checkout, so customers are informed of policies before purchasing. 
  • Follow up with proactive returns communications: Publishing returns status directly on the brand’s website can reduce calls to the customer service center by providing customers with all the information they need in one place. Only 18% of shoppers think retailers are proactive with returns-related communication, so leveraging data-driven personalized delivery notifications is crucial to increase customer satisfaction and serves as a differentiator. 
  • Quickly process the return once it is received: The longer it takes to process returns – the longer the product is not sold to another customer. A centralized portal for managing returns can provide real-time data to forecast returns volume. This can help reduce processing times as well as understand why products are being returned to make informed decisions for future products.  
    With a steadfast focus on improving the entire customer lifecycle – from the point of purchase through the return - brands adopting these strategies are best positioned to build customer loyalty and retail customers.  

Build customer loyalty 

Quick, efficient product returns can go a long way to building customer loyalty. In contrast, a confusing or expensive returns process can inevitably result in customers looking for alternative retailers to shop. 

And retailers are not the only ones who dislike the returns process – customers also dislike returning items. Returns processing can define the difference between growth and failure for retailers, so it is critical to personalize post-purchase communications and simplify the returns process to develop deep customer relationships.

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