Eight Things Retailers Can Do To Prevent Holiday Returns - Costing US Retail $375 Billion Annually

Dec, 19 2014

Holiday Returns

Returns can be extremely costly. Total retail sales in the U.S. are about $5 trillion. Approximately 15% of items are returned. From this, if we factor in that each return could cost a retailer 50% of the revenue of the returned product, then returns end up costing retailers $375 billion each year.

The average retailer has anywhere from 2-10% in returns, and each return could cost anywhere from 20% to over 100% of the revenue of the returned product (this does not include the cost of return shipping). Reverse logistics, open-box sales and clearance prices on used products at a few cents to the dollar are extremely costly. Just how costly? It could be close to 3-4% of profit margins, and eliminating these costs could mean double bottom line profits.

Predictive Marketing, such as predictive technology from AgilOne, can help marketers curb returns anywhere between 20% and 50%.

How?

Understand who are your frequent returners.

When you have several million customers, a few patterns emerge. You will find that not every customer is equal. Some customers have legitimate reasons for returns and do it with a reasonable pattern, whereas other customers might order 3 sizes of the same product, and, of course, 2 will be returned.

The 80/20 rule applies very well when it comes to returns – a small number of customers account for most of the returns. Identifying, measuring and configuring your retail business model with this in mind is really important.

Some interesting statistics about Holiday Returns:

  • More than 50% of returns come from less than 20% of customers.
  • The top 1% of returners are returning 8 out of 10 items they buy (80%)
  • The top 20% returners return half of the items they buy (5 out of 10 items) (50%)
  • The average is 15% (or returning 1 to 2 items out of 10)

Understand if returners are high-value shoppers or not.

The retail marketer’s challenge is to understand the difference between a high-value customer that returns infrequently and a low-value customer that returns on a regular basis. Return policies provide rules, and with AgilOne, retailers can learn more about return behavior so they can develop these rules. Based on what a retailer uncovers about return behavior, they might create different policies for the VIP customer segment, for example, so they can continue to keep customers happy and shopping on a repeat basis.

As part of our shopper profiles, AgilOne keeps track not only of the items people buy, but also the items that they have returned. Then we can analyze returns in many different ways. For example, we can look at returns in relation to the profitability of a customer. Returning 50 items a year is not always bad. If you return 50 items and keep 1 that’s bad. If you return 50 items and you keep 200 items that is fantastic.

Don’t fire your ‘returnaholics’.

We don’t recommend that you “fire” customers. They would still rather have you shop with them than with their competitors. However, the days where all shoppers are treated equal are over. Good customers will get more perks, and bad customers will be – more or less – ignored.

Some stores won't send frequent returners coupons.

For example, we have a pet retailer that only sends direct mail campaigns and coupons to their most profitable customers (aka – those who are the most likely to buy).

Only send promotions for items that are 'one-size-fits-all'.

Think about the items you market to frequent returners. Perhaps only send offers for things that don’t have sizes – like jewelry. Some retailers will also decide to charge restocking fees. They may waive restocking fees for good customers, but charge the chronic returners.

Charge frequent returners re-stocking fees.

Today retailers are not charging restocking fees if you are an excessive returner. Retailers are not being surgical about how they apply restocking fees. Rather, they charge restocking fees across the board (if restocking fees are indeed part of their overall store policy). Retailers like Best Buy have been getting heat for charging restocking fees. There are even sellers on eBay that charge restocking fees.  A lot of retailers are still very nervous about the negative connotation of restocking fees, but we will see restocking fees become more prevalent over time, and we might even see these fees apply to the excessive returners.

Pay special attention to returns of items bought with loyalty points.

With one retailer, shoppers were buying items and earning loyalty reward points for these items. Then they would buy free items with the points and return the items they had paid for after the free items arrived. Of course it is important for retailers to flag and prevent these types of fraudulent returns.

Don’t forget about your best customers!

We think it is exciting that retailers are starting to differentiate their customers. Yes, it means that “returnaholics” may be face restocking fees, but it also means that loyal customers will get some really great perks like invitations to VIP parties and customer appreciation gifts. Building a positive retailer and consumer relationship is like having a good friend. If you are a good friend to a retailer, the store will go the extra mile for you. In addition, retailers can bet that their consumers will be shopping more often.

More reading:

Retailers Look to Technology to Trim Holiday Merchandise Returns (Bloomberg Businessweek)

Rampant Returns Plague E-Retailers (Wall Street Journal)

AgilOne Analyzes Online Shopping To Avoid Costly Product Returns (Mediapost)

Retailers Punishing Repeat Online Returners (CBS)

Retailers Crack Down on ‘Returnaholics’ (ABC)