How to protect your profits with ‘on-approval’​ shopping

Whilst I was writing this article, a former Harrods colleague posted an article to LinkedIn from The Robin Report which identified the fact that the 18th century has never been more relevant for retail. I had been mulling over the fact that Victorian-era ‘on approval’ shopping seemed to be making a comeback, in various forms, as a way of winning and rewarding customer loyalty, and encouraging higher spend.

When I worked in Harrods in the 1990’s, there were still a few customers old enough to remember when ‘on approval’ was commonplace at their local ‘corner store’. Often, they were quite perturbed to find that we couldn’t dispatch their order without first taking their credit card details, charging it and then issuing a refund should they find it unsuitable. They didn’t wish to make a purchase, they just wanted to view a selection of merchandise that fitted their requirements so that they could decide at home whether anything was suitable or not.

Since that time, ordering online has dramatically changed the way we shop and customer behaviour on e-commerce sites indicates that this ‘on approval’ mentality prevails with some customer segments. Interestingly, it now seems that some retailers are not only encouraging this behaviour, but endorsing it.

Catering to their EIP customers, Extremely Important Person, (2% of the customer base but 40% of the sales) Yoox/Net-a-Porter is introducing a ‘You Try, We Wait’ service. The delivery of an order is not completed until the recipient has tried on the items and returned the unwanted goods to the awaiting delivery service. No payment is made until the customer has made their selection and, the inconvenience of returning is removed. Providing this level of customer service will of course be costly to the retailer, but, these are luxury items and the lifetime value of ‘EIPs’ should more than justify the investment. I wonder too if there is an added benefit to the retailer of handling returns more efficiently. With this service, there’s no delay in getting limited, expensive merchandise back into stock and ready to sell again.

Other examples include retailers, Threads and Enclothed. Their proposition is a ‘try before you buy’ service for men, who typically don’t like shopping. They take the hassle out of shopping, by shipping a clothing selection made by an online ‘personal stylist’, for approval at the customer’s home/work etc.  The retailer must really get to know their customer, because the business model is not sustainable unless their customer keeps the clothes they recommend. The end goal is for the retailer to get so good at predicting what their customer wants that sales are maximised and costly returns are kept to a minimum.

Amazon, meanwhile, is introducing their own ‘try before you buy’ option with their latest offer ‘Amazon Wardrobe’ for Amazon Prime customers. This encourages customers to use their home as their changing room by ordering, without making an advance payment, and returning any items that are not suitable.  To encourage more ‘keeps’ than returns, customers receive a 10% discount if more than 3 items are kept and a 20% discount if more than 5 are kept. Amazon is aspiring to make their online purchases as friction-free as possible but at the same time giving customers an incentive to be careful about their choices and ensure that each order remains profitable.

The end goal of these services is, not just to sell more, but to use personalisation and incentives to make sure that the customer ‘keeps’ what they buy. That seems obvious, but it’s interesting that Clear Returns has seen more mainstream ‘try before you buy’ methods drive up returns by encouraging impulse buying followed by buyer’s remorse. Often ‘Buy now, pay later’ payment methods, available at checkout, are not targeted and offer ‘on approval’ to all customers, even those serial returners who have no intention of keeping their purchase. As a regular online shopper, I’ve seen a steady increase of these types of payment options at checkout. This morning on a well-known, fast-fashion, retail site I was given the option of paying £1.20 to delay my payment by 20 days. Other sites use a popular payment method which allows customers to delay payment for up to 30 days, or to pay in installments. These payment options are there to increase conversion rates, but are encouraging customers to buy more than they want, because there’s no up front charge and returns are free. If you also add a free shipping threshold (e.g. shipping is free for orders over £50) then the customer has an incentive to buy more than they want and return the unwanted items later with no additional cost.

So, for retailers who want to increase sales with ‘on approval’ shopping without damaging profits - what’s the solution?

Understanding your customers sales and returns behaviour is key. Clear Returns uses niche, predictive analytics to identify retailer’s ‘keepers’, ‘explorers’ and ‘serial returners’ so that retailers can balance a competitive service with the profitability of making the sales in the first place. Clear Returns gives retailers an informed, holistic view of returns with a detailed understanding of who is returning which products, and why, and provides actionable insights that accelerate gross sales, reduce operational costs, improve stock availability and increase retained revenue.