Returns remain the largest hole in the “ghost economy” that robs retailers around the world of $1.75 trillion in retail sales each year, but a recent study suggests that — despite pessimism about the ability to limit it — more than half of the losses attributable to returns may be preventable.
An earlier study conducted by retail analysis firm IHL Group for London-based cloud software and big-data firm OrderDynamics found that returns were responsible for $642.6 billion in lost sales, which is slightly larger than the $634.1 billion attributable to out-of-stocks and $471.9 billion due to overstocks. Collectively, the three drain worldwide retail sales by 11.7 percent.
A follow-up report from IHL and OrderDynamics, titled “The Haunting of Returns,” takes aim at the returns issue and offers retailers a more optimistic view of the problem than either history or conventional wisdom might suggest.
Because many of the causes of returns — such as the purchase of the wrong item, buyer’s remorse and returns of gifts — are due to consumers’ behavior rather than inefficiency or error by the retailer, and may also entail complications due to online purchases, it would seem to be a far more difficult problem for retailers to solve. But John Squire, president of OrderDynamics, believes retailers have more options, and a greater ability to rein in losses than they believe.
Of the $642.6 billion in total worldwide returns, more than half — $334.4 billion — can be traced to such problems as bad quality, incorrect sizing, late shipments and mismatches between online descriptions. About $162 billion of that amount can be blamed on defective and poor quality, which is followed by “bought wrong item” at $99.3 billion, “buyer’s remorse” at $88.7 billion and “better price elsewhere” at $83.4 billion.
Yet, a full $28.2 billion in returns are solely blamed on fraud.
“While retailers can never completely eliminate returns, there are many areas in which they can improve their customers’ experiences and increase profits by minimizing returns,” Squire said. “For example, apparel retailers can standardize sizing across brands, offer personalized fit guides and clearly communicate sizes to shoppers in all channels. But retailers need connected data across marketing, merchandising, returns and customer reviews to be able to recognize where those issues exist in the first place.”
Integrating information that could be sitting in retailers’ separate organizational silos is among the key goals of OrderDynamics’ business and its Dynamic Action prescriptive analysis solution.
Sarah Engel, senior vice president of global marketing at OrderDynamics, said much of the problem with incorrect sizing relates to apparel products. “But if the various parts of an organization aren’t connected — if store personnel is aware of the problem but the information doesn’t get to the production and sourcing operations – it can persist. Put the information out there for the entire organization and you can make progress.”
One user of Dynamic Action, Mike Karanikolas, a former software engineer who’s now a principal and chief executive officer of e-tailer Revolve Clothing, noted that online shopping was still in its infancy when Revolve launched in 2003, making any barriers to purchasing, such as free returns, crucial to attracting customers.
“Our attention has shifted to focusing on improving the customer’s understanding of various elements of the products they’re considering for purchase in order to alleviate returns,” Karanikolas said, citing detailed product descriptions and photography and size guides as among the tools Revolve and its suppliers have contributed.
“We are constantly speaking to our designers about how we can communicate the size, fit and cut of their pieces most effectively to our customers,” he continued. “We’ve been testing various size recommendation engines such as Fit Predictor and True Fit which suggest the right size based on previous purchase and returns history.”
The company is also exploring virtual fitting rooms such as fits.me and talked to zTailors.com about the possibility of adding a tailoring service to its options.
“We see more retailers looking to use ratings, surveys and opinions to help address the issue,” Squire said. “It’s part of delighting the customer not just with what they see online but what they see and feel and touch when they open the box.”
OrderDynamics drilled down into its database to find how losses to returns registered among GMS — those with the highest penetration of apparel, such as general merchandise stores including department stores and specialty retailers such as apparel specialty stores — stores in North America, as opposed to food and consumer goods retailers and hospitality establishments.
Broken down by companies with the highest penetration of apparel in the general merchandise realm (such as specialty apparel retailers and department stores), the database revealed that in descending order of losses, defective and poor quality accounted for $35.1 billion. Wrong sizes and gifts that consumers didn’t want both came in at $19.6 billion while buyer’s remorse totaled $18.1 billion. Returns of the wrong item was $16.1 billion.
The categories falling below $10 billion were: “better price elsewhere” at $9.4 billion; return fraud at $4.8 billion; failure of online item to match item received at $1.8 billion; and late delivery at $1.3 billion.
To minimize the problem, OrderDynamics suggests: a “no quibble and free return policy;” a clear and comprehensive set of return codes to clarify the problem for the retailer; better oversight of sizing charts, photos and descriptions; and a thorough review of customer comments and reviews, among other steps.