There’s a $125B Opportunity for Retailers to Reduce Return Rates

As consumers flocked to digital solutions to make purchases during the Covid-19 pandemic last year, retailers faced a growing--and costly--problem: surging return rates.
returns policy

As consumers flocked to digital solutions to make purchases during the Covid-19 pandemic last year, retailers faced a growing--and costly--problem: surging return rates. 

In fact, retail returns reached $428 billion in 2020, according to the National Retail Federation. That means reducing return rates even 30% is a $125 billion opportunity for retailers, and there are several ways to recoup these losses, according to the findings in Incisiv’s “2021 State of the Industry: Retail Returns” study.

Executive Summary

The returns problem in retail is big and is only expected to worsen as e-commerce grows, since e-commerce return rates are two to three times higher than in-store purchases. Retailers will also have to keep up with consumers’ expectations for free, fast and convenient returns, as 95% of consumers say a poor returns experience will make them less likely to return to that brand. While retailers should focus on the shopper experience when it comes to returns, investing in the front end to reduce return rates is equally important. 

A Retail ‘Blind Spot’

The study, which surveyed more than 1,200 shoppers and 100 retailers, focused not only on the financial impact of returns, but also the larger business impact, including on the customer, the brand and the environment. However, less than half of the retailers surveyed said they track the financial impact of returns, and only 4% track the customer, brand or environmental impact. Instead, these costs are already baked into financial planning when returns should be more closely managed.

“Returns may indeed be ‘the cost of doing business,’ but they need not be an unmanaged cost,” the report reads. “Retailers can more actively change the narrative around planned returns by rewarding merchants who beat their ‘returns allowance,’ and constantly seeking to optimize projections.”

The financial impact of returns represents a significant blind spot for retailers, and 78% of retailers in the study said reducing returns is not a priority for the C suite. Almost all (97%) respondents did not have an executive dedicated to reducing returns, and only 16% had a strategic initiative focused on reducing returns.

Retailer Actions

The status quo of returns does not have to remain, as there are many ways for retailers to grab the cost opportunity to reduce return rates. The study analyzed 6,200 return transactions across non-food retail categories and found 73% of these returns were due to a retailer controlled action, such as inaccurate product description, a wrong item or a product fit. These actions not only increase returns but also bring down the customer experience. And many retailers--3 in 4--are only focused on a goods returns experience rather than reducing returns.

“A great returns experience must achieve both: minimize the returns a shopper has to make, and provide an amazing experience when she does,” the report advises.

Reducing returns will also positively impact the retailer beyond the financial and customer impacts, but also free up valuable resources within the business to focus on other customer service needs. With the rise of e-commerce and omnichannel solutions over the last year, retailers are overburdened with returns. As much as 68% of retailers said they have limited human resources to focus on returns reduction.

Part of the issue in solving the returns problem is having the technology and tools to understand why returns are happening. Many retailers don’t have the capability to manage all the data they already have. 

Here’s the issue by the numbers, according to the study

  • 77% of retailers have inadequate data on reasons for returns
  • 9 in 10 do not have effective tools to reduce returns
  • 74% said returns data is siloed across multiple channels and systems
  • 86% said implementing technology to reduce returns is too difficult

To seize the opportunity to reduce returns, retailers do have to make an investment, including in changing the culture around the returns response that can be carried throughout the enterprise.