Are online returns really killing eCommerce?

Written by:   Gareth Goodridge, Digital Marketing Director, Worldpay,  15 Feb 2017

Recently, there’s been a lot of coverage around the troubles e-tailers face with online returns. But how big is the problem? Are there any differences between different retail categories or regions? And most importantly, what can retailers do to reduce the level of returns? Find out in this blog.

What we’ve found

We analysed our transactional data from the last 2 years, looking for trends from 5 retail categories across the globe. We examined the total amounts received in revenue, versus the amount refunded due to returns.

As a whole, it looks like returns are on the decline – as overall, they dropped from 9.2% in 2015 to 8.0% in 2016. But when you start to delve deeper, some interesting insights appear. In North America, for example, almost 1 in every 5 online fashion purchases is returned to the retailer.

Some people will not be surprised by this, as online fashion has traditionally suffered the most with returns. Customers can often order numerous sizes to ensure they get the best fit, returning the ones that don’t. (There’s even one story of someone who bought 18 bikinis – only to return 17 of them!)

However, overall when you look at retail on a global scale, returns appear to be down slightly, year-on-year, from 11.4% to 10.4%. The only regions bucking this trend are North America (up from 14.8% to 17.4%) and Africa (up from 11.8% to 12.2%). Oceania has the lowest level of eCommerce fashion returns at 6.3%, followed by Asia with 9.4%.

Of the five categories we examined, Consumer Electronics has the lowest rate of return – at less than 1%. In this category, Europe leads the field with returns of all Consumer Electronics bought online – at 4.3% (up from 3.4% in 2015), with North America taking a close second, at 2.6%.

One of the biggest surprises to us was the Food & Drink sector, especially when you look at Asia. Overall, only 0.8% of online Food & Drink purchases are returned. This is what you’d expect, due to the perishable nature of the category.  But in Asia it’s 17.1% - over 21 times the global average!  And this market has also seen a big increase over their 2015 figures.

South Americans also don’t appear to be happy with their online media purchases – returning 12.9% of them (4 times the global average).

It’s interesting to see that returns tend to be increasing most in developing eCommerce markets -  which could be due to lack of experience amongst online shoppers, meaning they are less likely to get their purchase right.

What you can do about returns

Looking at our figures, maybe online returns aren’t as big a problem as we first thought. But they could be improved – and every retailer would obviously prefer they were at zero.

Reducing the level of returns can improve customer satisfaction, enable you to better manage cash flow, and massively reduce costs.  So, let’s have a look at a few ways online retailers can further reduce returns and the impact they have on their business.

1. Reducing the returns window
Research by Custora has shown that customers typically wait until 2 to 3 days before the end of the returns window to mail back their unwanted items.  By reducing the time consumers can return, or even not offering returns at all, you gain more control of your inventory and forecasting.  

But you need to consider the impact this will have on the user experience – and ultimately the top line.  Customers may be less likely to purchase without the safety-blanket of being able to return the item, and are you willing to lose these customers in order to improve your return-rate? 

2. Identify serial returners – products and customers
By analysing purchase and return data, you can identify which products or categories are most likely to be returned. 

You can also detect who your most prolific returners are – both individuals and types.  You can then decide on your strategy to deal with this.  One option is to steer your marketing efforts towards those who less likely to return items – getting existing customers to buy more and attracting new customers with a similar profile.  

Alternatively, you can look at why these customers are returning such a high volume of purchases and offer help, such as personal assistance or the tips mentioned below, to help overcome this. 

As a global payments provider, we offer a full end-to-end solution. By working with us, you have access to a wide variety of data so we can help you identify key purchase trends and offer advice on how to maximise their opportunities. 

3. Provide online tools
When it comes to fashion eCommerce, it’s key you assist customers in buying the right size item for them. New virtual technology is helping solve this problem. 

“Virtusize” is one example – which has helped ASOS reduce online returns due to size by 50%. The tool allows customers to compare the measurements of an item they are considering buying with something the already own, by comparing and overlaying 2D silhouettes of both garments.  

4. Gather customer preferences and information upfront
Online fashion advisor, Thread, uses a series of processes to make recommendations to their customers.  

It initially asks customers to input their measurements and then asks them to list items they currently have in their wardrobe.  They ask customers to select their preferred styles for different occasions and then serve relevant suggestions via email – sent from their personal shopper.  Customers can tick whether they like or don’t like the suggestion – allowing Thread to build up a full picture of customer preferences – and constantly improving recommendations over time.  

5. Video & images
As with most things, visuals help sell.  But, rather than having a flat image of the item on your website, show how it’s used – or someone wearing it.  

3D imagery will allow customers to view the item from all angles – and get a better idea of how the item will look or fit. Videos are even better. 

6. Reviews
Customers trust reviews. They’re viewed as impartial. So encourage customers to review their purchases.  

Ask them to rate them on key criteria – for example, fit of a garment, or how well the item matched their expectations. Post these online – and it will help customers make more informed decisions. We mentioned visuals in the point above – so ask customers to send in photos or videos of themselves using or wearing the purchase. 

7. Inspire confidence
Sorry – but here’s a bit of psychology! Cognitive dissonance exists when someone is not entirely comfortable with a decision they make. So, if they buy online, but are not 100% certain about whether they should make the purchase, they suffer from cognitive dissonance. If they feel this way, they are much more likely to return the purchase.

So, you need to make them feel confident they are making a good purchase. By using all the ideas mentioned above, you can achieve this.  
Reducing the level of returns is a win-win situation. You reduce costs, have better control of your inventory and you gain more loyal customers. And shoppers can purchase with the knowledge that they’ll love what they’re buying from you.

If you’d like to find out more about how our data and analytics can help your business reduce returns:

Please get in contact here

Written by:   Gareth Goodridge, Digital Marketing Director, Worldpay,  15 Feb 2017