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Customer expectation of free returns puts the squeeze on small retailers

While offering the perk boosts costs for retailers, it can also increase sales by reducing customer anxiety, experts say.

Roberta Perry, owner of ScrubzBody Skin Care Products,

Roberta Perry, owner of ScrubzBody Skin Care Products, does not offer free returns but says she provides other enhanced customer service. Photo Credit: Chris Ware

With the generous online return policies of many larger retailers, consumers have grown accustomed to free returns.

In fact, the promise of free or cheap returns has led to more so-called "intentional returns." A recent report by Brightpearl found that one quarter of survey respondents said they have bought multiple items with the intention of sending some back.

Given the added costs to process returns, retailers must understand their return volume and develop a strategy to meet customer expectations while not adversely impacting their bottom lines, say experts.

“Americans already return more than $260-billion worth of merchandise a year and less than half of that could be resold at full price,” says Justin Press, vice president of customer success at Austin, Texas-based Brightpearl USA, a provider of back-office automated services for retail and wholesale businesses.

On top of that, almost nine in ten people expect free returns and 86 percent of respondents said they resent having to pay for returns, he says.

This puts a lot of pressure on retailers.

Still, 46 percent of retailers said they charged for e-commerce returns in 2018, up from 39 percent the year before, says Press.

Consider, though, that while offering free returns boosts costs for retailers, it ultimately helps them gain sales because  it removes customers' “anxiety” from making a purchase, he says.

But offering the perk is easier said than done, particularly with rising shipping costs.

Roberta Perry, owner of Farmingdale-based ScrubzBody Skin Care Products, said her shipping costs have increased between 9 and 10 percent over the last two years.

She offers a 30-day return policy, but doesn’t offer free shipping on returns, noting as a small retailer it’s hard to do so.

She gets “minimal” returns, but if necessary does encourage local customers to return items at her physical store so they don’t have to pay for shipping.

She also tries to offer enhanced customer service such as sending an extra small gift or a free sample to differentiate herself from big box retailers, especially since it’s difficult to compete on free return shipping.

To be sure, it is a “leap of faith” for a small business owner to offer free returns and many are reluctant to do so, says Peter Sobotta, CEO of Carlisle, Pennsylvania-based ReturnLogic, a software and analytics firm that helps retailers manage and optimize their returns strategy.

It is true that offering free returns will increase a retailer’s overall return rate, “but it will also dramatically improve the amount of sales a merchant has” because you’ve transferred the risk to the retailer, he says.

Still, retailers can minimize the risk of incurring too many returns if they meet customer’s expectations around price and quality, he says.

In addition, retailers should look at returns as “an opportunity to serve their customers better” by getting feedback on their company and product, says Sobotta.

Use technology whenever possible to streamline back-office operations and reduce expenses to help offset the added costs of returns, says Press. Also, look at your current return rates and understand why customers are returning products.

Make sure you’re listing as much product information as possible, along with product images, customer reviews and unboxing videos, says Nicole Larrauri, president of EGC Group, a marketing and digital services firm in Melville and Manhattan.  

“The more the better,” she says.

Also have efficient systems in place.

Many retailers only process returns that come in with mailing labels they provide to customers, which can be scanned at designated fulfillment centers, helping to manage inventory and also reducing returns since not all customers will go through the necessary steps, Larrauri says. And have a limited time after purchase that you’ll accept returns, she says.

The bottom line: Listen to your customers.

“Look at some of the reasons why people are returning products and see if there’s an opportunity to improve something that might be causing returns,” says Sobotta.

Fast Fact:

17-18%

Average return rate for retailers, varying from about 10% for the smallest retailers up to 30% or more for mid-sized retailers

Source: Brightpearl

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