Holiday return season is on its way, and merchants need to be ready.
From November 1st through to the Black Friday Cyber Monday weekend, consumers in the United States spent $109.8 billion online – up 11.9% year over year.
The National Retail Federation is now revising its initial holiday forecasts for 2021, estimating record revenue earnings between $834.4 billion and $859 billion.
But this isn’t the full story. It’s inevitable that a bump in sales during the holiday season will inspire an opposing reaction.
What does this look like? A significant uptick in return activity.
More returns mean more pressure on your business to execute a streamlined and painless return workflow or your customers are unlikely to come back.
How can your brand make the holiday returns process as painless as possible for both your company and your customers?
We partnered with Loop, the return and exchange automation solution for Shopify brands, to bring you the ultimate guide to holiday return management.
In this guide, we’re going to cover:
For the purposes of this guide, ‘holiday return season’ refers to the spike in returned merchandise that occurs at the end of Q4 throughout the New Year.
According to the National Retail Federation, 13.3% of total merchandise sold during the 2020 holiday season ended up being returned, resulting in a loss of $101 billion in revenue. This is even higher for some merchants, with ecommerce return rates reaching as high as 30%.
Why? Because it isn’t easy finding the perfect gift. Items may be the wrong size, color, or style. Maybe grandma has forgotten that her granddaughter has moved on from unicorns to dinosaurs. Some consumers might even prefer cash or a gift card.
In any case, holiday returns are usually just as record-breaking as holiday retail sales.
But lost revenue isn’t the only consequence of so many returns taking place in a short timeframe. When returns management is poor, brands can find themselves struggling to keep up with return volumes – resulting in dissatisfied customers and negative post-purchase experiences.
For all the hype about record-breaking holiday sales, ongoing supply chain challenges due to the pandemic have thrown a spanner in the works. With product shortages looming, holiday shopping behavior is showing a marked shift compared with previous years.
In addition to starting their holiday shopping much earlier than normal, concerns about missing out on popular items are driving so-called ‘gift hoarding.’
According to Forbes, data from retailers suggests that many shoppers are aggressively snapping up goods with the intention of returning them at a later date if they find a better gift.
This is backed up by a 2021 consumer study from Oracle which found that 42% of people are already planning to return at least some of this year’s holiday gifts – 4% higher than 2020 (38%). This rises to 57% and 53% for Gen Z and Millennial consumers, respectively.
What does this mean for the upcoming holiday return season?
Thanks to a spread-out holiday season and consumers being on the lookout for ‘better’ gifts, retailers need to be prepared for one of the longest, most intense return seasons in recent years.
This is where an optimized return management strategy can transform your holiday return season into a revenue generator for your business instead of a revenue drain.
There’s a multitude of return mistakes that retailers make during the holiday return season, from not reviewing their return policies to not factoring in the true cost of holiday returns (more on this later).
But there’s an overarching theme to these errors: retailers view returns as the end of the customer relationship rather than as an opportunity to demonstrate why customers should stay loyal.
“Too many merchants simply process returns and wave the customer goodbye, rather than encourage them to exchange the product instead,” says Tasha Reasor, SVP of Marketing at Loop. “Positive reinforcement such as easy exchanges, offering bonus credit, or free return shipping helps you to maintain the value of each customer relationship, rather than ending it prematurely.”
So what can retailers do to optimize their holiday return strategy and maximize opportunities to retain revenue and loyal customers?
When retailers hear the term ‘return optimization,’ it’s easy to assume that this means fewer returns. After all, the fewer returns you have, the bigger your profits, right?
Well, it’s not quite that simple.
Customers make returns for two reasons: there’s a problem with the product or there’s a problem within the shopping journey. Returns present a valuable opportunity for your brand to discover points of friction in the customer experience and find ways to fix them for enhanced customer loyalty.
This is a lot more challenging than discouraging returns through lengthy, complex return policies and workflows. However, this is certain to backfire as returns play an increasingly important role in the overall customer experience. According to Oracle, 42% of consumers say an exchange/return policy that’s tough to navigate is what defines a poor omnichannel shopping experience, behind only unhelpful staff (44%):
This isn’t to say that retailers should introduce lax return policies for the holiday season. The key to return optimization is providing quality ‘front end’ and ‘back end’ experiences that maximize revenue potential for your business:
The front end: Seamlessly communicating and enforcing your chosen return policy to highlight exchange opportunities.
The back end: Coordinating streamlined return workflows that maximize convenience and clarity for the customer.
When we fit these pieces together, the result is a mutually reinforcing return strategy that puts the customer at the center of the experience. So, what does this look like in practice?
It’s likely that you already have a returns policy in place. But have you updated your policy to reflect the longer holiday shopping window?
As we mentioned above, consumers have started their holiday shopping much earlier in 2021 than in previous years. According to the National Retail Federation, 61% of consumers had begun buying gifts by Thanksgiving and 34% of consumers had planned to start their holiday shopping by Labor Day.
While your typical returns policy may allow a 30-day return window, some customers are purchasing gifts more than a month in advance; this leaves their recipients out of luck if they want to send something back.
Instead, make sure to offer an extended returns window of at least another 15 or 30 days to avoid unhappy customers at this time of the year.
“It’s also important to promote your returns policy prominently in all the places your customers might see it, including on the footer of your website, in order confirmation emails, and even on your social media feeds,” says Reasor. “When customers feel confident that they or their giftees will be able to return or exchange their purchases easily, they’re much more likely to invest in higher-value purchases.”
While it’s difficult to avoid returns that happen due to change of mind, there are steps your business can take to limit preference-based returns.
It’s no secret that some products are much harder to purchase online than others. Apparel, cosmetics, and footwear typically see the highest online return rates of any product category. This has led to ‘trying before buying’ becoming an established shopping practice, with 62% of consumers admitting to buying multiple versions of the same item during 2020.
Research from Statista shows that clothing and accessories are the most popular gifting categories for the 2021 holiday season, with 77% of those surveyed buying at least one gift of this type. So, what can you do to help customers get those hard-to-buy purchases right the first time around?
Self-service returns are when customers can complete a return workflow without needing assistance or prior authorization from a customer service representative; they streamline the return workflow and make it easier for customers to get their desired outcome, whether that be an exchange, store credit, or full refund.
“Self-service returns take the friction out of the returns process for your customers. When customers know it’s a seamless process to exchange or return items, they’re more likely to buy frequently and to spend more dollars with your brand over time,” says Reasor.
If you have a return process that’s easy to navigate, consumers are much more likely to exchange items rather than ask for refunds. In fact, nearly two-thirds of consumers plan on exchanging or finding a replacement for an item they want to return.
Self-service return models also offer some major advantages to merchants. When holiday return season hits and hundreds of return requests start flooding in, your customer service team can easily become overwhelmed. This creates delays in return processing, which results in poor return experiences for your customers.
By making the process as hassle-free as possible, consumers are much more likely to stick with your brand.
Pro tip: Customers using the Whiplash platform can add unique return links to their order confirmation emails, making it easy and seamless for customers to access your return portal.
While shouldering return shipping is entirely fair in the case of a damaged or defective item, it becomes murkier when we’re talking about a simple change of mind.
So, should retailers be responsible for covering any and all return shipping costs during the holiday season? Customers certainly think so. According to Narvar’s 2019 study, consumers are more likely to make exchanges if free return shipping is available:
There are several factors that retailers need to take into account when planning their holiday return shipping strategy, such as:
Your return policy. If you only offer returns on damaged or defective products, you’ll be paying for return shipping far less frequently than if your policy allows for no-questions-asked returns. This is why it’s important to state clearly what circumstances will make a customer eligible for free return shipping.
Peak season surcharges. Most seasonal surcharges from parcel carriers will be in effect well into Q1 to cover the increased operational costs of holiday return season. This means that your business will be paying as much as $5 more per parcel for return shipping.
Split shipments. If you frequently use split shipments due to operating multiple fulfillment centers, this can add considerably to return shipping costs. For example, if a customer chooses to return an item before the rest of their order arrives, you could find yourself paying for return shipping twice over.
The DIM weight for your products. Items such as apparel or accessories typically have a low DIM weight, which is why fashion brands can offer free return shipping without it cutting into their profit margins. But if some of your products are oversized or heavy, you may want to rethink offering free return shipping on those items.
Retailers can lower their return shipping costs by:
Every customer return that your team has to take care of manually can take up to ten touchpoints to resolve, eating up your employees’ time and making it difficult to achieve speedy resolutions.
Using an automation solution enables customers to request returns or exchanges without live customer support, incentivizes exchanges over returns, enforces your chosen returns policy based on set rules, and approves returns or sets conditions for further inspection.
A streamlined returns portal like Loop is the ideal solution to automate your reverse logistics. Loop integrates seamlessly with all the other tools in your ecosystem so that you can share return data with your helpdesk solution, send return events to your 3PL, or integrate into an ERP.
“By automating your returns workflow with a streamlined technology solution like Loop, you’ll be able to provide an optimized customer experience while increasing customer longevity by incentivizing exchanges,” says Reasor. “Your team will spend less time on customer support while boosting customer lifetime value – a win-win on both sides.”
Where online shopping is a byword for ease and convenience, the same can rarely be said of returning online purchases. Even with self-service returns and hassle-free return policies, there’s still the matter of getting returned items back to the retailer to obtain a refund or an exchange.
According to Doddle, nearly three-quarters of consumers say that retailers aren’t offering a satisfactory return management process. If we look at the reasons why, it’s clear that return by mail carries most of the blame:
With this in mind, it’s not hard to understand why 66% of U.S. consumers say they’re more likely to buy something online when they have an in-store return option, while 53% of consumers would consider buying other items in-store after coming in to drop off a gift return.
By enabling store locations to accept returned products, you can offer your customers a way to avoid return headaches—and kickstart a fresh sales cycle by giving shoppers a solid incentive to come into your store.
If your brand doesn’t incentivize exchanges over refunds, you’ll lose a lot of revenue to missed exchange opportunities especially during the holiday season.
As we mentioned earlier, the average ecommerce return rate is 30%. But you’re losing a lot more than just shipping and labor costs whenever you process a refund.
Essentially, a refund signals the end of the customer relationship. When a customer requests a refund, you need to factor in the acquisition costs of replacing that lost customer.
With a $20 return, factoring in the customer acquisition cost, shipping costs, labor costs, and cost of the item, Loop estimates the “true” refund cost to your brand to be $102.
By sweetening the deal for that customer to request an exchange instead, you can maintain a valuable customer relationship that drives additional revenue in the future.
“To avoid losing revenue from returns, it’s also important to incentivize customers to make exchanges instead,” says Reasor. “Consider promoting perks such as free shipping on exchanges, a longer time window for exchanges, or bonus loyalty points for customers who make exchanges rather than returns. At Loop, customers retain revenue on 39% of their holiday returns on average by adopting these methods.”
In sum, by making exchanges as painless as possible, you’ll be able to encourage more customers to continue their relationship with your brand.
Not everything in return management involves fancy technology. In fact, the strategies that make the biggest difference to your return strategy can be some of the most overlooked such as your packaging design.
Although we’re used to thinking about packaging from the standpoint of brand storytelling or cost-effectiveness, we rarely consider it from the standpoint of return management.
For example, sending out items in mailer envelopes might keep your shipping costs down, but it causes a lot of inconvenience for your customer if they need to return an item. A ripped-open mailer is unusable, meaning they’ll have to source their own return packaging to send the product back.
When 62% of consumers are frustrated by having to pay for return packaging, situations like this result in poor return experiences that can put customers off from shopping with your brand in the future.
Moreover, if you’re paying for return shipping, it’s vital that you control the DIM weight of those returned packages. If customers end up supplying their own, this could render pre-paid return shipping labels unusable.
By investing in return-ready packaging, your business can create a more seamless return workflow that boosts customer satisfaction and speeds up restocking. Return-ready packaging designs include:
We get it; it’s easy to get preoccupied with your return rate especially when retail commentators are blasting a load of scary statistics. But there’s a far bigger story to your returns than what percentage of sales are coming back into your warehouse.
“Along with looking at the overall return rates, retailers should be looking at their refund ratio compared with their exchange ratio,” says Reasor. “This will help you understand how much revenue you’re likely to retain over time from continuing the customer relationship and how much you could be missing out on.”
This is where your return rate needs to be broken down into two different metrics: your refund rate and your exchange rate.
While refunds are indications of lost sales, exchanges represent times where your brand has been able to retain or even increase revenue by providing alternative products.
A high exchange rate is a positive indicator; it demonstrates that customers want to maintain a relationship with your brand. It also shows that your business has an effective returns workflow that encourages online shoppers not to pursue refunds.
But if you’re struggling with a persistently high refund rate, you need to revisit your returns experience to understand what’s causing customers to end their relationship with your brand.
Merchants can unite the front end and back end of their return experience by investing in an automated returns solution like Loop. By eliminating lengthy, manual return processes during the holidays, you can transform returns from a point of friction into a positive experience that boosts customer loyalty into the New Year and beyond.
With the power of the Whiplash + Loop partnership, it’s never been easier for retailers to optimize their reverse logistics. Take advantage of a powerful two-way Shopify integration to achieve maximum clarity and convenience for you and your customers:
Check out the Whiplash + Loop partnership today to discover how to boost your return experience during the holidays and beyond.