Two Questions Every Retailer Must Answer to Reduce Their Rate of Product Returns

By Tom Enright | May 18, 2021 | 0 Comments

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There are lots of things retailers already know about product returns from consumers:

  • The volume increases in line with growing online sales.
  • The volume increased beyond expectations during the pandemic.
  • It’s often a real problem when consumers return to a store from which they didn’t purchase.
  • Retailers’ primary focus is on managing the processing of returns as fast as possible.
  • Not everyone in the company feels responsible for reducing the returns rate, also known as “it’s a supply chain issue.”
  • Delivering to stores and consumers almost always takes priority over processing returns.
  • Stores have consumers to serve; they manage returns when they get a chance.
  • Hardly anyone aspires to join a retail company to manage returns.
  • They’re expensive to process, but most retailers don’t know exactly how much.

I’m fairly certain that most, if not all, of that list resonates when you think about the business you work for and how returns are viewed and managed.

Some of the points listed are just statements of fact. They’re not even questions, as for many they do not seem changeable in any way. “It’s just a cost of being successful,” I’ve heard people frequently say, almost to justify their desire to get onto something more exciting and impactful than managing returns.

While most of the above nine points present problems, they don’t reflect the real problems that retailers face when they look to somehow reduce return rates while still growing their business.

In order to reduce return volumes and costs, keep consumers happy and loyal, and grow profitability and sales, retailers must be able to answer two questions. In my experience of hundreds of calls and conversations with retailers about returns, only a tiny percentage can answer the first question and nobody can answer the second question, even though every single retailer must be able to do so.

Question One is one that the majority of retailers ask themselves frequently, but they phrase it incorrectly and therefore start looking for answers in the wrong place. The incorrectly phrased way they pose this question: “What can we do to reduce our rate of returns?” While this may seem like a perfectly reasonable question for a retailer struggling to process returns volumes to ask, it’s phrased in a way that can elicit the wrong responses.

Most retailers asking this question will, by default, craft responses such as:

  • Perhaps our returns policy is too lenient?
  • Should we stop offering free returns?
  • Maybe we should charge more for returns or levy a processing fee?
  • Could we make the consumer return to the store from which they purchased the product or stop online purchases from being returned to stores?

The issue with responses such as these is that they tend to be disadvantageous to consumers and perpetuate one of the fundamental flaws in most retailers’ operations. That is, they focus on providing a greater level of consumer satisfaction to the purchasing consumer rather than the returning consumer. This drives companies toward a focus on processing return transactions rather than retaining consumer loyalty through a great returns experience.

Changing returns policies to favor you rather than the consumer will be quickly realized and result in lost sales. According to research published by Statista late last year (see Figure 1), 86 percent of global consumers stated that they looked for retailers with easy product return policies when deciding where to make purchases. In addition, 81 percent said they would switch to a different retailer if they had a bad experience with returning goods.

The correct way to phrase this first question is not, “What can we do to reduce our rate of returns?” but “How can we get consumers to keep more of their purchases?” This rephrasing is more than just semantics. Asking the question in this way produces a completely different set of responses, all of which have consumer interests and contentment at their heart. Questions such as:

  • Why are consumers returning their products?
  • How have we let them down?
  • What are we doing wrong in how we portray products?
  • Do we have a problem with our sizing specifications?
  • Should we present more meaningful information in how we describe products?

All of these responses have a common desire to improve the consumer experience and drive loyalty rather than disenfranchising your consumer base.

Question Two is one that over the past two years I have realized that no retailer can instantaneously answer. I first posed this question during a retailer conversation in 2019. I was surprised not to receive an immediate knowledgeable response and so I later asked another retailer, then another until I had reached more than 100 without a satisfactory reply. The fact that no one knew the answer indicated to me the blind spot that retailers have around consumer satisfaction.

The question: “Of all the orders you get returned, how often does the consumer send back the whole order versus part of the order, even if the original order was only for one product?”

No one orders products with the intention of returning them all, so the number of consumers who return everything are the consumers who are dissatisfied with the purchasing experience and quite likely not to shop with you again. I would expect retailers to have a handle on this number just like they should know how their business is performing to plan or versus last year.

The absence of knowledge of this crucial consumer satisfaction metric illustrates that retailers are focused on returns processing and reverse logistics capability improvement rather than deeply investigating a level of consumer dissatisfaction that can spiral downward unless addressed.

Think about your consumers. Think about how your returns policy can offer them a great experience. Think about how you can make them want to keep more product. Understand why they return, and address it.

Tom Enright
VP Analyst
Gartner Supply Chain

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