Retail goods bought online attract a higher rate of returns than those bought at brick and mortar stores. As e-commerce inches higher as a proportion of overall retail commerce, that means returns are going to proliferate. These are the stark facts facing brands and stores. 

What’s worse is that the returns process is an essential part of the much-valued customer experience, or CX as it is now called, and most businesses are exploring ways of making that experience a competitive advantage. Returns sit right at the nexus where giving customers what they want threatens profits and operational efficiency. Several technology and returns services companies are trying to figure out how to ease the pain while improving CX.  

First off, there needs to be a clear awareness that returns are going to be an increasingly inescapable part of being a retailer.  

From the consumer side, American shoppers have always been notorious for returning goods they bought – 14.5% in 2023. And it seems pretty reasonable to expect someone who is buying clothes they can’t try on in a changing room will indulge in “bracketing,” or buying multiple sizes, styles and colors so they can determine at home what works.  

From the retailer’s side, the trouble with returns of goods bought online is two-fold. First, those items have to be physically returned, and they’re still rarely brought into a physical store (if the retailer even has one), so there’s a transportation cost incurred. Secondly, even then, the goods are unlikely to be returned to a place where they can be immediately resold. Gone are the days when a customer brought back a blouse and, after checking it, a store employee put it back on the hanger. Particularly with fashion items, delays in re-selling can be costly or even a flat-out deal breaker in terms of making a profit at all.  

The response from retailers to this new reality has been varied, but includes charging shoppers for returns, or even banning them outright from ever shopping with them again. Needless to say, this does nothing to improve CX competitiveness, and it can also lead to reputational damage, as consumers take their beefs to the mainstream media.  

What if, instead, retailers took the approach of handling returns more intelligently, focusing on reducing costs and hassle while making life easier for customers?  

Tara Daly, senior director of product marketing at Loop, a company that handles returns for retailers such as Patagonia and Brooklinen, says there are myriad ways companies can make returns less damaging. “It’s a huge loss area. We try to turn it into a profit area,” she says. “You can focus on making it so that, when a return happens, you incentivize the customer to make an exchange or buy something else, preferably at a higher price. You can bring them back, show them a good experience where returns aren’t horrible.”

In essence, Daly says, it’s important to avoid a one-size-fits-all approach. Much depends on assessing the individual shopper, for example. “Is it a good shopper you want to retain, or are they just costing you money?” Daly says is an important first question. “Data is what we focus on, helping businesses understand customers, and getting more operational efficiency.”

Gathering and analyzing data allows for an approach that looks for problem areas to tackle, rather than treating all returns the same. For example, it’s possible to identify when a customer is just taking advantage of a loose returns policy. Or to flag a particular item that’s being returned at a greater rate than others, indicating a quality control problem such as a skirt that runs consistently small. 

Companies can further customize the returns process to add in conditions, such as that there’s no refund until they’ve examined the item in the warehouse. Or, in the case of something that can’t be resold after opening, such as cosmetics, tell the consumer to keep the item. “That can bring surprise and delight,” says Daly. 

As more and more retailers charge for returns — “Over half of our merchants charge fees for returns. Free returns are a thing of the past,” says Daly — there are ways to use that strategy to keep sweet with the customer. “You maybe offer a free exchange by offering bonus credits,” says Daly. Bringing a customer back to the web site to make a return can present opportunities to make a further sale, too. The idea is to keep the relationship going, while constantly reviewing how to make it profitable.

Daly says it’s critical for retailers to be completely transparent about their returns policy, and to make sure a customer clicks on an “I have read the returns policy” box before checking out, so that there are no unpleasant surprises. “That’s a problem,” she says. “Then there’s fraud and there’s policy abuse. Brands are trying to stop fraud and reduce the abuse, but keep customers. So you have to identify fraud quickly, but also learn about customers so you can create these customized journeys for them.”

Further, retailers could do more to educate customers that, in the direct-to-consumer world of e-commerce, the stuff they return doesn’t just go straight back “on the shelf,” like it used to. Some of the brands Loop works with have set up “return bars,” where customers take in items for return where they’re inspected and refunded on the spot. 

Making the returns process more intelligent can also enhance sustainability and waste avoidance — aspects consumers are demanding more and more from retailers. “A lot of returns can’t be resold. So we give retailers options to ship the item to a donation center or recycling center, and do that via the most efficient route. They can ship an item directly from the customer to the ultimate destination to reduce the carbon footprint,” explains Daly. “That’s why the data is so critical. We can understand exactly what happened to generate a return, and try to reduce the impact.” 

Lastly, retailers could do a lot to improve the product information on their websites, Daly says, such as providing better information about clothing fit, showing products on different body types, for example, so that shoppers feel less compelled to bracket.  

“Merchants are so focused on conversion on the website, they forget about what happens after that. They’re realizing now that the point of focus is not the click-to-buy moment, but the whole picture, the profit margin they get for that item.”