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Are Retailers Counting the Cost of Returns?

Lindsay Tjepkema
Lindsay Tjepkema , Global Head of Content , Emarsys

Female boutique manager greeting client in shopA recent article by BBC News highlighted one of the biggest challenges for both customers and e-commerce businesses – 50% of fashion and apparel goods bought online in the UK are returned. Fifty percent! Think about that for a moment, half of the products you sell online come right back.

Of those products which are returned, 95% of them are in “resellable” condition, 5% are not – either being damaged in transit or needing additional packaging, care or attention to resell.

This has prompted business groups in the UK to warn customers that the costs associated with returns are driving up prices for consumers in retail.

Yet one of the biggest reasons customers don’t buy from businesses more than once is the cost of returns to them, or the customer service experience they receive when trying to do so. So retailers making this issue a customer problem risk damaging the relationship with first-time buyers and reducing chances of increasing their Customer Lifetime Value (CLV) through repeat sales.

Returns are a Global Issue

Customer looking at clothes on a hanging rail in a boutiqueThis isn’t limited to the UK. Customers around the world have shifted buying habits. They want the convenience of purchasing anywhere at any time – online, mobile and in-store. But, some of these impulsive purchases mean customers are spending less time researching and less time trying on clothes as they have the expectation they can simply buy and return if they don’t like it.

Take, for example, my wife. She is an avid shopper, online and offline. Shopping in Central London at a well-known high street retailer resulted in her finding the perfect dress. The challenge, however, was finding the right size. So she bought it online from her mobile and it was delivered to a click-and-collect point at our local convenience store from another store about 300 miles away. Omni-channel at its finest.

She loves the dress. She looks great in the dress. So, as advised by her friend, when you find something that looks and feels great, buy it in more colors! She searches for the same dress in black and sees that a well-known e-commerce business (with no stores) has the same dress from the same brand cheaper. So my wife, as a savvy shopper, buys the same dress in both white and black from the e-commerce business and returns the one she bought to the first retailer.

Forrester report cross channel campaign managment

The retailer has lost a sale. They’ve used a very expensive supply chain management software to manage the inventory online and offline and have a staff member 300 miles away package a dress, a third-party delivery company to take that package 300 miles to a convenience store in Central London and now they have it back at a physical store in London.

Then there’s the logistical nightmare of deciding to keep it at that store, a different store or to give it to another customer who is buying via the website or mobile. That is a considerable cost for them to provide a frictionless experience for the customer and for what reward? A lost sale to someone they provided with free shipping and free returns for an item that wasn’t faulty or defective, at a material cost to their business. Omni-channel is tough!

But even that doesn’t really tell the whole story…

You see, my wife is a long-time customer of both the retailer and the e-commerce business. In terms of CLV, she’s a VIP. They should treat her like that. They have spent money on keeping her happy. They have invested shipping and returns costs in their relationship with her as a customer. She’s provided a return on that investment over a number of years.

Some customers cost you money when you factor in costs of acquisition (CAC), customer lifetime value (CLV) and rate of return (ROR), while other clients make you money when you factor this in.

Other clients make you money when you factor this in.

Rethink Cost of Business

In women’s fashion and women’s apparel in particular, this has always been understood as the cost of doing business for traditional retailers. Some ecommerce businesses however simply haven’t factored in return costs of customer lifetime value into their planning – and it’s hurting them.

There are some things we can do to minimize the cost of returns:

  • Provide size guides
  • Provide better product information
  • Invest in better onsite photography

We also need to accept that sometimes someone is going to try something on and it’s not going to fit right. Or it just doesn’t make the customer happy.

But as long as we’re investing in the right customers and tracking which ones are making us money and which ones are costing us money, then we’re able to make better decisions.

Final Thoughts

At Emarsys, we were the first SaaS provider to really drive marketers to look at the CLV of customers net of returns and to really help people understand which customers are having the most impact on our revenues. Perhaps it’s time we all started counting the true cost of returns and our view of the modern consumer.

See how Emarsys is helping companies create successful omnichannel campaigns.

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