The first shopping date I ever had with my man was in his living room on a Saturday afternoon. I watched him as he opened the Nordstrom Rack app, proceeded to place roughly 15 (yes, fifteen) button-down dress shirts into his cart, and checkout.
I was shocked. We’d been out a few times and I knew his closet wasn’t in need of a complete overhaul…and yet, here he was dropping hundreds of dollars on 15 dress shirts.
“What’s with all the shirts?” I asked him. “You starting a new job or something?”
“Oh, no,” he replied. I’m only going to keep a couple of them—I just try them all on and keep the ones that I like the most.”
One week later, he’d returned ten of the fifteen shirts to his local Nordstrom Rack, gotten a complete refund on all of them, and then integrated the other five into his wardrobe (and still looks great in them!).
As somebody who grew up loving in-person retail and the joy of the dressing room, this was my first introduction to the new normal of online shopping and returns. And while that new normal is convenient and even fun for everyday consumers, it’s taking a serious chunk out of retailers’ bottom lines.
Indeed, as returns get more and more out of hand, retailers are finally looking for ways to reign in customer expectations surrounding returns, particularly their cost (free!) and convenience (easy!). But of course, nobody wants to look anti-customer or appear stingy, so what will these efforts look like?
That’s why today we are putting in the retail market research to trace the origins of this growing worm in the e-commerce apple. How did consumer expectations surrounding returns exponentially grow, what are the consequences to business and the environment, and how can companies begin to curtain this troubling trend?
One more thing: there are no returns on the blog, so reader beware!
Let’s start with a simple fact: E-commerce produces comparatively more returns than brick and mortar—roughly three times more. Indeed, the average brick and mortar retailer has a single-digit return rate, but in online shopping it’s somewhere between 15% and 30%.
When you consider that somewhere between one-third and one-half of all clothing purchases in the US are made online, you see how we got to a place where, last year alone, US retailers took back more than $100 billion in merchandise sold online.
Some of this is just a natural consequence of the proliferation of e-commerce. It is harder to ensure you are getting exactly what you want when you can only see a garment on your phone. People are far likelier to unintentionally purchase something that doesn’t fit or otherwise doesn’t match their expectations without inspecting it up close.
These types of returns are understandable, and retailers are working to mitigate them by incorporating virtual fitting rooms into their e-commerce experience, trying to ensure their marketing messages closely aligns with their product realities, and getting into big data analytics to find trends among thousands of processed returns.
But e-commerce has also spoiled customers, expanding their expectations when it comes to convenience and cost: easy, free returns have become e-commerce table stakes and if they want to compete with Amazon and the like, retailers (with few exceptions) have to play ball.
People often look at Zappos’ return policy in the mid 2000s as an origin point for this online expectation.
As the e-commerce shoe seller tried to make consumers comfortable with online shoe purchases—a difficult proposition since fit is so very important—free, convenient returns became a way to address consumer concerns and pain points. The policy told customers that they will not have to pay for things that don’t fit, they won’t have to even pay to return them, and they will ultimately get the right pair of shoes on their feet. This value proposition makes sense for Zappos, especially since shoes reshelve pretty well compared to clothes.
But then Amazon Prime came along, built around free shipping and returns. And Amazon wanted to sell everything under the sun. This further expanded consumer expectations, forcing a forward and reverse logistics arms race among companies looking to be competitive in the expanding world of e-commerce.
This became the standard in the burgeoning fast fashion industry, predicated on consumers feeling comfortable quickly pulling the trigger and checking out with little to no hesitation. The combination of free shipping, free returns, and frequent discounts have built people into fast consumers and even faster returners. Easy to purchase, easy to return.
Sure, returns have always been allowed by retailers in brick-and-mortar settings, but it quickly became apparent that people are far more comfortable making excessive returns in the comfortable anonymity of at-home shopping.
It is much easier to return the costume you wore to the Halloween party when you don’t have to look somebody in the eye and tell them it was never worn. People have come to rely on the no-questions-asked return policy e-commerce offers, and some of them have gone crazy with it.
The ease of online returns has also led to an online shopping practice known as ‘bracketing’ wherein consumers purchase the same item in multiple sizes, keep the one that fits, and then return the ones that don’t. My man didn’t invent this practice, but he sure perfected it. If you are looking at a pair of pants and you have a feeling you will need a size six, might as well buy the four and the eight just to make sure you get as good a fit as possible. Return the others, keep the one that fits, and move on.
This is great for consumers who can over shop without consequence, and on the surface it is great for retailers because it leads to higher sales. Everybody wins, right?
Well, no. Here is where things get tricky.
Retailers are, in fact, losing all kinds of money on returns. The problem is most companies are not built to efficiently track and mitigate the loss.
Tracking first. Retailers, for good reason, are hyper-focused on sales. Their sales numbers drive their valuation and are a public indicator of how the company is faring.
But returns are different. As the new Co-CEO of PacSun, Michael Relich pointed out at a recent corporate event, “Everyone’s focused on, ‘What were my sales yesterday?’ but nobody looks and says, ‘What were my returns yesterday?’” He continued, “The big thing that drives that is, the data is siloed throughout the organization. It’s really not very easy to go and actually pull all the data necessary to find out what’s driving returns. It’s very, very onerous, so it’s kind of like taking out the garbage; people just tend to ignore it.”
Additionally, retailers have come to accept returns as a fact of e-commerce.
Often, return rates, however extreme they may be, are already factored into companies’ P&L. This means that a company may go into a fiscal year anticipating a 20% return rate, which, again, is not ideal but is already accounted for. This leaves little incentive for companies to aggressively monitor or push back against this return rate.
It’s already considered a fact of their business plan and if they want to tilt the balance, they just have to sell more (and to sell more, customers need the comfort of a friendly return policy).
So for retailers, it’s a fact of business, but that doesn’t make it a healthy fact.
And then there is the actual work of processing returns, which retailers have yet to get good at. Often, returned goods represent a near total loss since retailers cannot rapidly turn them around and put them back onto the sales platform.
Reverse logistics is tough—so much energy is put into getting goods from fulfillment centers to customers that the opposite, getting goods from consumers back to sorting facilities and back on sale, is not prioritized. Most companies don’t have the technology to handle the nuances of online returns, distinguishing between a barely worn t-shirt, a ripped pair of pants, and a gently used but nonetheless irredeemable pair of underwear.
“There’s very, very, very, very little academic work in reverse logistics,” one supply chain academic recently pointed out to the Atlantic. “[But] “forward logistics and supply chain is taught in every business school in the country.” People are taught to sell.
Thus, a good portion of returned goods is simply sold off to bulk discount retailers around the globe, helping retailers recoup some of their losses but not nearly enough. And a lot of goods are simply thrown away—an estimated 25% of all returns, in fact. That represents 5 billion pounds of waste annually—5 billion pounds of returned goods go into landfills every year. Essentially, retailers are paying for customers to ship stuff back to them that they will eventually just throw away.
You remember that time you got a refund on that pair of socks that was too tight and the retailer simply told you to keep them? They weren’t being generous, they were outsourcing disposal—it’s not profitable for them to pay for the reverse shipping and sorting, so they just tell you to deal with it.
It’s a great situation for consumers, but it is an upside down model for retailers and it must be addressed.
One potential path forward for retailers is kind of a win-win: Educate consumers about the environmental impact of returns. Indeed, there is some hope among retailers that educating customers about this impact will help them to reconsider their shopping practices.
Early market research surveys around this topic have proven promising, with large chunks of Americans (particularly those under 40) indicating they’d pay more and return items less if they felt it was positively impacting the environment.
Sounds great, but we have our doubts. Good market researchers know that survey results, while valuable, should never be taken as gospel. That’s because, well, people lie. Not like they are liars who enjoy being dishonest (though there are those types too), but because people are aware what type of answers are socially acceptable and will reflect well on them—even in anonymous surveys, people want to be the good guy.
So, when consumers, particularly those under 40, tell researchers they are very willing make their shopping habits more environmentally friendly, many of these people are answering with their best public intentions, but not their actual private practice.
But there are other avenues to explore, and all of them are built around market research. Retailers need to connect directly with their ideal and actual consumers through methodologies like panel surveys and mobile intercepts, but instead of asking them how likely they are to change their habits for mother earth (haha they won’t even stop using plastic bags), these methodologies can help retailers understand their consumers’ tolerance for potential policy shifts.
How will customers respond to a monthly cap on returns? Or a moderate “restocking fee?” Would customers rather pay a bit more at checkout for the convenience of free returns? There are plenty of gaps for retailers to carve out a more habitable space, gaps between consumers preferences and their pain points. Retailers just have to find them.
In the right hands, market research can help.