Returns have a long history of being a pain point for retailers.

In 2013, returned goods cost US retailers more than $267 billion in lost revenue, according to an industry report by The Retail Equation. Also, while holiday shopping can bring stores as much as 40% of their annual sales, retailers can see triple the average number of returns, according to Plunkett Research.

In addition, returns matter to consumers. According to a recent survey by the National Retail Federation, approximately 55% of consumers said flexible returns are very important when it comes to shopping online.

These statistics underscore just how important returns are in a retailer’s overall strategy and how they can impact their bottom line.

So how can US retailers build an effective returns strategy and use this to gain a competitive edge? Retailers should not only consider looking at local marketplace trends, they should look at global trends to see how retailers are handling returns in other markets.

New Opportunities in Europe

In June 2014, the Consumer Rights Directive went into effect in the European Union (EU). The new legislation offers strengthened and harmonized consumer protection rules across European countries, regulates distance selling across the EU and will help encourage cross-border ecommerce development for retailers.

It also provides greater flexibility to retailers on their returns policies. For instance, in Germany where merchandise return rates are high, consumers were responsible for covering costs for returning products that had a value of less than EUR 40. Under the new rules, the limit was removed, which means the costs for return shipments can be charged to the customer, regardless of the value, provided he or she was informed appropriately before the order was made.

Retailers can also still opt to cover the costs for returns to help attract and retain customers. Online retailers such as Amazon, Otto and Zalando, are doing just this and using free returns as a competitive differentiator. Ikea also just recently started offering lifelong returns to customers on the majority of its products in Germany. Given these shifts in the retail landscape, smaller retailers who opt to charge customers for returns or limit the timeframe for returns may find themselves at a disadvantage.

The US Market Landscape

In the U.S. market, the medium return rate is three percent, according to the 2014 Internet Retailer Top 500 Guide. This is based on data from 94 of the Top 500 retailers that provided information.

According to our recent research, about half of US shoppers have returned an online purchase through the mail. That means retailers are not only paying to send goods out to consumers, they're often paying for packages to come back into their distribution network.

Overall, apparel, shoes and electronics retailers continue to experience higher return rates. This is not surprising since many consumers have to wait to try on clothes and shoes for fit and feel. Also, testing electronic items in person makes a difference.

Traditionally, most retailers give customers at least 30 days to return items. However, several retailers have a 90-day return policy, including Target, Toys ‘R Us and Walmart, for most items. Some retailers also offer a free return policy with no time limit, like Kohl's, Nordstrom and Land’s End. These retailers are also widely recognized for having high customer satisfaction and stand out for customer service.

To the extent returns cannot be avoided, retailers need to streamline the process by providing return labels, entering information on returns back into their systems early, and efficiently sorting and repackaging items to get them back into the selling process.

Smarter Returns in 2015

Regardless of the reason for returns, retailers can use these moments as an opportunity to make a positive statement to customers. Below are six ways retailers can build a smarter returns strategy in 2015:

1. Provide clear, easy-to-understand product descriptions -- Customers need to understand exactly what they are buying online. Having clear, easy-to-understand and accurate product descriptions, such as sizing charts, fabric details and product dimensions, can help make a big difference. For instance, I recently spoke with an apparel retailer in Germany that lowered its return rate from 50% to about 25%, just by improving the descriptions of items on its website.

2. Use pictures to show multiple views of a product – A picture can say a thousand words and help show customers what they are buying before they check out, including the color and size of an item. Several apparel retailers are now using technology to show a 360 degree view of items so consumers can get a better idea of how they look and might fit before they complete purchases.

3. To charge or not to charge – Free returns can help encourage consumers to buy from a retailer’s website more often. They can also help give a retailer an edge over their competitors. However, retailers need to balance the costs of returns versus the opportunity to sell more if consumers are buying items online from their site.

4. Use returns to drive traffic to physical stores – Retailers should use returns as a way to help encourage convenient and quick service at local physical stores to increase shopping.

5. Embrace the notion of online purchases in multiple quantities – Consumers like to test products and return those that don't meet their standards. For example, consumers may want to order several pairs of shoes in different styles or sizes and return the ones that don’t fit or match what they were looking for. Zappos is one example of a retailer that has a great returns model. Not only does Zappos offer free shipping, they also offer free returns. By offering free returns, customers feel a sense of freedom in their purchases and are more confident that purchases are backed by the retailer’s guarantee.

6. Reduce costs of returns – Providing easy-to-use return labels to your location at pre-negotiated rates -- either through a separate website or by using pre-printed labels that carriers will only bill for when they scan them – can help reduce return costs. Technology can also help retailers obtain early insights into what items are being sent back.
By following some or all of these tactics, retailers can build a smarter returns strategy and not only help drive down return costs, but also drive customer satisfaction and repeat business in 2015.


Christoph Stehmann is President, Ecommerce and Shipping Solutions, Pitney Bowes.

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