Recently, I’ve been inundated with inquires pertaining to return-less refunds – a term first coined by Amazon in 2017. Return-less refunds occur when a buyer initiates a return and a request for a refund, and the seller issues a refund without requiring the buyer to actually return the item. The seller notifies the buyer that a refund has been issued but tells the buyer to keep the item anyway, or they may be asked to donate the item instead.
The question I keep getting is: How do I [seller] determine what’s best – to return and refund or just refund?
While this may be a simple, straightforward question, the answer is extremely complex due to
a large number of variables – some steeped in logic and others driven by emotion, such as experiences and loyalty.
When e-commerce accounted for one to two percent of a retailer’s total sales, returns were not given much thought. Then e-commerce exploded and the number of returns grew exponentially. Now merchants fall into one of two camps: Those leveraging returns as a competitive advantage and those aspiring to do so. Merchants taking no action will not survive. Returns will consume their profits and their market share will dwindle until they are no longer relevant.
Before I go any further, the real answer for addressing the return-keep dichotomy is “It depends.” For example, it depends on how far the organization is along the digital transformation continuum. Does a merchant truly understand the hard- and soft-cost of a return? A recent Inmar survey revealed that approximately 50% of the retailers indicated they did understand these costs. However, this number may be overstated due to adage, “You don’t know what you don’t know.”
Similarly, I have to wonder if merchants truly understand how different value recovery methods, such as return-to-stock, liquidation, refurbishment, etc., can offset the potential margin-loss from a return.
Omnichannel Retailers: Returning In-Store
Let’s tackle the easiest one first. Omnichannel retailers should ask for items to be returned in-store. Maybe even incentivize shoppers to do so. Conveniently, 60% of shoppers prefer to make in-store returns. Plus, this economically generates a store visit in which the shopper will receive a refund or store credit on the spot. The shopper, armed with fresh funds, is likely to make new purchases while in-store.
This also connects the online customer experience to the physical store. When executed properly, this can differentiate your banner, boost shopper loyalty and increase customer lifetime value. This approach is also more sustainable as returns are aggregated at the store, which is already integrated into the company’s supply chain and logistics.
Pure-Play E-commerce Retailers and Omnichannel Retailers with Out-of-Store Returns
For pure-play e-commerce retailers and out-of-store returns for omnichannel retailers, the decision-tree has many more branches. The intangibles, like loyalty and customer experience, are similar but the economics of returns are vastly different.
In early days of e-commerce, the decision to return or keep was based on a static formula:
Return the item provided its resale value exceeded the transportation costs. However, it is important to note that during this period, most returned goods were sent directly to landfills; therefore, other cost considerations were moot.
Today, there are many more options with companies turning to landfills as a last resort. Brands and merchants, understanding that shoppers with the highest number of returns are often their best customers, know they have to find a better approach to returns management.
It’s About to Get Personal: The Future of Returns
Product returns are becoming more sophisticated thanks to AI and ML. Advanced returns management systems will answer the return or keep question based on configurable rules engines. Cost analyses will be expanded to include:
· All-in return transportation costs, including accessorial charges
· Labor costs, including receiving, inspection, and put-away
· Inventory holding costs
· Projected demand and price dilution
· Optimal value recovery method
Customer lifetime value, shopper returns history, seasonal nuances, and SKU history are just a few of the factors that will feed the decision. Sustainability measures, optimal value recovery, speed-to-resale, and, of course, costs will further augment the decision to return or keep.
This will provide a platform for multidimensional decision support. For example, a customer wants to return a $17 decorative desk lamp. The system quickly determines that this product should be slated for liquidation because returning to stock would be cost-prohibitive. Or the system recognizes this is the first order ever received from this shopper; therefore, the best solution is to let the newbie collect a refund without returning the lamp in order to establish goodwill and trust. In this case, letting the shopper keep the item is more of an investment.
Other processes and technologies will be implemented to mitigate returns. Enhanced quality control measures will reduce the number of returns caused by merchants, such as shipping the wrong product, inaccurate site content, or damages occurring in transit. Similarly, brands and merchants will use augmented reality to let shoppers “virtually try before they buy.”
A Word of Caution: Seller BewareIssuing a refund without requiring the shopper to return the item may seem like the right choice, economically and environmentally. But this practice may be inviting bad actors into your shopper base. A shopper that was just told to keep the $17 desk lamp may try to return a higher-priced item. Or they may encourage friends to order similar products from the same retailer, then initiate a return to see if they get the same offer.
According to the National Retail Federation, organized retail crime (ORC) cost retailers seven percent of their total annual sales, and the percentage of fraudulent returns exceeds 10% and is growing. So, seller beware. And remember, when asked, “When do you let a shopper keep a return?” The answer is, “It depends.”
Michael Foy is Director of Business Development, Inmar Intelligence.
This article originally appeared in the September/October, 2022 issue of PARCEL.