Online returns are estimated to reach the value of the 16th largest economy - strategies to reduce your returns

Photo by Wander Fleur on Unsplash
Jan 20, 2021
#online-returns | #sustainability
5 min read

For a long time, leaders in customer service have been advocating the motto "the customer is always right". But is the customer indeed always right?

The answer to this question becomes complicated when it comes to online returns. For years retailers have been simplifying their return policies and levying return costs for their customers to ensure that they can maintain a steady sales trajectory. However, this process has created a range of new issues. In the US alone, Statista estimates that return deliveries will cost $550 billion in 2020. Other predictions show that in the next few years that number will reach 1 trillion dollars ($1,000,000,000,000). To put this into perspective, the value of Mexico's economy is $1.04 trillion and here we are talking about the 16th largest economy in the world.

The average clothing industry return rate is 30% to 40%, with ASOS reporting returns of about 70% in Germany. This issue has a massive environmental impact, making the fashion industry the 3rd most polluting after oil/gas and agriculture. Luxury fashion companies regularly destroy their returned or unsold goods to avoid selling them at a lower price which would devalue the brand. One notable example is the luxury brand Burberry, which destroyed $38 million in goods back in 2018 and fell under scrutiny of both investors and customers. This is not an isolated example but the norm in the sector.

Processing returns is expensive for fashion retailers requiring staff, resources and often a discount on the returned goods. In order to compensate for the cost brands have started passing them onto customers or intentionally increasing the price of their products to compensate for processing returns. Ultimately customers pay more without realising it.

Due to simplified return policies, research shows a rise in the number of so-called serial returners. This group is defined as a group of shoppers who deliberately buy more products with no intention of keeping them. A research by Barclaycard shows that 30% of shoppers deliberately over-purchase and subsequently return unwanted items. 19% admitted to ordering multiple versions of the same item so they could make their mind up when they’re delivered. To make this problem even more complex, the global managing director of Accenture says that the top 5% of people who return most are 30% more profitable. The dilemma that brands are facing is a difficult one and the solution is not straight forward. It's a choice between doing what is right or maximising profitability.

Considering the complexity of this problem, we believe that a multi-tiered approach is required to tackle this problem. The first step is for brands to start educating their customers on the impact of returns. Although this issue has a lot more press coverage, it is not yet front and center for most shoppers. To say it another way, the impact of returns is not something that shoppers think about immediately as it does not directly impact them. To further reinforce this message, brands can enable customers to track their environmental impact and incentivise good behaviour by providing an additional discount.

The second point is to understand the reasons for returns. Research shows that the main reason for returns relates to sizing. We all know somebody who always purchases multiple sizes and returns all but the one that fits best. There are various tools in the market that offer a measurement solution that retailers can make available to their customers before making a purchase. Size Me Up offers one such solution. However, having such a tool does not mean shoppers have bought into it. This comes back to our previous point around promotion and messaging. Customers need a reason to use the tool and be incentivised for doing so. Our experience with clients shows that when a brand takes a strong position on returns, they see the biggest benefits of having a measurement tool in their arsenal.

The last area that we suggest brands to review is their production process. For years, large brands have been producing batches of clothing for specific size groups (S,M,L, etc.). While this statistical approach works for a % of the population, it is very outdated and in reality doesn't work. Let me give you an example. When you are purchasing a male shirt, the 3 most important measurements you take into account are neck, chest and shoulder. Using our tool, we've seen numerous examples where a shopper will be one size for one of the measurements (e.g. chest is M), but the other 2 measurements are a different size (e.g. neck is L and shoulder is L). We've seen occasions where an individual fits into 3 different sizes based on their measurements. How do you choose the right size in that scenario? The reality is that people are not as proportionate as brands would like them to be, so plotting people into sizing charts is an outdated approach. It does not work. The good news is that with the introduction of measurement tools, brands can leverage technology to optimise their production. Thus ensuring that their clothing is more personalised and doesn't result in an excess inventory that can't be sold resulting in destruction or a landfill.

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By Yanko Slavov

Co-Founder, Size Me Up