Optimizing Returns Is Key to Revenue Retention

Returns are an inevitable part of retailers’ operations, increasing inventory, labor and logistics costs, squeezing margins, and impacting sustainability. According to estimates from the National Retail Federation and Appriss Retail, the average retail return rate jumped from 10.6% in 2020 to 16.6% in 2021, when returns totaled more than $761 billion. 

But rather than trying to prevent or eliminate all returns — an unrealistic goal for any company, but especially for e-commerce retailers whose customers can’t see or feel the product before purchasing — brands are better served by offering tailored return policies that deepen connections, drive consumer convenience, and incentivize brand loyalty.

One of the results of the shift toward e-commerce during the pandemic is that consumers became more comfortable trying and switching brands, and many are now looking to shop only with brands that make the entire customer journey, including the post-purchase experience, easy and convenient. At the same time, shifting privacy laws and changes to third-party cookie policies have driven customer acquisition costs (CACs) higher, forcing many brands to increase their focus on retaining their existing customers, especially their high-value and most frequent purchasers.

Here are a few ways retailers and brands can make returns a competitive advantage that helps them acquire and retain customers, while building loyalty:

Offer Ultimate Convenience Through Ease and Choice

One of the first things many online shoppers look for is a brand’s return policy — and if they perceive it’s too expensive or inconvenient, they may choose not to purchase at all. Offering customers multiple return methods, such as the ability to print a return label or drop an item off at a store, is critical to meet their evolving needs.

Brands can also partner with tech providers that show customers all the nearby physical locations where they can complete a return. Perhaps the ultimate convenience is when brands offer to dispatch a service to pick up an item directly from the customer’s home. Offering a breadth of return methods with a focus on convenience can reduce time to ship a return by as much as 40% and result in significantly higher customer satisfaction.

Adopt a Personalized and Dynamic Return Policy

To reward their most valuable customers and incentivize repeat purchases, retailers can also establish a dynamic return policy based on loyalty. DSW provides customers who have reached a certain loyalty level with a longer return window and charges others who meet a particular frequent-purchase threshold less to return items. 

Saks Fifth Avenue motivates customers to initiate returns faster by making returns free within the first 14 days, benefiting both shoppers and the retailer, which is able to restock items more quickly and avoid markdowns. Some retailers even choose to offer their most trusted customers advance refunds, providing an e-credit or e-refund (which will likely be quickly re-spent with the company) before a customer even drops an item in the mail.

Promote Return Options That Drive Sustainability

A 2022 report from First Insight and the Baker Retailing Center at the University of Pennsylvania’s Wharton School found that consumers tend to be more interested in sustainability than retail executives assume and that 68% of shoppers are willing to pay more for sustainable products.

Retailers and brands looking to address these concerns and reduce their carbon footprints are incorporating green-minded offerings, such as label-free and package-free returns, into their brand experience. These not only save resources and prevent waste, but also make it easier for customers to initiate returns, leading to a better overall customer experience that drives repeat purchases and deepens loyalty.

Many retailers are also partnering with tech startups that offer sustainable solutions such as smart routing — which directs returns to the optimal location, such as a specific store or fulfillment center, to save time and fuel. Bringing attention to these offerings earlier in the purchase funnel, such as on the Return Policy FAQs page, can help brands appeal to eco-minded consumers.

In today’s competitive landscape, offering a comprehensive and compelling return policy is becoming increasingly important. Strong brands are using their return programs as a competitive advantage in order to convert first-time buyers, while retaining existing customers and increasing lifetime value.

— David Morin, Head of Customer and Retail Strategy, Narvar