Low-Return Shopping Holidays Present Opportunity for Retailers to Experiment With Creative Returns Strategies
Mother’s Day recently passed, and our data showed it garnered some of the lowest returns rates of the year thus far. Additionally, we found the value of Mother’s Day returns were significantly lower, about 25 percent less per item, than standard returns. Most gifts hovered around $20 or less. We're anticipating a similar scenario for Father’s Day because historically spring/summer “Hallmark holiday” returns have a relatively low impact on retailers’ reverse logistics operations.
This low-volume, low-value combination that occurs during this time of year allows retailers to creatively experiment with out-of-the-box strategies to minimize returns and mitigate processing costs. Here are a few strategies to consider:
Returnless refunds get a bad rap in the industry because the idea sounds crazy from a profit perspective. However, returnless refunds don’t necessarily mean retailers need to give the full price back to the customer. Instead, it could mean retailers offer targeted incentives that create a win-win scenario.
Partial Refunds and Discounts
Let’s say a customer wants to return a $60 online purchase that costs $10 in shipping and $10 in restocking fees. If the resale value warrants the investment, the retailer might consider paying the costs. However, often retailers can’t resell these items for a profit — if it all. Think customized jewelry, shirts, hats, and picture frames that are common gifts during Mother’s and Father’s Day. In cases like these, retailers should consider offering a $20 refund, in line with the processing costs, to incentivize the customer to keep the item.
The same strategy could apply to $20 purchases as well. For example, let’s say a $20 shirt costs a retailer $10 to return and process. Of course, it could resell the shirt for full price in the best-case scenario, but it would still lose the handling costs. Therefore, the retailer might as well offer a $10 discount and avoid the shipping and labor expenses.
Another option is to offer the customer a discount on another purchase to keep the current item. Discounts are ideal because the retailer keeps the original sale while motivating additional future purchases. Not every customer will accept a partial refund or discount, but if retailers can convince even 5 percent of customers to keep unwanted products, they’ll reap significant savings.
Full Refund, When Necessary
Partial refunds and discounts won’t work in every scenario. In cases where customers receive damaged goods or dislike the gift they’ve received, they probably won’t care about receiving a partial refund. Offering a full refund may be the best approach in these instances.
Let’s look at broken TVs. When requests come in for TVs with cracked screens, we always advise retailers to offer a returnless refund, assuming the customer provides proof of damage. Why? TV screens are the most expensive component to fix, so refurbishment isn't a viable option. Instead of paying return shipping without any hope of recovery, it makes the most sense to allow the customer to keep the item.
Lean on Technology
Most retailers are hesitant to experiment with returnless refunds because they lack the tools to intelligently determine when this strategy makes the most financial sense. However, there are solutions at retailers' disposal that can help make sense of the decision to implement returnless refunds.
At a basic level, e-commerce software exists with return merchandise authorization (RMA) modules that every online store should consider. These out-of-the-box modules allow retailers to set a sale price threshold for offering returnless refunds vs. processing a return. However, they lack the ability to factor in other critical attributes like resale value and shipping costs. This technology isn't precise enough to manage thousands of SKUs for enterprise organizations.
By using advanced reverse modules, retailers can determine when to offer returnless refunds by analyzing a host of factors, including shipping fees, processing costs, packaging costs, item condition, resale value, and the reason for the return. They can then automatically offer a partial refund, discount or full refund based on customizable rules set by the retailer.
The Bottom Line
Retailers are processing more online returns than ever before, and most offer free return shipping to garner customer loyalty. According to a recent goTRG survey, 74 percent of consumers agree that having the option to ship back returns for free impacts their purchasing decisions. As a result, retailers must start managing returns more creatively and intelligently to mitigate losses. The spring and summer “Hallmark holidays” are the perfect time to experiment. If retailers can convince more customers to keep unwanted items, they’ll drive higher profits without sacrificing convenience and satisfaction.
David Malka is the chief sales officer at goTRG, a global technology company transforming the way the world’s largest retailers and manufacturers process and manage returns and distressed inventory.
Related story: Turning Returns Into Opportunities