How customer behavior is the biggest influence on retail return rates
When I founded Clear Returns, I did so in the guilty knowledge that I return at least 70% of what I buy. The purchase is only the start of the process for me – my buying decision only really starts when the goods arrive. And then the bulk of my order almost inevitably goes back.
As a data analyst, I knew that if enough others shopped liked me, then the numbers on which retailers base their marketing, policy, and stock buying decisions are fundamentally flawed.
Five years on, this company’s ability to predict and prevent returns continues to astound me. The only thing I underestimated was the extent to which the problem would worsen and the impact that would come have on retail profits. Many ecommerce retailers just experienced their highest return rates ever, and for some that is jeopardizing their commercial survival.
And yet, still, when the retailer thinks about tackling returns they typically look at product, fit, images, and operations. They assume the cause lies with them and can be fixed in the supply chain.
The critical question should really be
“did my customer ever intend to keep their purchase?”
Why? Because 75% of returns come from shoppers who may never have intended to keep all their order, they were simply choosing at home – often in direct response to marketing efforts that encourage them to do exactly that.
Why customer intent matters
Whether a shopper intends to keep or return their order is a highly complex, but highly predictive indicator. And the proportion of “keepers” vs “returners” in the overall base of customers determines not only the likely return rate, but also stock efficiency and overall profitability. This is a worked example, based on real patterns, for a clothing retailer making £5.2m of ecommerce sales:
A keeper may still return – usually because something went wrong with the process or product. But they spent what they could afford and intended to keep their purchase when they made their buying decision.
A returner, on the other hand is likely to spend more and buy more often than a keeper – because they do not intend to keep everything they buy. They may overspend in response to discounts or to get free shipping. They are making their purchase selections at home – a very costly behavior.
As more of this group appear in the customer base – and the overall proportion of keepers falls – return rates and returns costs rocket. BUT, total revenue grows too. So, at first glance these returners seem like great customers and marketing attention flows towards them. Returners nearly always push keepers out of ad targeting and high priority segments, because they are responsive and spend more. But they can be less profitable than their keeping counterparts once costs are factored in. This gets compounded if stock is unavailable for keepers to buy, because it is locked up with high returners.
Unless a retailer has visibility on the costs of returns and the split of “returners” vs “keepers” in their base, their efforts to grow revenue can ultimately make the business less and less profitable.
Forget fit, focus on customers
The current fixation on fit and size is not going to transform retail return rates – you’re preaching to the choir when you focus remedial efforts on those who intended to keep anyway. Especially if at the same time your marketing efforts are disproportionately aimed at returners.
75% of refunds are typically coming from customers who didn’t intend to keep their whole order. And that is not necessarily bad. These returners include your most valuable shoppers of all, but they also include customers who cost you money every time they buy.
At Clear Returns we know the customer is the most significant place a retailer should focus in order to make significant improvements in return rates. Talk to us now about optimizing your retail business for keeps.