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Article 8 min read

Smooth returns; return customers

By Tara Ramroop

Last updated April 24, 2018

Nothing simmers more comfortably on our back burner than stuff we need to return to the store—which speaks volumes about those items’ relative importance to our lives. Whenever something doesn’t make the cut, there’s the promise of returned money or snagging something we’ll like better, and the satisfaction of checking an item off the to-do list. But chances are you still haven’t gotten around to that return and, truthfully, neither have I.

On the sales floor, returns can seem and feel rote. First comes the sometimes awkward apology: “I’m sorry we failed.” From there, the items become transactions to be processed and inventory to be managed, following an uncertain path back to the shelf or warehouse, depending on how much time has passed and the item’s state upon return.

Neither consumers nor retailers are necessarily looking at the transaction as more than a task—but they should. Increasingly, for retailers, return transactions present return opportunities.

Increasingly, for retailers, return transactions present return opportunities.

“Thinking of returns as an opportunity” might feel like a platitude to dress up a purchase that didn’t work out, but some retail leaders say the opportunity mindset is working, as customers reward a smooth return process with return business.

The goal isn’t to achieve a zero-percent return rate; it’s about improving the process when returns inevitably happen. As Handy CEO Oisin Hanrahan explained on a panel at the 2018 National Retail Federation (NRF) BIG Show, the entire customer experience, including returns, matters.

In fact, post-purchase customer service has always been a critical component of the overall customer experience for retailers because it allows them to provide a human touch, said NRF spokeswoman Ana Smith. Applying this philosophy to returns, she explained, is therefore a natural extension.

“It makes sense when we see more retailers change their return policies to include an element of customer service, since it allows them to correct the issue and provide the customer other options they can take advantage of while in the store,” Smith said.

One size truly doesn’t fit all

There are as many return policies, ranging from very liberal to very conservative, as there are companies creating and enforcing them. Costco, for example, has a ridiculously liberal return policy—even for electronics, which one could use on vacation and then bring back. (For the self-preserving record, I’ve never had a Costco membership.) Same for Patagonia, whose Ironclad Guarantee allows customers to bring a product back for repair, replacement, or refund.

But it’s not all trust falls between retailers and customers. L.L. Bean cracked down on its generous return policy in 2018, citing increasing customer abuse. It’s still pretty generous—customers have up to one year to return an item with a receipt—but one self-described L.L. Bean “enthusiast” was so affronted that he filed a class-action lawsuit against the company.

With technology, retailers can now track your history of returns, and this may be used against you. Best Buy is one of several companies that have implemented a tracking system that allows them to refuse returns in instances of return policy abuse. The software, from The Retail Equation, scores shopping behavior and accordingly places limits on how much merchandise customers may return. These limits elicited a fiery response from one customer flagged for returning three smartphone chargers that he believed could be returned in line with company policy. Instead, he found himself on a return blacklist, banned from making any exchanges or returns for a year.

Returns represent a nuanced quadrant of the customer relationship. There are surely untold customers with experiences just like the Best Buy customer, who claimed to have spent a lot of money at Best Buy in the past, implying that the electronics retailer was punishing him for being a loyal customer. There are also surely ones more like me, in high school, buying clothes to wear once and then returning them after photos were taken. Regardless of where customers sit on the honesty scale, the losses add up to a big problem for retailers. In 2017, NRF estimated that retailers lose $22.8 billion a year from fraud—which includes getting a refund for shoplifted items—or abuse, which includes returning an item that’s already been worn. Fraud or abuse accounts for roughly 6.5 percent of all returns, according to the same 2017 figures.

There are surely untold customers with experiences just like the Best Buy customer, who claimed to have spent a lot of money with Best Buy in the past. There are also surely ones more like me, in high school, buying clothes to wear once and then returning after photos were taken.

“Some have more massive return fraud problems than others, which means we are seeing these retailers protect themselves, their assets, and customers by modifying their return policies,” Smith said.

The question becomes: How can retailers minimize the impact on, and inconvenience to, customers without damaging those customer relationships over a necessary evil?

Managing greater expectations

The first step is perhaps not thinking of returns as an evil at all. The next step is asking not what customers can do for retailers, but what retailers can do for customers.

That pile of packages collecting dust by the front door may get back to the store sooner if there was added incentive—and if it didn’t feel like a chore. NRF, which doesn’t have industry-wide figures available yet, is working on a research report that quantifies the opportunity cost and benefit of returns, Smith said. In the meantime, Hanrahan estimated that some 70 percent of customers come back to a company if their return experience was positive.

Some 70 percent of customers come back to a company if their return experience was positive.

Smith outlined a number of solutions being tested in the market to take the pain out of returns. For example, Target has a dedicated return lane. Kohl’s, in partnership with Amazon, and Walmart allow customers to start the return process online and finish it with an in-person drop-off—the inverse of the omnichannel dream state of online purchase and in-store pickup. Good thing, too, because roughly three-quarters of shoppers say they prefer returning items in person, over having to mail back e-commerce purchases, according to a survey cited in Supply Chain Dive.

Stop returns before they happen

Beyond dedicated checkout lines and more options for returning merchandise, smoothing out bumpy return processes may require a deeper look inward—often with the help of technology to solidify a customer’s mind about an item before they purchase it.

With the growth of e-commerce, Smith said retailers are taking advantage of new technologies that can help provide a personalized experience for consumers, including augmented and virtual reality built into the shopping experience. For example, through Sephora’s app, you can turn on your camera and VR functionality to “sample” a lipstick color. The app will “apply” it for you. Love it, you buy it directly from the app. If not, you can move on to a new color, Smith explained.

Zara provides an online fitting room to help guide customers toward the right fit for them. Home Depot provides a similar service that allows customers to electronically sample, via VR, home decor in their actual living rooms. ASOS’ game-changing new tool is my favorite, though. In addition to its refreshingly diverse and inclusive approach to fashion, which includes a ban on Photoshopping models, it introduced a feature that shows products being worn by models of all sizes. The hope is that customers will have a greater understanding of how something will look and fit before they buy.

Finding the right technology partner can also help retailers with the challenge (or logistical nightmare) of managing the myriad conditions, price points, and channels for distribution for each returned item. How was it purchased, and where does it go next, and based on what factors? Hanrahan assured retailers that investing in technology to step in and automate some of this frees up time and energy for other concerns.

Some tech partners, such as Optoro, whose CEO, Tobin Moore, spoke on the same panel as Hanrahan, specialize in this part of the business—moving inventory returned from the customer back up the supply chain, instead of to the store.

Cease fire on finger pointing

When it comes to returns, there’s sometimes bad behavior on the part of consumers—you know who you are, or who you have been. But there’s also a perceived lack of nuance when it comes to flagging and banning repeat offenders—will the Best Buy customer ever return? Would you?

“There will never be a one-size-fits-all return policy for all retailers,” Smith said. “Each retailer will provide the best return policy possible that can help protect their business but also provide a good rapport with their customer. The ideal formula would be one that mixes a pre-return strategy to avoid returns, excellent customer service, and a policy that protects the retailer, assets, and the customer.”

Having hung up my retail-fraud shoes long ago (which I obviously returned for a refund), I’d welcome the chance to become a bona fide customer by being allowed to try out a product—and to change my mind or try again with another product. Personally, I refuse to shop in a world where the only views on return policies are “Customers are cheats” or “Companies are mean.” The good news is that it’s looking a lot like win-win solutions are on the horizon for balance sheets and buyers alike.

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