Jess Morris, Head European Marketplace Manager, at B-Stock – the re-commerce platform which serves some of the largest global retailers, discusses whether the latest approach for reducing retail’s many unhappy returns is sustainable?
Online purchases have much higher returns rates – 30 percent of all products ordered online are returned whereas just 8.9 percent are returned to brick-and-mortar stores – to the point where retailers are now testing ways to have customers simply keep their returns, with a full refund, in order to mitigate this problem. Along with other tactics, like introducing restocking fees, retailers may also choose to turn to the secondary market to offload these excess returns.
Retailer Advantages/Disadvantages With Customer-Kept Returns
The growth of ‘free returns’ policies is becoming less sustainable as brands suffer under the weight of excess returns. Today, customers expect a flexible returns policy, and have the tendency to order multiple sizes and colours, or simply experience buyer’s remorse and send items back. While this works in favour for consumers, retailers are looking for a more sustainable solution.
The returns process can be quite costly for retailers, so much so that in some cases, particularly low-price point items, the total cost to process the return is greater than the cost of letting the shopper keep the item. Retailers have already incurred cost and are working on low margins to deliver the product to the customer. Which is why ‘returnless refunds’ have been adopted by some of the biggest retailers like Amazon and Walmart.
New technology, such as AI, is making it possible for retailers to determine the cost vs benefit of determining if a product should be returned or kept. AI capabilities can manage the risk of returnless refunds since these are typically issued for low-margin merchandise, taking into account the cost to serve and the cost to return an item before one is issued. There is also the added bonus of delighting customers along the way, who now get to avoid the hassle of the typical return processes.
Rather than leave the fate of unwanted items to landfill, retailers are taking this new approach to reduce the rate of returns they deal with.
Introduction Of Restocking Fees And Scrapping Free Shipping To Deter Customers From Over Ordering
Another approach to the growing rate of returns is restocking fees. A handful of retailers have re-introduced restocking fees in order to deter customers from over ordering. This isn’t a new tactic, just less popular in the face of free returns with very limited restrictions. In the hope of making shoppers more conscious of their purchase decisions, the restocking fee should reduce the amount of unhappy returns that retailers see.
The biggest consideration retailers will have to pay mind is the friction a stocking fee could create in the online shopping process. Shoppers will be looking at all of their options. A stocking fee for returns could lower the conversion rate of a shopping basket to a purchase, therefore impacting retail sales and revenue.
Effect Of Macroeconomics On Customer Behaviour
The economy plays a role in customer behaviour, too, with discretionary spending tightening. Currently, the inflation rate in the UK is 10.1 percent, the highest it’s been in over 40 years. Not only that, but real wages in the UK have fallen by 3% in the second quarter of 2022. The pressure that households in the UK are feeling will translate to their spending habits. With food and energy bills being the top priority. This could pose a threat to retailers looking to try their new restocking fee and ‘returnless refund’ tactics.
The latest retail data shows that the fashion sector performed the strongest of all retail categories despite inflation, meaning retailers may still trial the approach. It may be that the restocking fees do not cause issue with consumers. Especially as there is a focus on purchasing sustainable rather than fast fashion, this leaves additional margin within the cost of clothes to cover returns.
The Power Of The Secondary Market As a More Viable And Sustainable Option
The secondary market is a more sustainable option for both retailers and consumers. For retailers, the secondary market is a chance to give retail clearance and customer returns second and third lives. By selling these goods in bulk to business buyers, they can be introduced into the secondary market. This not only helps businesses have a more sustainable approach to their customer returns, but also gives consumers the chance to save on popular products like apparel and electricals.
Further, consumers have greater access than ever to these online resale marketplaces. More data shows that there is less stigma behind buying secondhand and previously owned items. Consumers hoping to save during hard economical times ahead may consider turning to the secondary market for like-new and preowned goods that are sold below original retail price tags, thanks to resellers. According to Statista, there are over 3,800 stores specialised in selling secondhand goods in the UK, a number sure to rise. However, Europe lags behind in the global secondhand apparel market growth overall.
The secondary market is primed to become more of a viable and sustainable option. In the meantime, more retailers will surely continue to test the practice of returnless refunds and restocking fees as a way to lessen the overall rate of returns.