Returns have always been expensive for retailers, and the number of returns is only increasing with a growing percentage of sales coming through digital channels: in 2014 alone, $284 billion of product was returned. Figuring out how to lower that number without causing customer attrition is a major challenge facing retailers. Should retailers limit return windows? By how much, and on which types of items? Will stricter policies intimidate customers from transacting?
A recent Washington Post article details a study that dove into these kinds of questions, examining how retailer return policies have historically impacted customer behavior. Unsurprisingly, more lenient policies were strongly correlated with higher return rates. These types of policies, however, were even more strongly correlated with higher sales, indicating that customers were more likely to make purchases given the security of a strong return policy.
Based on the study’s findings, it appears that there may be opportunities for retailers to grow sales by making return policies more forgiving. But how will these types of changes actually play out in market? Will customers purchase more in total, netting out returns? Will a more lenient policy increase shrink? If so, by how much?
Rather than relying on intuition or correlations, retailers will need to understand how customers will react before enacting broad changes. The only way to gain this insight is with a Test & Learn approach: test a policy change in a subset of stores, and compare performance to a control group of stores that maintains the status quo. Then, retailers can isolate the action’s true incremental impact on KPIs like return rate, sales, shrink, and customer satisfaction. Using these small scale in-market experiments, retailers can answer the following types of questions:
- Return Window – What will happen if we extend our return window? Will sales increase? If so, will that outweigh any corresponding increase in returns and shrink?
- Process – What will be the impact of offering free shipping on returns? Should we move to a stricter strategy for offering refunds to cut down on fraudulent behavior and/or losses from products that can’t be resold?
- Omnichannel Strategies – How can we profitably allow online orders to be returned in stores?
- Policy Variation – Are there opportunities to target policy variations to different product categories and customers?
As ecommerce continues to grow and omnichannel customer service becomes more critical, costs associated with returns will continue to eat into retailers’ bottom lines. By testing new ideas, executives can hone in on which return policies will work best for their business.