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Returns management: How retailers can reduce their returns rate

by Editorial Office

Returns prove to be a cost factor for e-commerce providers that should not be underestimated – especially in times of strong sales. In addition to lost sales, returns cause extra personnel and process costs. We explain effective measures to reduce the returns rate and optimize the customer experience at the same time.

Returns rate in Europe

During the Corona pandemic, shopping behavior in Europe has continued to shift toward online: Consumers are increasingly shopping on marketplaces, in web stores and via social networks – and they are sending goods back if in doubt. On average, four out of ten Europeans use the return options offered by e-commerce providers. This is the result of a survey conducted by the German statistics database Statista. Alas, there are regional differences: While returns of goods ordered online are only made by around one third of consumers in Poland, for example, the returns rate is significantly higher in Germany (56 percent), the Netherlands (52 percent) or France (45 percent). In 2020, the number of returned parcels in Germany totaled 315 million, according to a preliminary estimate cited in a study conducted by the University of Bamberg. Due to the pandemic-related e-commerce boom, this makes a plus of 14 million parcels compared to the previous year.

With the overall parcel flood growing, it is becoming increasingly important for international online retailers to develop a sustainable returns strategy for their cross-border e-commerce business. Especially as they can hardly avoid offering customer-friendly exchange options including generous return periods due to the high competitive pressure.

Identifying reasons for returning, developing countermeasures

If you want to reduce your returns rate in the long term, you should first analyze the reasons why customers return goods. Studies show that six out of ten European consumers return goods ordered online due to damage or poor quality. Forty-two percent of online shoppers have changed their minds after placing an order, and according 29 percent of consumers surveyed, the description of goods in the web store does not correspond to the actual product characteristics.

For online store operators, clear recommendations for action can be derived from the motives mentioned: Strategic optimization of business processes and the use of innovative technologies can make a significant contribution to finding a better balance between customer-friendly return processes and their own profitability.

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Avoiding returns through detailed product communication

Clear product data, detailed descriptions and emotional images should be part of the repertoire of every online store these days. The more detailed a product is presented, the better informed are the consumers as they make their purchase decisions. Misleading or inadequate information must be avoided, as this quickly leads to returns – or discourages consumers from placing an order in the first place. With professional product communication, ideally supported by a software system, retailers accompany their customers through the purchasing process. Possible questions are answered before the order is placed in order to help customers place the ideal order and avoid returns.

With the aim of informing customers as comprehensively as possible, retailers are well advised to regularly check their own offers for completeness and informative value – and to optimize the web store for mobile devices. After all, the purchase decision process increasingly begins and ends with the smartphone and should therefore be designed for mobile usage habits.

Fulfillment: Reducing waiting time for ordered goods

To avoid customers changing their minds due to long waiting times, online retailers should aim for fast fulfillment. This includes activities from order entry to warehousing, picking, shipping and returns processing. To optimize the picking time, i.e. the time windows required to put together an order, forward-looking personnel planning is essential. In combination with a scalable store system from the cloud, with which IT resources can be quickly and flexibly adapted as required, increased demand can be better managed – and customers can be satisfied sooner.

Strategically planning and accelerating logistics processes

When it comes to accelerating delivery processes, collaboration with an experienced logistics partner proves to be a critical success factor. Ideally, the service provider offers decentralized storage in various warehouses in Europe that are towell-suited for e-commerce. In this way, international retailers are able to keep goods on site – and meet customer expectations with regard to a speedy delivery of goods.

In this context, the potential of transparent shipping communication should not be underestimated: customers appreciate and expect to be informed in real time via smartphone about changes in the delivery status. Online retailers are also more likely to be understanding in the event of delivery delays.

Returns management: reducing returns rates with the help of AI and machine learning

In addition to technological devices and entertainment electronics, the most frequently returned items in Europe are clothing and shoes. To make sure that the ordered goods fit and please, consumers often order several sizes and color variations. Measurements given in the web store are of limited help if the fit or color is not to their liking. Even 360-degree views of clothing and shoes can only give a limited impression. Large mail order companies such as Zalando are therefore increasingly relying on artificial intelligence and machine learning: Data-driven algorithms are intended to help solve fit problems and improve the customer experience, among other things. Thanks to data-based advice, the company says it is already possible to avoid tens of thousands of returns.

The German Otto Group, which covers the entire spectrum of retail with online platforms such as Otto.de, About You, Bonprix and Quelle, also acts in a variety of ways to avoid returns in advance. For years, the company has been working on returns mitigation: This starts with AI-supported prediction of merchandise sales, leads to AI-based evaluations of customer ratings and augmented reality (AR) for furniture.

Optimizing shopping experiences:  AR and 3D body scanner

Augmented reality is intended to help simulate shopping experiences in the best possible way. Associated benefits are already being increasingly used in the home and living segment, as at the Otto Group. Among other things, virtual products can be transferred to the user’s own home and tried out via the app of the Swedish furniture store IKEA or the marketplace giant Amazon. This should result in fewer returns and lower associated costs for the companies. At the same time, further product recommendations and alternatives can be cleverly placed, making consumers feel more comprehensively advised.

Another innovation that could pay off, especially in the fashion sector, is the use of 3D body scanners: the individual consumer’s body is recorded via numerous measuring points, stored in a data record and compared with the data of many other customers in order to combine ¬similar body shapes into clusters. In the future, consumers will be able to measure themselves in detail via an app, find suitable cuts and refine their own style.

Avoiding quality problems through control and packaging

Defective products are a disappointment for the customer and an understandable reason for a complaint. To prevent defective goods from going on sale, online retailers should subject their product range to routine quality control. This helps to avoid possible returns and a refund of the purchase price. Particularly on online marketplaces, high product quality is crucial, as competition is fierce and negative customer reviews due to defective merchandise can be damaging to business in the long term.

In order to avoid product damage on the last mile, online retailers should attach importance to robust packaging solutions. Ideally, the shipping packaging is smartly adapted to the goods inside. To minimize loss, retailers can also explore the benefits of shipping insurance.

Given the growing green awareness, it is also important to pay attention to sustainability when shipping. Retailers who package goods in a way that is not only safe but also environmentally friendly increase their chances of receiving multiple orders.

Sustainable returns management pays off

International retailers should acknowledge customer-friendly exchange options – even across national borders – as part of a successful user experience and customer journey. However, a sustainable returns strategy is needed to prevent returns from increasing excessively and jeopardizing further business development. It is advisable to analyze the causes of returns and consider the use of digital technologies to optimize your own business processes. Artificial intelligence and machine learning in particular offer innovative solutions to help customers make more targeted purchasing decisions and to professionalize warehouse logistics and demand forecasting.

The first successes of sustainable returns management are emerging in Germany, for example. While in Germany online retailers have shipped significantly more parcels during the pandemic and the absolute number of returns therefore also increased, the returns rate is proportionally decreasing. According to the study by the University of Bamberg, the returns rate has fallen from 17.8 to 15.9 percent.

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