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Rising Returns: They're not always something to fear

April 29, 2019

In March 2018 eCommerce tech provider Brightpearl released a new report warning that the latest ‘try before you buy’ trend could spell disaster for retailers profit margins, as they faced a surge of inbound returned items. If you’re not familiar with the trend (where have you been?!) ‘try before you buy’ schemes such as Amazon Prime Wardrobe and specialist payment methods like Klarna allows shoppers to order multiple items of clothing without paying, try them on at home and return what they don’t want, only paying for what they keep. This means that shoppers can order multiple sizes, colours and styles without a penny ever leaving their bank (providing free returns are offered, of course). So, Brightpearl’s warning doesn’t seem completely unreasonable, but there’s a reason these schemes are currently adopted by the likes of Amazon,  ASOS, and Gymshark, so we decided to explore them further.

Amazon Prime

2018 saw Amazon enter the ‘try before you buy’ space with the launch of their Prime Wardrobe service, which is now available to their Prime customers. This new service welcomes returns by its very nature, so this launch seemed all the more surprising, given their decision to ban serial returners earlier on in the year.

Source: amazon.com

This move by Amazon is a prime example of retailers wanting to have it both ways - an exceptional customer experience, without the increase in returns. It’s the utopia most retailers dream of, but few (if any) have managed to achieve. An increase in returns isn’t always a sign that shoppers dislike you or your products, in many cases it’s a sign that they feel comfortable spending their money with you. A study from Klarna revealed that “higher returns are associated with higher value customers who also retain a higher volume of goods”, as shown in the graph below.

Source: Klarna, Rethinking Returns

Whilst Amazon’s algorithm for calculating a chronic returner is unclear, we’d be intrigued to know how their Prime Wardrobe data feeds into this. Will shoppers now start to be banned for simply taking full advantage of a service that was offered to them? Whilst we suspect there’s a robust data warehouse feeding Amazon’s decision, we’re not convinced many other retailers have the same control tower.  

Brightpearl also reports that 45% of UK retailers would consider following in Amazon’s footsteps and banning their serial returners; a dangerous line to tread without incorporating returns data into the decision. A lack of returns data means that you cannot accurately calculate your shoppers overall lifetime value because you would be unable to measure individual shoppers return rates and keep rates at order and item level.

Net-A-Porter

One retailer who seems to understand their customers lifetime value more than most is Net-A-Porter, who recently began offering their own ‘try before you buy’ service to their “EIP’s” (Extremely Important People). Limiting this offering to their EIPs means that Net-A-Porter can ensure their most valuable customers are retained, without their returns getting out of control.

It seems obvious - offer your best customers your best perks. But it’s a step that can’t be done without sufficient returns data. Identifying your best customers involves looking at each customer's lifetime value by assessing their individual order data against their returns data. Doing this will reveal that not all customers who return frequently are bad customers, and that some shoppers merely shop with you once, return everything and then disappear without a trace. It’s shoppers such as these ‘single spenders’ that you should be genuinely keeping an eye on to understand what they purchased, why they returned it, and how their experience led to them not shopping with you again.  

However, having the ability and resources to build your own ‘try before you buy’ infrastructure is a luxury few retailers have, so retailers are now increasingly turning to a third party to implement this for them.

Klarna

Any retailer or serial-online shopper will be familiar with Klarna. Klarna offers shoppers access to flexible payment options, such as “Pay later”. From a customer perspective, it’s a no-brainer as it means they can pay for their products after delivery, turning their sitting room into a fitting room — boosting convenience and enhancing the customer experience.

While Klarna admits that “try before you buy” payment options do contribute to an increase in the number of items consumers are sending back, research they conducted reveals that there is an incremental sales uplift where shoppers are more likely to keep more and spend more in the long-run.

We had a chat with Luke Griffiths, General Manager at Klarna UK to better understand the benefits of implementing Klarna, and how customer experience is paramount for retailers.

Are retailers hesitant to go ahead because of the increased return rate? 

Luke Griffiths 300dpiNot at all. We work with over 100,000 merchants globally, including ASOS, Topshop, H&M, JD Sports and In The Style in the UK.

Our data shows that In The Style has seen a 31% increase in average order value when shoppers use our most popular product, Pay later. They’ve also seen a massive 47% increase in order frequency compared to other payment methods. While it’s true that they have seen a rise in their returns rate, this is offset against increases in purchase frequency and basket values.

It’s important to remember that returns aren’t a new phenomenon. They have increased naturally alongside the growth of ecommerce and are now a fundamental part of the retail experience.

Ultimately what consumers want is convenience and choice — in what, where, when and how they buy things, but also in how they return them. This is what retailers must cater to if they are to succeed in the complex and competitive retail environment.

What would you say is the core focus of Klarna?

Our focus is purely on giving customers the best experience when it comes to payments. This delivers long term benefits for retailers who have happier and more loyal shoppers.

What is the typical increase in sales after go live? How does this stack up against the increase of returns?

With Pay later, on average, our retail partners see a 15% increase in average order value, 20% higher annual customer purchase frequency and a 7% higher conversion rate compared to standard card transactions.

What advice do you give to retailers who are concerned about their returns?

It’s a simple fact that returns are now a normal and important part of the shopping experience, and retailers need to embrace, not hide away from the important role they play when it comes to experience.

Any brand seeking to offer the best possible experience will know that this needs to stretch from the first to the last touchpoint, and overlooking returns would leave a significant gap in the shopping cycle.

Our returns research revealed that 75% of shoppers say easy returns are an essential factor in their choice of retailer, while 86% say the option of free returns would make them more likely to keep coming back to a brand.

Retailers who are brave enough to go the extra mile will see increased purchase frequency, basket value and customer loyalty — boosting them ahead of the competition in the fight for consumer loyalty.

Riding The Returns Wave

For any retailer, customer experience is king and those looking to keep up with the competition need to seriously consider implementing ‘try before you buy’ into their strategy. Whilst the increase in returns might make their logistics team sweat, banning frequent returners isn’t the answer.

Having a well thought out and well planned returns strategy and easy process globally should mean you have no trouble handling the increase in returns, and you will then have the benefit of a plethora of returns data that can help you make smarter decisions when it comes to returns, as well as measure the impact of try before you buy, against their increase in sales.  

Did you know ReBOUND supports your UK returns as well as cross-border? We have the largest choice of UK returns methods, including 5 printerless options.

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