Following the recent tightening of returns policies, Laura Dean explores the idea that retailers need to wrestle back some control after being too lenient with their customers.
ASOS has exhibited best in class behaviour in delivering seamless online customer experience. However, their recent move to tighten their returns policy has shone a light on one of the many challenges online retailers are dealing with.
The growth of ecommerce
It goes without saying – e-commerce is continuing its march to become the most popular shopping medium. By 2020, it is expected that online will make up 30% of sales in clothing, up from 19% four years ago. Customers can shop anywhere, anytime, leaving retailers to fight for their attention by offering SEO-optimised and intelligently-personalised websites with super-fast delivery options. Services such as Amazon Prime are further increasing customers’ expectations. However, retailers are also having to adapt their ways of working post-sale, as returns have increased exponentially in line with the rise in online shopping.
Barclaycard has estimated that UK shoppers return £7bn of what is purchased every year, labelling this pot of money a ‘phantom economy’ of lost revenue for retailers1. They further emphasise that in Clothing specifically, the average UK customer returns 47% of the value of their annual online purchases. Inconsistent sizing on the part of the retailer has been identified as a key reason for returns as customers are forced to buy multiple sizes to find the right product. Customers are also becoming accustomed to buying multiple styles and colour options, in the knowledge that most of the items will be returned. Further, studies have found that social media is driving bad behaviour – some customers are buying outfits to get the perfect Instagram shot or to wear for a particular event before returning the items to the retailer.
The negative side of returns
A high returns rate is bad news for a retailer:
- Availability – stock is locked in “pockets” across the network (in customers’ homes, in transit, in the wrong stores), which reduces stock holding for other customers to buy.
- Demand, planning – getting a gauge on true demand is clouded.
- Sales – lower availability impacts sales; and the trend for fast fashion means garments might be sold at markdown by the time they get back to a pickable location.
- Profit – managing returns and processing refunds cost retailers in terms of postage and staffing in stores, warehouses and contact centres.
How can retailers turn it around?
To address this challenge, retailers should develop a data-driven understanding of the as-is situation:
- Root cause analysis – what is our returns rate? How does this vary by category? Are these categories/departments/suppliers where we have a specific problem? Can we hypothesise why?
- Customer returns data – why are customers returning products? Are we gathering the right information to understand this? Is this data being fed back into the business to improve performance going forward?
- Cost to serve – How much are returns costing us?
Once this has been established, retailers should then move on to develop and test initiatives to improve these baseline metrics:
- Product details – display garments in videos and larger pictures to give customers a better idea of colour, style and fabric.
- Size & fit – explore the use of size and fit tools to help customers make more informed decisions.
- Consistent sizing – work with suppliers to ensure a size 10 is always a size 10.
- Gift vouchers – offer vouchers rather than a refund after a given time period to encourage customers to return items more quickly – make this new policy clear.
- Network design – explore how to get products back into the network as quickly as possible, for instance by selling returned stock from stores rather than waiting for it to get back to an e-commerce warehouse.
- Over-declare stock – declare more stock online than is actually held on the understanding that additional stock will be returned based on analysis of which items are commonly returned.
- Unusual behaviour – set up processes to monitor and manage unusual customer behaviour.
Not all these initiatives conform to the long-established mantra that the customer is always right. Whilst retailers clearly have a lot of responsibility themselves to make sure customers receive what they expect, in a world where returns are becoming the norm retailers need to adapt their behaviour to maintain healthy sales and margins.