Brands Rethink Return Policies to Build Customer Loyalty

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More consumers are shopping online. More retailers are utilizing digital channels for sales. More martech firms are stepping in with tools for personalization. The retail industry has never been hotter. So, what’s the problem?

The shift from in-person to online shopping has created new challenges within the retail industry. Without being able to try on clothes in fitting rooms or see products on store shelves in person, customers are less clear on what they’re purchasing, and product return rates are through the roof.

The average online retail return rate in the U.S. is 20% to 30%, and a majority of customers will not buy online if they don’t find the return policy satisfactory. Free returns and trial periods that average 30 days, or longer, have now become standard. But these generous return policies are expensive for retailers to maintain. In addition to dealing with excessive logistics and processing costs, retailers in the fashion industry are dealing with low net-recovery rates.

Retail industry experts say the extremes of severely restricting return policies on one hand and allowing all returns on the other may be the wrong approach. 

“The current status quo of one-size-fits-all returns policies is not a feasible long-term strategy,” says David Morin, Narvar’s senior director, retail and client strategy. “It’s unsustainable for most brands to offer free shipping on all returns.”

If generous return policies aren’t sustainable from a financial perspective, and restrictive return policies lead to high rates of customer churn, what’s the solution?

A new report by Narvar looks at just that.

In the age of social media, dissatisfied customers are known for posting negative reviews that can leave lasting damage to a brand’s reputation. The cost savings that a brand may have realized from restricting its return policies could easily be wiped out from the additional costs involved in acquiring new customers and winning back lapsed customers who left previous interactions with a bad taste in their mouths.

According to Narvar, 42% of retailers do not clearly communicate about refunds in their return policies, and 29% provide no information about timing at all. The lack of communication can turn off customers and undermine loyalty building efforts. 

Looser Policies at Larger Retailers

The generous return policies offered by some global brands aren’t financially realistic for all retailers.

Although Amazon has seemingly changed customer expectations forever, brands like DSW are setting a new standard for return policies. DSW amended its standard return policy while many locations were closed during the pandemic so that customers could make returns at stores that allowed contactless curbside pickup. The company has also extended its return window for VIPs from 90 days to an entire year.

To bridge the gap between what consumers want and what makes sense for the business, Morin recommends retailers consider personalizing returns experiences based on the customer’s needs and purchasing patterns, and using incentives like free shipping or longer return windows to encourage certain behaviors. For instance, Saks offers free return shipping for customers who send back products within 14 days, so the retailer gets inventory back into the system faster, while charging a nominal fee for those who need more time. 

“Ultimately, this saves cost while still providing customers with convenient choices and fair policies,” Morin says.

Narvar’s consumer research has found that 76% of new customers say they would be more likely to shop with a retailer based on a great returns experience. The figure is even higher among those who had shopped with the retailer previously.

Morin says taking care of customers after they’ve completed a purchase builds trust and turns one-off customers into brand ambassadors. As the last touchpoint a brand has in a purchase journey, a great return experience leaves the customer feeling good and more likely to return.

Technology Fills the Gaps

Retailers like Ulta, Sephora, and IKEA are investing heavily in augmented reality and virtual reality platforms designed to allow customers to test out or try on products from home. Lululemon’s 2020 acquisition of the at-home fitness startup MIRROR was also seen as an attempt to invest more quickly in AR technology. 

However, AR alone may not be enough to curb the onslaught of returns coming in this year. With fewer people shopping in-store, and more online purchases being made sight unseen, return rates are through the roof. According to research from Barclaycard, 30% of shoppers deliberately over-purchase so they can keep the items they want and return the rest, and 19% admit to ordering multiple versions of the same item so they can make their mind up when the items are delivered.

If a retailer can’t use AR or VR technology to limit returns, then what’s left? Morin says technology can be used successfully to minimize the costs involved in managing and processing returns. For example, brands can set up self-serve returns portals where shoppers submit requests and print return slips on their own. Morin says this approach can reduce support contacts (like returns-related calls) by an average of 25 to 30%. Retailers can also use rules to dynamically determine what happens to returns as they’re processing, which increases efficiency and helps the environment. Lastly, Morin says using real-time data about return reasons can prevent returns in the first place.

“​​Ensuring return policies are transparent and personalized gives customers peace of mind and is a critical element to initial conversion, retention, and an opportunity for brands to win over new customers longer term,” Morin says. “Taking care of people after they’ve made a purchase is how you build trust and turn customers into brand ambassadors.”

Stephanie Miles is a senior editor at Street Fight.

Stephanie Miles is a journalist who covers personal finance, technology, and real estate. As Street Fight’s senior editor, she is particularly interested in how local merchants and national brands are utilizing hyperlocal technology to reach consumers. She has written for FHM, the Daily News, Working World, Gawker, Cityfile, and Recessionwire.