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Returns management: balancing fraud risk with customer service


From unwanted clothes to product recalls, out-of-date consumables to counterfeit goods, thinking about returns is enough to make online retailers anxious. Today, they’re part and parcel of a customer’s purchasing decision, yet the industry needs to be doing more to bring returns in line with the standard of delivery, writes Andy Hill, commercial director at Electio.

Andy Hill, Electio

Andy Hill, Electio

For too long, many retailers have thought of returns as a regrettable inconvenience; that the Consumer Contracts Regulations and its statutory two week returns legislation is just another way to make an already challenged industry work harder for its money. We’ve got to stop thinking of returns like this.

Returns in numbers

With fashion famously bringing in the highest levels of returns – with rates often quoted between 40%-50% (compared to 18%-25% elsewhere online) – using this sector as a case study for best practice is a good way to understand how retailers with the odds stacked against them are persuading customers to keep their purchases.

Customers are purchasing with the intention of making the decision of whether to keep an item not at the point of sale, but at their home. But while retailers have pumped time, money and focus into the ‘path to purchase’, there’s been a strange lack of interest in the post-purchase process.

This industry-wide neglect of customer expectations after they’ve handed over their money is laying the sector open for retailers with a more innovative and forward-thinking attitude towards customer returns to take the upper hand.

US footwear retailer Zappos, which offers free two-way shipping and a generous 365-day returns policy, extended the policy to four years for items purchased on February 29 on a leap year, finding that customers with the highest returns rates are the most valuable to the company.

The bedroom-come-changing room trend

Many bricks-and-mortar retailers encourage shoppers to abandon the changing room in favour of a generous returns policy, allowing the customer to ‘try on’ at home. In the same vein, the online equivalent will often provide shoppers with free delivery and free returns – making the whole process as simple and appealing as possible.

Many customers now approach online fashion retailers’ free delivery as part of their changing room experience. They’re replacing the in-store changing room with their own bedroom, safe in the knowledge that if they don’t like their outfit, they can return it

But as a retailer, if you’re promoting this attitude towards online shopping, it’s a two-part promise. Even if your delivery experience is as streamlined for the customer as can be, neglect giving the same attention to your returns management and you’re putting repeat custom on the line.

Mitigating fraud while keeping customers happy

As an industry, fraud still remains a big issue, and retailers are having to stay on their toes to mitigate the damage – which British Retail Consortium estimates at £600m every year.

Some of the scams being perpetrated against retailers include buyers returning counterfeit goods in place of the genuine products sent to them, or buyers ‘wardrobing’ an item – buying it with the intention of using it and then returning it for a refund.

Take Zalando, the German fashion retailer, for example. Their liberal attitude towards accepting returns has created a phenomenon known as ‘Zalando parties’, where customers – typically teenage girls – will order crate loads of clothing for a weekend of partying, only to return all the items, used, the next week.

It’s every retailer’s worst nightmare. And rightly so. A Frankfurt School of Finance and Management study of 5.9m transactions from 166,000 German customers for a large European retailer found that without the cost of returns, retailers’ profits would be almost 50% higher.

But 99% of customers are going to be genuine and it’s important that you don’t treat them like the 1% who aren’t. Refunding the customer ‘in-flight’ (after they’ve posted the item, but before it has arrived back with you) will always be a contentious issue, but if you’ve got the ability to do so, you’ll be rewarded with a loyal customer impressed you’re not holding on to their hard-earned money for any longer than necessary.

Clearly, this isn’t an option for every retailer, particularly for smaller online businesses, but in these cases, speeding up the entire returns process is the best solution. Working on your returns management solution, with a view to integrating technology to replace manual processes, is the most effective approach for serious change.

Looking to the future

We need to stop treating returns as an afterthought. It’s not how customers see it, and with it becoming an increasingly bigger part of their purchasing decision, it needs to be given as much priority, consideration and innovation as your delivery process.

We already have a lot of the technology built and working, but the integration between it all is lacking. I’m getting to the point now where, as a customer, I can login to a branded portal and choose the most convenient option to send my parcel back.

That choice should be as wide as possible, spanning courier collection, drop off at the nearest Post Office or convenience store, collection from a 24/7 parcel delivery locker or – in the near future – peer-to-peer or social delivery options.

All retailers bear a cost for taking back unwanted or unsuitable items. But treat the returns process like you treat the delivery process and you can turn a negative shopping experience into a loyal customer.

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