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Last year was a turning point for e-commerce returns, as several large fashion brands and retailers began charging for the privilege in an effort to reduce costs — to the chagrin of some of their customers. Now, brands and logistics companies are exploring subtler ways to disincentive excessive returns and make the process more efficient, boosted by new technologies and a fresh approach to loyalty.
The stakes are high. Returns of online fashion orders in the US incur an estimated $25.1 billion in processing costs for companies annually, according to Coresight Research. Yet, customer loyalty is fragile. Nearly three-quarters of Americans (72 per cent) who have made e-commerce returns in the past 12 months said they noticed retailers making it harder to do, a survey carried out in June by market research firm The Harris Poll on behalf of shipping software company Shippo of 2,000 US adults shows. More than half (54 per cent) said they had felt “blindsided” by a change in return policy. A majority (91 per cent) said the ease of their returns experience impacts their willingness to shop with a retailer again.
“Brand loyalty is hard won — the last thing that merchants want to do is damage their own reputation with customers through a hasty reaction to what at first looks like a challenge, but could turn into an opportunity,” Shippo says in its report. The research points to a number of ways brands can make returns a competitive advantage in 2023, including incentivising exchanges over returns and introducing QR codes to encourage customers to take parcels to drop-off points.
“Returns are a key component of the consumer experience and can be a deciding factor in whether a potential customer makes a purchase, whether a one-time buyer becomes a loyal customer, or even whether a loyal customer abandons a brand,” says Laura Behrens Wu, co-founder and CEO of Shippo. For brands, this means getting creative about not only reducing returns, but improving the experience.
Social conditioning
David Sobie, co-founder and VP of Paypal-owned reverse logistics company Happy Returns, which works with the likes of Everlane, Steve Madden, Revolve and Diane von Furstenberg, says over the past year he’s observed more brands looking at how to incentivise the behaviours they want, rather than penalising customers for making returns.
“Merchants will say, ‘if you’re willing to exchange or take your refund as site credit there won’t be a fee’, or, ‘if you spent $100 on a shirt here’s $110 [or a discount] if you’re willing to shop our site and find something else today’. It’s about using carrots and sticks to try to create the behaviour you want from the shopper.”
Brands have started to use free returns as a loyalty perk. “There’s the approach where if you spend £2,000 with us this year we’ll offer you free returns next year,” says Max Alexander, senior VP of strategic accounts at GXO Logistics, whose clients include Nike and Kering.
Similarly, Shippo’s survey suggests 83 per cent of consumers would be very or somewhat likely to switch their returns for an exchange if they were incentivised with $10 extra to shop with.
Some brands are leaning into sustainability in their messaging to communicate with consumers why there’s a disincentive for returns. “Some brands don’t say a return is going to be $5, they say ‘we make a nominal fee [a percentage of the sale] for your return to support our environmental way of working’,” says Alexander. This is increasingly effective as consumers become more aware of the environmental impact of returns.
Automation and aggregation
Happy Returns has a network of drop-off points where consumers can bring any item from its partners — without a box or label — and use a QR code to process a refund or exchange. It also works with retailers including pet supplies store Petco, office supplies store Staples and beauty chain Ulta, so customers can drop off items at a local store while they run errands. By aggregating items together and shipping everything in larger quantities, the service reduces the number of single-item return shipments, says Sobie.
Often brands will ask customers to pay for standard returns but a drop-off is usually cheaper or sometimes free. “You’re using your policy to direct people to the behaviour you want — bring it to the store because that’s the lowest cost for them; Happy Returns is the next lowest cost,” says Sobie.
European e-commerce giant Zalando, which stocks brands including Boss, Tommy Hilfiger and Lululemon, has also found success in aggregation. “Returned items are not shipped directly from the return centres for the next order, but are first consolidated and brought back in bulk to one of the logistics centres within our network. This is also much more sustainable than sending individual, half empty packages with returns from the customer directly to one of our logistics centres,” says the representative.
Elsewhere, GXO has been ramping up automation to cut down on time involved in processing returns and are developing robot arms that fold items. The company is also experimenting with automating the review process for why a customer has returned an item, to speed up sorting, through which products can be recycled or refurbished.
Localised logistics
Localising the supply chain and logistics network enables companies to reduce the time, costs and environmental footprint of returns.
Turkish luxury nightwear brand Bocan Couture owns its own factory in textile hub Bursa. It’s a family business — the brand is run by Ecem Bocan, her sister Melike and mother Ayse, whose family has been working in textiles for generations, and the factory is owned by Ayse’s cousin. Bocan offers free shipping but asks customers to pay to return products, offering an exchange rather than a refund. Bocan’s biggest market is the Gulf region in the Middle East, but also has a large growing market in the UK. “We have an advantage because Turkey is in the middle of [our key markets],” says Ecem Bocan. The positioning is also a benefit because prioritising exchanges over refunds means a higher proportion of shipments.
Zalando, which has a 50 per cent return rate, decides where to store products based on the likelihood of the returned items being sold in different regions, using a proprietary algorithm. “Our algorithm takes into account the sales data of the last weeks for the respective items as well as the current number of stocks in a logistics site. It can therefore happen that a returned item travels comparatively longer distances to enable resale and thus further use,” says the representative.
Using AI to improve fit
Poor sizing and fit is the primary reason for returns, per Coresight. In July, Zalando launched a new artificial intelligence-powered tool that enables customers in Germany, Austria and Switzerland to receive size recommendations for certain garments, using predicted measurements from photographs of them wearing tight clothing.
“This tool is a step change solution in the industry that will help customers find the perfect fit before delivery. This is truly exciting as it shows how one of the core challenges in fashion e-commerce can be solved at scale,” said Robert Gentz, co-CEO of Zalando, in a statement accompanying the retailer’s Q2 results on 3 August.
The company has also started to provide sizing advice including recommendations based on feedback from other customers on whether an item runs true to size; information submitted in Zalando’s app about how a previously purchased product fits the customer; and is now developing a virtual 3D try-on experience. “For items for which we offer size advice, we have been able to reduce the size-related return rate by 10 per cent,” says a representative.
Whatever strategies or policies brands choose, transparency is vital. “The most important thing you can do is be upfront with your customers,” says Shippo’s Wu. “Make sure you’re clearly setting expectations in the pre-purchase process, that your returns information is easily accessible on your website, and even consider proactively communicating any shifts to customers that have made returns in the past so you’re able to control the messaging and narrative.”
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