Ecommerce Returns: Cost Center or Competitive Advantage?

U.S. consumers were forecast to return more than $66 billion in goods after the 2021 holiday season, and ecommerce returns are a huge and growing issue. For businesses, they create logistical challenges, raise costs and pose fraud risks. For consumers, the returns process can be confusing, inconvenient and frustratingly slow.

However unsatisfactory the returns process is now it gives businesses an incredible opportunity to build loyalty and delight customers. By optimizing it for convenience, and by taking steps to reduce the risk of returns fraud, you can create a better experience for customers to win and keep their loyalty.

Ecommerce returns (and costs) keep growing

Returns management was an issue for ecommerce long before the pandemic pushed more people to buy online. Now, according to The Paypers’ 2021-2022 Cross-Border Payments and Ecommerce Report, shoppers return anywhere from 10% to 40% of their ecommerce purchases. Those return rates are much higher than for store purchases. They drive up costs for retailers in several ways, including shipping fees, warehouse space – which is now in short supply in many areas – and the costs of product refurbishment. When products are returned in damaged condition, there’s also the cost of disposal.

At the same time, retailers are under pressure to match competitors’ return policies as well as their prices. Shoppers expect free shipping and no restocking fees, so there’s often no way to shift some of the costs without losing their business. There are extra costs associated with cross-border returns, from higher shipping rates to currency conversion fees, as well as a patchwork of consumer law compliance issues in different markets.

There’s another potential return cost to retailers: fraud. For example, if a return process is too complex or takes too long, some customers may simply request a chargeback from their card issuer. Returns fraud, another risk, accounted for 13% of all U.S. ecommerce fraud costs in 2021. Returns fraud takes several forms. Thirty-seven percent of online shoppers admit to “wardrobing” fraud, in which customers wear a high-end clothing purchase then return it. Another is BORIS (buy online, return in store) fraud, in which organized fraudsters bring stolen merchandise into retail locations and return it for gift cards.

Preventing this requires screening return requests for possible fraud, in the same way that orders are screened, with manual review to prevent false declines. For retailers selling apparel and luxury goods, item tags designed to prevent wardrobing fraud may be necessary. To prevent chargebacks caused by frustrated customers who would otherwise make a return, the solution is a better return experience.

Customer pain point or great experience?

Despite businesses assuming most or all of the costs of ecommerce returns, customers often find the experience to be a hassle, with multiple friction points, including looking up the return policy, requesting return authorization, shipping label printing, repackaging and arranging for carrier pickup or dropping off at a local store. After the item is shipped back, there may be a long and stressful wait to confirm it was received — and then another wait until the refund is processed.

With so many steps in the returns process, there are lots of opportunities for the experience to go wrong, which may be why buy now, pay later firm Klarna found that 82% of consumers say retailers need to fix their returns process. That dissatisfaction leads to another return-related expense for businesses: Klarna also found that 84% of consumers will stop shopping with a merchant after a negative returns experience. Return-related customer churn decreases average customer lifetime value and can generate negative word of mouth that raises customer acquisition costs.

Making returns more customer-friendly may require a third-party specialist in optimization or a provider of on-the-ground support. For example, Amazon customers can drop off returns in Kohl’s stores without packaging. And Happy Returns offers has returns bars in Staples and other locations that handle unboxed returns for more than 250 merchants.

Returns that work for your business, customers

Retailers with customer-friendly, convenient return options have a competitive advantage over those that stick with complicated or slow processes. Improving the experience starts with an audit of how the process works, how long each step takes and what customers have to say about it.

That information can identify areas for improvement, such as more in-person dropoff options, longer windows for post-holiday returns, faster refunds and more clarity about where items are in the returns process. By optimizing returns and giving customers more in-person and shipping options to speed up the return and refund processes, you can earn customers’ loyalty and keep it.


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