In 2023, $247 billion—17.6% of U.S. online sales revenue—was lost to returns, versus the 14.5% return loss for items bought in stores.
Once seen as an enticing benefit to attract customers (and keep pace with Amazon), free shipping and returns quickly became the norm for ecommerce. There was a cost to keeping these free, of course—a cost that businesses would incur themselves to keep customers happy. For some time, that cost has been worth the reward. Recently, though, that sentiment has begun to shift.
With this shift, many retailers have turned their focus toward improving shipping and logistics costs, leading to stricter policies and new restrictions for consumers. And while this approach often yields the short-term results retailers are looking for, the long-term impact on loyalty could present an even bigger challenge down the road.
Sweeping changes
New shipping and return policies have been rolling out across major retailers for some time now. Some, like Macy’s and Abercrombie & Fitch, have set higher thresholds for free shipping. Others have begun to charge for returns, made return policies stricter or even banned serial returners entirely.
These strategies could very well work. After years of free shipping and unrestricted returns, stricter policies will undoubtedly force customers to reconsider their return habits. On the other hand, it could also keep them from buying altogether.
One survey found that 58% of consumers want a hassle-free, no-questions-asked return policy. Will customers abandon a brand that doesn’t offer that? It’s a question worth considering for retailers that introduced free returns to win those customers in the first place.
Middle ground
Retailers tend to focus on shipping and logistics costs when it comes to tackling returns. Doing so generally results in widespread changes that impact every customer, even the loyal ones making infrequent returns. Yet there’s plenty of middle ground for retailers to explore if they also incorporate profitability optimization into their return strategies.
After all, we frequently find a small percentage of customers are responsible for a majority of returns: For one of our clients, 8% of customers accounted for 70% of the retailer’s returns. A focus on profitability optimization means more targeted strategies, which can help retailers address the source of high return rates with less widespread risk to customer loyalty.
This approach hinges on a business’s marketing department, the team that is arguably closest to the data on your customers’ shopping habits, returns included. With the ability to track return events and segment customers by return rate, they can enact targeted strategies to mitigate impact, such as:
- Sharing free shipping promotions with your most loyal customers while suppressing similar campaigns and promotions for your frequent returners.
- Using AI prediction models to identify customers who are most likely to return based on past behavior signals, then excluding those segments from high-cost channels like paid media when building campaign scenarios.
- Triggering banners that highlight return policies when customers identified as frequent returners arrive on site.
In tandem with merchandising teams, marketers can take their efforts even further, narrowing their focus down to the products themselves. One possibility: Merchandisers can suggest higher-margin products for marketers to include in product recommendation grids in emails. This allows them to optimize for customer lifetime value, offsetting higher customer acquisition costs that free shipping incentives can create.
Marketers can share insights with merchandisers, too. They can monitor frequently returned products, for example, and identify potential opportunities for greater clarity in product descriptions—perhaps they don’t align with customer expectations, or more detailed information about fabric and fit is needed to help shoppers choose the correct size.
In that same vein, marketers can work with merchandisers to help decrease the likelihood of wardrobing—when consumers purchase products in multiple sizes and return the ones that don’t fit. A marketer could create a banner triggered when multiple sizes of the same style are added to cart, offering sizing recommendations or insights based on previous purchases. Engagement with that banner could be shared back with merchandising teams, again helping them understand where updates to product descriptions or sizing charts may help customers in the future.
Marketers and merchandisers don’t always see eye to eye. Despite working toward the success of the same business, they’re often tasked with different goals and success metrics, and that can understandably lead to divides between the teams. But the fight for profitability amid growing return rates is an unbeatable opportunity for collaboration. Bringing together customer knowledge from marketing and product expertise from merchandising can drive results that everyone benefits from, helping businesses see the real impact of these return strategies that live in the middle ground.
Managing return strategies in the age of astronomical customer expectations is not an easy feat. For retailers, it’s worth considering where more targeted, marketing-driven (and merchandising-supported) changes can help. With a focus on profitability, you can begin to reduce return rates without risking the customer loyalty you’ve worked so hard to build.
