The average cost to a business from a consumer returning a $50 product is $33, equal to 66% of the product’s price

In 2021, returns in the retail sector reached a staggering $200 billion (approximately £180 billion), equivalent to about 20% of total online sales, according to a study by Appriss Retail and the National Retail Foundation. A consumer survey exposed that 25% of shoppers return between 5% and 15% of their purchases, with some even sending back more than half of their online acquisitions. The holiday season exacerbates this trend, with an estimated 2 out of 3 consumers returning gifts or purchases, particularly in high-return categories like apparel, electronics, and jewelry (with an average return rate of about 10% for apparel).

Businesses shoulder a substantial cost, amounting to roughly 66% of the original item's price, due to returns—even for items in good condition. This cost encompasses labor, transportation, and inspection, all of which the business typically covers. Given these concerning figures, it's imperative for businesses to master strategies to reduce return rates and adeptly handle customer returns. Successfully navigating this challenge can translate to increased profits, the retention of loyal customers, heightened satisfaction among customers, and the fortification of the brand's reputation.

The surge in eCommerce, especially in the UK, with a 10.8% increase in internet retail sales in 2021, has elevated return rates, particularly during and after the holiday season. While major retailers may weather this storm, individual businesses face immediate and long-term losses beyond refunds, impacting their brand and financial standing.

The true cost of eCommerce returns goes beyond monetary refunds and includes:

1. Loss of Customers:
   • Each return jeopardizes customer loyalty, potentially causing permanent loss.
   • Repeat customers, constituting nearly half of total retail sales, contribute significantly to a business's bottom line. Losing them not only incurs acquisition costs but also diminishes the customer's lifetime value.
2. Damaged Brand and Reputation:
   • Negative reviews resulting from unsatisfactory returns can drive potential customers away, causing long-term reputational damage.
   • Referrals may decrease as dissatisfied customers are less likely to recommend the business.
3. Higher Customer Acquisition and Marketing Costs:
   • Returns nullify the investment made in acquiring a customer through ads, resulting in a net loss, especially for businesses with thin profit margins.
   • The need to replace lost customers necessitates additional spending on marketing, with rising costs for online ads exacerbating the situation.
4. Lower Customer Lifetime Value:
   • A reduced customer lifetime value (CLV) leads to lower revenues and increased customer acquisition costs, hindering business growth.
   • Maintaining a healthy LTV to CAC ratio is vital for sustained profitability and growth.

An illustrative example demonstrates the domino effect of a single return: a £100 item with a projected £20 profit incurs an immediate £10 net loss, potential loss of future sales, additional spending on customer replacement, and the possibility of negative reviews affecting sales.

To mitigate these challenges, businesses must implement strategies to reduce return rates. Understanding the reasons behind eCommerce returns is crucial, with common factors including size discrepancies, color variations, unmet expectations in terms of quality or performance, and accidental orders.

Strategies to Reduce Returns:

1. Detailed Size Guides:
   • Provide clear sizing charts to help customers choose the right fit, reducing returns due to size issues.
2. Clear Visuals:
   • High-quality images and detailed product views assist customers in forming accurate expectations, minimizing returns caused by discrepancies between online and actual products.
3. Accurate Product Descriptions:
   • Detailed product descriptions, emphasizing unique features, benefits, and applications, enable informed purchasing decisions and reduce returns.
4. Customer Reviews:
   • Encourage customers to leave reviews, influencing potential buyers and providing valuable insights. Positive reviews enhance customer confidence, while negative reviews assist in informed decision-making.

Best Practices for Handling Returns:

1. Transparent Return Policy:
   • Establish a hassle-free, "no questions asked" return policy to simplify the process for customers.
2. In-Store Returns:
   • Allow customers to return items in-store, increasing convenience and promoting online shopping.
3. Free Return Shipping:
   • Offer free return shipping to appease customers and enhance their online shopping experience.
4. Exchange Options:
   • Consider offering exchanges instead of refunds to retain customers, thereby improving customer lifetime value.

In conclusion, while returns are an inherent aspect of eCommerce, businesses can minimize their impact by facilitating informed purchase decisions, providing exceptional after-sale experiences, and implementing customer-friendly return policies. By doing so, businesses can navigate the challenges posed by returns and foster long-term customer relationships for sustained success in the competitive eCommerce landscape.

Source: The true cost of eCommerce returns and how to minimise loss. | Bloom Group S.A. (letsbloom.com)