The Inconvenient Challenge of Online Returns
While shopping overall is down, online shopping and online returns are anticipated to be higher than average.
Tech platforms are angling to help retailers respond to changing consumer behaviour.
Returns technology can save money and time as brands navigate serving an online-centric consumer.
While retail analysts are comparing the current level of discounting to Black Friday, and Target’s online sales are outpacing Cyber Monday, some anticipate another holiday-inspired retail phenomenon: bloated returns, which could place added stress on an already-under pressure e-commerce infrastructure.
Shoppers return 10 per cent of what they buy in stores, but as much as 40 per cent of what they buy online, with returns rates on the higher end for fashion and apparel. And online returns are costly for brands, costing as much as $10 per return, says Forrester retail analyst Sucharita Kodali.
It sets up a perfect storm: as companies increase online sales with out-of-character markdowns, free shipping and exorbitant returns windows, they invite an unprecedented volume of returns four to six weeks later. In other words, while more online sales are what brands want, an influx of returns might be an unwelcome byproduct.
“We are thinking of Covid as another Black Friday for returns — after the market opens,” says Eduardo Vilar, founder and CEO of Returnly, which provides online returns capabilities for direct-to-consumer brands like Untuckit, ThirdLove and Everlane. Returnly has partnered with returns technology company Optoro, which helps brands manage, process, and resell returned merchandise. This is perhaps the most significant in a number of new offerings from tech companies fast-tracking returns-focused solutions in anticipation of a reverse logistics nightmare.
Optoro’s technology can be implemented in retailers’ own distribution centres and stores, or Optoro can process returns on their behalf. The Tennessee facility pictured acts as a test center for new programmes.
“Post Covid, companies come to us and say, ‘Hey, I know we’ve been talking about e-commerce and how it’s part of our strategy, but now it might be literally our whole strategy.’ And I’m talking about companies with thousands of stores,” says Optoro co-founder and president Adam Vitarello, who adds that this might ultimately increase companies’ online orders by 10 times what they are used to.
Thus, returns tech is positioned to enjoy an overdue moment of innovation, says Amit Sharma, CEO of retail tech provider Narvar. “Customers will expect more from brands and retailers. Some of the conveniences that they are seeing on the delivery side will eventually permeate returns.”
With stores closed, returns are up in the air
The natural assumption is that if people are only able to shop online, the volume of online orders will increase, and thus returns will increase, even if overall sales volume is down. Even if a brand’s return rate stays the same, the sheer volume of returns will increase proportionately to online sales.
For example, skincare label Primally Pure has seen a 34 per cent increase in orders during the last several weeks, says founder Bethany McDaniel, in part because the brand’s products are playing a role in self-care routines, she says. Although return rates are staying consistent at about 1 per cent, that means that the volume of returns is likely to increase by 34 per cent.
Returns remain a big friction point in e-commerce, says eMarketer principal analyst Andrew Lipsman. “Since DTC skews so heavily toward apparel and outsources a lot of these non-core functions — while caring a great deal about customer service — there’s a big need for returns tech,” he says. Current demand is hard to gauge, he says, since overall e-commerce growth has accelerated, but discretionary categories like apparel are taking a hit. But, he adds, given that people don’t have the opportunity to try things on in person, he sees the potential for increased demand for returns on a per-item basis.
Americans returned about $400 billion in merchandise in 2018, with Optoro estimating $100 billion worth of returned goods in the US during the last holiday season. Online returns are 25 per cent of gross US retail sales, while traditional store returns are 9 per cent, according to Forrester.
But there is no precedent for purchase behaviour amid a lockdown, and the distribution on online vs offline sales is unlike what any model could have predicted. Although Target’s digital sales were up more than 275 per cent in April, apparel and accessories sales were down. And a survey by marketing analytics company Resonate found that although approximately 55 per cent of Americans said they were more likely to buy something online in the next 90 days, 55 per cent also said they were likely to decrease their spending on luxury products.
It’s unclear if returns are changing, and how. Narvar has seen online returns volume double in the past month, and adoption of its printerless returns service— which uses a QR code — has increased up to 70 per cent since February. Optoro, meanwhile, has seen a 20 per cent decrease in average weekly returns.
“We have heard that returns have gone down as people aren’t going to stores, and no one wants to mail back returns either,” Kodali says. “There may be people buying things during the pandemic that they will return, and there may be a backup of some returns due to that, but some people will also just forget to return altogether. People will lose receipts, stuff things in closets and forget what they wanted to return in the first place.”
Vitarello says that returns are also likely down because brands have extended their returns policies. Gap Inc., for example, has extended the return window to 1 July for all purchases made between the beginning of January and the end of March. A Forrester Narvar survey found that 40 per cent of respondents said they have relaxed their return policies and 27 per cent said it’s something they’re considering. Once the restrictions relax, Vitarello anticipates returns will rush in, making up for lost time.
“Global retailers have adjusted their return windows, but this is a band-aid solution for a larger complexity, as this only encourages higher returns,” according to research from retail data platform Omnilytics, which predicted that pent-up shopping activities would spike once consumers gain confidence, but that could take — at minimum — six months until retailers see that behaviour change. “This issue is further compounded with the redundancy of historical data. We’ve never been here before, so there is little in past data to help retailers now.”
There’s also the possibility that consumers, having been forced to shop online for months, will maintain the habit after the lockdown, resulting in a higher overall volume of sales being online. A survey by e-commerce payment company Fast, for example, found that, as of late April, 89 per cent of US shoppers were anxious about shopping in physical stores.
With a potential boom in returns looming, retailers’ attention is elsewhere. Seventy per cent of Narvar clients said they anticipated that e-commerce would fare better than the rest of the business for the year, but only 23 per cent said they would shift resources to e-commerce. “I don’t think they are really thinking about [returns] now. They are trying to be customer-centric,” Kodali says.
Jim Hull, senior director of industry strategy, retail at Blue Yonder (formerly JDA) says that retailers he’s spoken to are expecting a “modest bump” in returns but are not adjusting purchase plans to offset this, preferring to take a hit to the balance sheet hit if it increases the potential for a sale.
Returns have historically been a “painful process for everyone”, says Donny Salazar, founder and CEO of fulfilment tech company MasonHub. “People don’t like to talk about returns, and they are hard to figure out how to support operationally and technically, but they are an important part of the business.”
Returns as a retention strategy
A good returns process can aid in customer retention. Optoro reports that 89 per cent of consumers are less likely to shop at a retailer or brand if they had a bad return experience. “The pandemic has created friction in the returns process, and any time there is friction, there will be fewer returns. When there is friction, people hesitate to buy in the future,” Kodali says.
Vitarello encourages retailers to focus on appealing to existing customers rather than spending on customer acquisition, which positions returns as a loyalty investment. Returnly allows brands to offer instant return credit and exchanges, assuming the risk on behalf of brands and letting customers get a refund, exchange or a different product altogether before the returned item reaches the fulfilment centre. Its partnership with Optoro opens up the service to clients such as Target, Jet.com and UnderArmour.
Optoro’s partnership with Returnly (pictured) opens up the Returnly experience to its larger omnichannel clients.
Other tech companies are stepping in to solve this problem. Retail software provider Detego just expanded its RFID (radio-frequency identification) technology — used by Levi’s and Adidas to track inventory — for use in the returns process. This lets fulfilment centres scan returned items through boxes, or, as is the case with RFIDs embedded into products, mitigate fraudulent returns. And MasonHub, whose clients include 11 Honoré and Carbon 38, introduced a tool that lets brands pick the most affordable return method based on the weight of the item. (Traditionally, brands use one shipment method.)
Last year, Narvar introduced a service that lets customers of brands including Levi’s, Sephora and Schutz drop off returns at US drugstore Walgreens (which is allowed to stay open). Since the pandemic, adoption has doubled, Sharma says, adding that this networked approach is easier for both customers and brands, in that it is less expensive and less complicated.
And for brands that end up with excess inventory, either due to latent returns or products that aren’t sold at all, Optoro has a recommerce platform, which lets consumers shop discounted goods or lets independent sellers buy goods wholesale to sell on marketplaces like Poshmark. Vitarello says this offers brands an alternative to TJ Maxx (whose modest online operations have closed during the pandemic along with its stores) or destruction of merchandise.
Vilar, of Returnly, hopes that the Optoro-Returnly partnership will allow brands to put returns on “autopilot” to let brands focus on crucial areas. “Covid is just bringing everything that matters back into focus, and brands are shrinking down to the bare minimum of what is the absolute necessity.”
Melanie Travis, CEO of swimwear brand Andie, says investing in returns is a way to boost the overall lifetime value of customers. “Some brands make it complicated and difficult for the consumer, but that is a short-term vision,” she says. “In the immediate term, you will have more revenue, but they won’t come back.” In speaking with other industry founders, returns have not been a key topic of discussion, she says, adding, “ It will catch up to us quickly.”