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Returns may cost retailers millions, but “blacklisting” customers is far more damaging

The phenomenal rise of internet retail continues to grow in the UK, where it is predicted that almost 90% of all retail purchases are now made online. The ONS recently reported online sales took 10 percent more of the overall retail market in 2018 than in 2015. Consumers want convenient shopping, and that means the ability to browse through thousands of items at any hour of the day without leaving their home.

Of course, the natural downside to online shopping will always be the inability to try a product before you receive it. Consumers shopping online can’t check if clothes fit, nor can they get an exact grasp of a product’s style or colour. On purchasing, a buyer can never be 100 percent confident they’ll like their new goods.

The Asos Effect

Shoppers have found a way around this – buying multiple items and returning the pieces they don’t want. Dubbed “the Asos effect”, retailers have seen a significant growth in online returns, increasing from nine percent in 2014 to 14 percent in 2017. Conversely, in-store returns have remained steady at 7-8%. So whilst online retailers may see a higher average spend per transaction of £66.30, compared with £43.32 in-store in the clothing and footwear sector the higher average spend doesn’t always equate to profit for retailers.

In reality, returns can represent a staggering amount of missed turnover for online outlets, estimated to cost UK brands around £20 billion. Shipping fees, transaction costs and staff admin time all affect the bottom line, especially if there isn’t a streamlined process in place for accepting and processing returns at volume.

Some retailers have sought protection from shoppers abusing the system by changing their previously favoured returns policies for more restrictions; for example blacklisting ‘serial returners’ – those consumers that are wearing and then returning clothing multiple times.

Working with shoppers, not against them

Although returns are costing businesses millions, a good return policy can be a competitive differentiator. In fact, 60% of people think free shipping is important when selecting an online retailer. A poor returns policy, meanwhile, could do serious damage to business: 51% of people won’t buy from a retailer that charges for return shipping. While it can feel as though a retailer is giving something away for free, businesses should consider building customer loyalty by making the purchasing cycle as seamless as possible, rather than going for quick gains by charging an excess on returns. A Brightpearl study found that when consumers buy more, they’re likely to keep more – two to three items more a month to be precise. That’s a significant potential uplift in sales.

The Asos effect isn’t going away. Consumers want to shop like this, but losing money on returns is a significant problem in the industry. So rather than having to take these losses on the chin, retailers could consider alternative shopping models to improve processes and reduce lost revenue.

Buy-now-pay-later

As the cost of processing refunds are draining on operations, buy-now-pay-later schemes like Klarna, Afterpay or Affirm can help reduce these woes. The consumer only pays when they decide to keep the item, rather than paying and having the friction of waiting for a refund.  For retailers with a younger target market, who cannot afford to wait for refunds on returns, buy-now-pay-later options are popular as they can also help consumers managing personal budgeting and spending.

By using a buy-now-pay-later scheme, retailers have the chance to play with the big names in the industry. The likes of Amazon, Asos, Missguided and H&M have all taken up the technology in some form, for the most part to drive customer satisfaction over taking back control of refunds. It’s another way to make payments more flexible and convenient, and removes barriers to purchase.

Subscription models

One way to help offset the impact on top line revenue caused by returns is to consider offering a subscription-based shopping model. Here, shoppers make a regular, pre-agreed payment, and receive the benefits of consistent deliveries in a convenient way.

American Eagle has recently taken this tack, offering subscription shoppers ‘unlimited access’ to clothing, with free shipping and returns at no extra cost. Subscription models allow a far clearer projection of cash flows, and can also indicate a potential to increase customer loyalty. While this may feel like a substantial change in business model, subscriptions can offer a win-win situation for both retailers and customers.

What’s clear is that retailers need to work with consumers – not against them – to deliver the best offerings to meet changing shopping trends. In this competitive retail climate, long term consumer happiness is more important than short-term losses in revenue. The retailers that will win the war on returns will be those who develop new models to serve consumers, rather than those who make it harder to return in the first place.

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