E-Commerce Returns Are at an Inflection Point. It's Time for VIP Policies.

The retail industry is at a crossroads with product returns, which need to be managed more thoughtfully to lighten the burden on operations and the bottom line, ease the environmental impact, and build customer loyalty. The National Retail Federation (NRF) found returns cost retailers $101 billion during the 2020 holidays. For the holiday season just behind us, with e-commerce expected to hit a record high, the financial cost of returns was likely worse.

The status quo of unlimited free returns and no-questions-asked policies is unsustainable. There needs to be a shift towards personalizing the post-purchase experience to strike the right balance between customer convenience and business realities.

Free Return Shipping is a Perk, Not a Right

One answer is to incorporate return policies into VIP or loyalty programs, reserving the most desired return options for a brand’s best customers rather than blanketing everyone with the most liberal policy that often leaves retailers footing a hefty bill.

Besides leveraging existing loyalty programs, brands can identify VIP cohorts via purchase data, then reward them with members-only free returns shipping, longer return windows, and other perks. (It may also make sense to offer free returns to first-time purchasers to give them the confidence to try you out — my company’s research team found 56 percent of shoppers experimented with new brands last year, and 87 percent expected to stick with them.)

Does this approach work? When evaluating customer sentiment based on a classic loyalty program, Amazon Prime, it’s clear that members have a superior return experience and are more likely to become advocates than those who aren't members. We found that 91 percent of Prime members said they would shop again based on that experience, compared to 86 percent of nonmembers.

Personalized Returns in Practice

Most brands have embraced personalization in their marketing and digital shopping experiences, using past shopping behavior to determine what products, discounts or messaging the customer receives. Yet few are actually personalizing the returns experience. We analyzed the published return policies of nearly 200 major retailers, including Best Buy, lululemon, Walmart, and Bed Bath & Beyond, and found that just 9 percent of retailers have published VIP return programs. Therefore, retailers can gain a competitive advantage by taking this approach.

DSW is ahead of the curve, as it has incorporated returns into its loyalty program tiers. DSW offers extended free returns for its VIP Gold (90 days) and VIP Gold Elite (365 days) customers. Nonmembers pay $8.50 for returns, which — compared to a free-returns-for-all policy — keeps the retailer’s cost of returns down and helps fight returns fraud because the requirement to fork out cash deters bad-faith actors from gaming the system.

Brands can also be creative with their policies to encourage preferred behaviors. Dollskill offers free returns shipping if the customer takes store credit instead of a cash refund, retaining that share of wallet. Saks Fifth Avenue encourages customers to return items more quickly by offering free returns for two weeks. After that point, there’s a $9.95 charge. By getting product back sooner, Saks is more likely to be able to sell it in season at full price, rather than having to mark it down and lose revenue.

VIP Programs Are the Future of Returns

To satisfy the customer yet help e-commerce operations better manage expenses, forward-thinking retailers are starting to reserve key perks like free returns shipping for their VIP customers, rewarding high-value, loyal shoppers. It’s still early days for this idea, but I predict we’ll see more retailers adopting this strategy as e-commerce continues to mature.

Andria Tay is Global Director of Marketing & Communications at Narvar, the post-purchase experience platform.