The Changing Nature Of Returns Management

One of the most expensive parts of e-commerce has taken on a whole new meaning over the last 12 months: returns. The COVID-19 pandemic led to a surge in e-commerce sales that could not have been predicted. Starting in May, monthly e-commerce sales soared beyond a normal holiday season, with no signs of slowing down. The return rate on e-commerce purchases is typically at least double that of in-store purchases. And as more consumers turn to e-commerce over traditional in-store shopping, that rate is likely to climb.

In my colleague Chris Cunnane’s latest omni-channel fulfillment survey, respondents were asked about how they handle returns, from a process standpoint as well as from a cost recovery standpoint. Many retailers are still working to create a consistent experience across channels, and returns management is no exception. As a result, 30 percent of respondents enable online orders to be returned in store. This makes sense as it helps to get foot traffic in the door, which can lead to more sales opportunities once the return has been processed. It also gives the store the option to stock the item on the shelf or return it through a central return location. The decision is likely to depend on whether there is an opportunity to sell the item in the store. The most important things for retailers is to get the item back in a selling channel as quickly and cost effectively as possible.

For items that are bought in-store, survey respondents are beginning to look at alternatives for returns other than bringing the item back. For 24 percent of respondents, this means enabling parcel returns for items bought in store. This is especially true if the company runs all returns through a central returns center; using parcel to ship the item back removes one step for store associates to receive the item and then ship it. This can get the item back in a selling channel quicker.

Companies generally have policies in place to help recover the basic costs of doing business. For example, even though consumers expect free and fast delivery of products, companies will charge for certain types of delivery options, such as expedited or for large items. The same is somewhat true for returns. According to the survey, only 16 percent of respondents collect fees for return shipments. Unlike Amazon

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where you can just print a return label and drop it back in the mail, these companies are charging consumers for the cost of return shipping. Additionally, 18 percent of respondents collect fees for returns processing. These fees are generally either a percentage of the shipping cost or a flat rate, depending on the item.

More and more, however, companies are taking a new approach to returns: they are not taking them at all. Over the last few months, big companies like Amazon, Target

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, and Walmart

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, to name a few, have been telling customers to skip returning an unwanted item. Instead, they are refunding the purchase price (often without taking any fees) and telling the customer to keep the item.

These companies are clearly not doing this out of the goodness of their hearts. They are using artificial intelligence engines to examine the cost associated with a return to decide whether the return makes sense. For example, for inexpensive items, or large and bulky items, the cost associated with shipping the item back is too expensive. The retailer will generally tell the customer to keep the item in these cases. My wife and I ended up with matching end tables from an online furniture retailer because of this. One end table had a slight scratch – the one not returned – the other was perfect.

Another example is on damaged items. My colleague Chris provides an example here. He had just renovated his basement and bought a new TV stand. When he unpacked the stand, there was a crack in one of the shelves. When he went online to process his return, the company issued a refund to his card. The last line of the email threw him for a loop as he was prepared to box up the item and bring to his local UPS Store to ship it back. The last line said: For your convenience, please feel free to donate or dispose of the original item.” In this scenario, a damaged TV stand is not worth bring back to the warehouse to try to fix and re-sell. Instead, the company is cutting its losses on the return and doing what it can to make the customer happy.

We are in the midst of the biggest return cycle of the year: the post-holiday rush. For the first week of the year, UPS estimated that returns were up 23 percent over the same period in 2020. This is not surprising given how much of this year’s holiday shopping season went online. For those returns, retailers must make the call on whether to ask for the item back or to let the consumer keep them. One way that retailers have tried to turn the table is to offer extra discounts to customers when they go to process a return.

According to a new report from PYMNTS, discounts as low as 5 percent could persuade nearly 40 percent of consumers to keep an item they were ready to return. That number jumps to nearly 50 percent with a 10 percent discount. This is certainly an interesting approach to keeping the sale, especially when looking at the overall economics behind the returns process.

Chris Cunnane was the primary author of this article.