Savvy Retailers Are Turning Returns Into Revenue — Here’s How

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The average retail return rate jumped last year, reaching an incredible $761 billion worth of merchandise. According to a survey by the National Retail Federation, that represents 16.6% of total U.S. retail sales. Returns are inherently expensive due to shipping and restocking fees, but some retailers are finding ways around those issues. In the process, they’re coming up with new strategies for building revenue streams from customer returns.

“We believe returns are profit centers, not cost centers,” says Tasha Reasor, senior vice president of marketing at Loop, an e-commerce SaaS platform that works with Shopify merchants. “A better returns process builds lifelong customers.”

Retail sales continue to accelerate in 2022, thanks to heightened consumer demand that started during the Covid-19 pandemic, so it’s no surprise the overall rate of retail returns has been impacted. Although more retailers say they’re seeing an increase in items returned to stores and online, a shift is underway to use these interactions to provide customers with additional opportunities to connect.

According to NRF, for every $1 billion in sales, the average retailer incurs $166 million in merchandise returns. The categories with the highest return rates are auto parts, apparel, home improvement, and housewares.

While retailers like Walmart are adding virtual fitting rooms to their websites in a bid to decrease product returns, and Best Buy is selling open-box appliances through an online outlet, Reasor says the most profitable solution is for retailers to optimize their returns processes with an improved post-purchase experience in mind. That might include providing shoppers with discounts for exchanging their items rather than returning them or sending customer feedback surveys on a more regular basis.

“Customers who experience bad returns processes are unlikely to become repeat customers, so it’s important to optimize your returns in a way that is intuitive and user-friendly,” Reasor says. “Returns tend to signify an end of a customer relationship, while exchanges indicate that the customer wants to continue the relationship with your brand.”

Recent forecasts from NRF paint an optimistic view of the year ahead. Retail sales during the 2021 holiday season exceeded forecasts of up to 11.5% growth. But inflation concerns are having a big impact on where customers spend their money today, and how much they are willing to spend on discretionary purchases. Reasor says perfecting the returns process is paramount for brands to survive during periods of economic uncertainty.

“Anytime the prices of goods and services increase as they have over the past six months, consumers will be less likely to spend money on new, non-essential items. However, when it comes to returns, customers are less likely to hold onto non-essential items, especially if the item in question is still in a risk-free trial period,” Reasor says. “As inflation continues to impact consumer behavior, we expect to see more and more goods returned to their original seller if consumers deem them redundant or non-essential in any way.” 

When that happens, retailers are forced to foot the bill for returns. That increases costs and decreases revenue, even while inflation continues to drive up shipping costs across the board.

What’s the solution? Reasor says merchants can improve their returns processes by being transparent about their policies and offering free returns as a way to keep shoppers loyal. Bonus credits and customer surveys should also be utilized strategically to check the pulse of customer experience.

“If you incentivize your customers to exchange an item with bonus credit, chances are, they end up spending more time and money on your site than they initially intended to,” Reasor says. “Let’s say you offer customers $10 in bonus credit for an exchange. That means a customer who still wants a refund has to turn down free money and incur an additional fee for shipping. On the other hand, if a customer decides to opt for an exchange, they get 10 extra dollars to spend on their purchase and end up with a product that they want — and potentially more.”

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.