One size does not fit all: The power of optimized returns
James O'Brien, President of Custom - Digiday Media, hosted “One Size Does Not Fit All: The Power of Optimized Returns,” with David Sobie, Co-Founder and Vice President of Happy Returns, a PayPal company. The webinar took place in May 2023 as a part of Glossy and Modern Retail’s Commerce Week Series.
Key takeaways:
Which return methods, policies, incentives are most critical for merchants to reduce the cost of returns and improving the overall returns experience
Why in-person, box-free drop-offs are the preferred return method for today’s shoppers
What the non-negotiables are for returns stakeholders: shoppers, merchants, and the planet
The hard and soft cost-savings of optimizing the return process for both shoppers and for merchants’ teams
Creative strategies for using the returns experience to help drive new behavior
This transcript has been edited for readability and brevity.
Current state of returns in 2023: what’s most critical for the merchant-consumer relationship?
James O’Brien
Let's talk about the road ahead and start with the stakes that are in play right now in 2023. We know that returns and costs are on the rise. We know that merchants and customers are working with this dynamic and demanding set of expectations. Tell us, when it comes to this mix, whether it's metrics or insights, or its capabilities, or something else, through the lens of Happy Returns, what's most critical for the merchant in this relationship with the consumer this year?
David Sobie
Last fall, we published a research study called Returns Happen, that surveyed thousands of online shoppers about their attitudes toward returning products purchased online. We tried to tease out how those attitudes can inform the solutions that merchants employ to tackle the problem. What came out of that study was a couple of things.
First, we're still in this massive shift from shopping in physical stores to shopping online. And what that means for merchants is more returns: more online shopping means more returns. The stat that came out of our study was that 84% of merchants said that their return rates have increased or stayed the same in the past year.¹
“More online shopping means more returns... [and] 84% of merchants said that their return rates have increased or stayed the same in the past year”
[There are] more returns because of this secular shift from physical shopping to digital shopping. Why is that? It's because people shop differently. When they can't try something on, when they can't touch or feel the goods, they're more likely to buy multiple sizes and multiple colors – a practice known as “bracketing.”
Almost 70% of the merchants we talked to said that bracketing has increased in the past year, which drives costs.² On the cost side, look no further than the general rate increases from shipping carriers to understand that shipping is just getting more expensive.
At the same time, when we asked shoppers what’s important to them, the number one characteristic they say is that there's some free return option.³ So, add those components together and you have a perfect storm for merchants: the low-grade headache of returns has now become a migraine.
“Bracketing has increased... Shipping is getting more expensive... When we asked shoppers what’s important to them, the number one characteristic they say is that there's some free return option... Add those components together and you have a perfect storm for merchants. The low-grade headache of returns has now become a migraine.”
Back to your question, what's critical for merchants is getting the cost of returns under control without destroying the shopper experience. So how do you get the cost side of the equation under control and still provide an experience that's positive for your shoppers?
First, I think it's about return policy. How long do shoppers have to return products? What can be returned? What fees are you willing to implement to drive behavior?
The flip side of that is what incentives are you providing to drive a desired response? [Return] policy plays a big part in it, like what return methods do you [offer] shoppers? Again, these incentives drive behavior.
And then finally, experience – both in the process of initiating returns online, and then the physical process of actually getting the item back from the shopper to the merchants’ warehouse.
All of those things are critical in this overarching goal of trying to make this a less expensive proposition for merchants that still provides an enjoyable experience for shoppers.
Evolution of consumer expectations and the effect on customer loyalty
James O’Brien
That covers the merchants’ side of the equation. The shopper experience is the linchpin on which all of this turns and [you can] make all the changes you want on the merchant side to policy process based on experience. But that shopper experience, which is based on shopper expectations is the linchpin. You can't lose that or the whole thing spins off the axle.
I wonder if, on the other side of the equation, Happy Returns has seen, noted, or is sharing with its partners and clients something specific that's changed or that is specifically evolving right now about those customer expectations, the ones that are defining what a positive loyalty from the shopper experience would be?
David Sobie
One of the key questions that our Returns Happen survey sought to answer was, what do shoppers want in returns? And we were excited about the response we got this year.
Shoppers spoke loudly, and what they want is box–free, in-person drop-off as a return option. They prefer in-person returns, rather than mailing items back.
Fifty-four percent of the consumers that we surveyed preferred the idea of in-person drop-offs, and that can either be at a merchant’s stores or to a third-party network, but the option of returning in-person without all the hassle and weight of mail was the most desired return method.⁴
It's important to note that this ranked significantly higher than any other return method, including the idea of home pickup. And when we surveyed shoppers, we tried to do this with an idea of would they be willing to bear the cost of home pickup? We gave a couple of different options, one of which was home pickup for free. Even with free home pickup, the ability to control the experience and drop off in-person was by far the most preferred method.
“54% of the consumers that we surveyed preferred the idea of in-person drop-offs. Even with free home pickup, the ability to control the experience and drop off in-person was by far the most preferred method.”
To unpack that a little bit, it comes down to friction:
Please don't make me print a label. Don't make me find a box. Don't make me tape up this box. And then most importantly, once I have prepared my arts and crafts projects and put in the mail, my reward is to then go back and check my credit card statements in the next two or three weeks and hope that I get my refund or hope that my exchange gets triggered. Please don't make me go through that process.
What came out of that study conclusively was that mail-in returns are a thing of the past. Almost 80% of shoppers said they tried to avoid this whenever possible.⁵
“Mail-in returns are a thing of the past. Almost 80% of shoppers said they tried to avoid this whenever possible.”
And when you looked at the data by segment and age range, that number skewed even higher for shoppers that were under 30. Loud and clear, we heard, I want a friction-free process. I want a free option. Please make the return process as easy as the shipping process. I would like options. I would like one of those options to be free. I just don't want the friction that has been associated with returning by mail.
Merchant creativity around cost mitigation
James O’Brien
I'm fascinated by friction points, so let's keep that customer in mind for just a moment. What's non-negotiable? When it comes to these expectations, returns and exchanges, what can the merchant say is, or is not, going to happen and where can they get creative around mitigating some of these costs by shoring up that shopper experience based on those expectations?
David Sobie
I'm going to flip this question slightly. “Non-negotiable” sounds kind of negative, so I’d like to switch this to more positive. I talked about our mission as a business and our mission is really around making returns beautiful. And there's this old saying, you know, “beauty is in the eye of the beholder.” In our case, beauty is in the eye of the stakeholder.
When you think about a return, you've got multiple different stakeholders: you've got shoppers, you've got merchants, and you have the planet. On the shopper side, a beautiful return, the non-negotiable, is around friction-free. Like I said, don't make me go through all that hassle and wait.
And on the merchant side, a non-negotiable, beautiful return is one that costs the least, especially in an environment where I'm expected to foot the bill.
Then regarding the planet, the non-negotiable is, can you find that return method that is more sustainable, that doesn't involve more shipping? Or reduce the number of shipments, and please don't send any more cardboard to the landfill.
To drill into the merchant side for a little bit, the non-negotiables like, how do you lower your costs – there are hard costs and soft costs. On the hard cost side, can you reduce the shipping cost per unit? What we've found is that the best way to do that is through aggregation. The whole idea behind our business is about the opportunity to get the items from shoppers, to aggregate them and to use the network effects of working with hundreds of merchants to reduce costs.
“The whole idea behind our business is about the opportunity to get the items from shoppers, to aggregate them and to use network effects of working with hundreds of merchants to reduce costs.”
In our model, your shoppers bring items to a drop-off point. We get the first mile free, and logistics people talk a lot about the cost of the last mile. In returns, which is reverse logistics, it’s the cost of the first mile.
Shoppers bring in items, [items] get bagged and put into a reusable tote. And then that tote fills up during the course of the day. It might have 20 different returns from 20 different brands from 20 different shoppers, but they're all going to travel together in that one aggregated commingled tote. Why? Because it's far cheaper to ship a 20-pound box with 20 items together than to ship individual one-pound shipments. So hard cost savings are on a shipping cost-per-unit basis through consolidation.
Also, hard cost savings when we ship the items back to merchants. What happens to that tote is it goes from one of the 9,000 drop-off points we have around the country to a regional hub and in our regional Return Hubs, the items get sorted by merchant, they get labeled and then get reaggregated.
So now I have all of the Gymshark returns from the whole east coast using freight shipping back to the merchant’s warehouse. Again, hard cost savings. It’s far cheaper to ship a truckload of returns and far cheaper to receive a truckload of returns to the warehouse, because the folks that are employed to process the returns don't have to open boxes. They don't have to spend the time figuring out what the return is. They can simply focus on processing the items and putting them back on the shelf.
And then there's soft cost savings as well. In-person drop-off eliminates the need to call customer service and ask, where's my refund?
If you ask any retailer why people are contacting you, it's where's my order? or where's my refund? So, you can drop off in-person and have your refund or exchange initiated immediately. The second type of call just goes away. And then you have happier shoppers because you've given them a delightful return method, which leads to higher lifetime values. There's savings there.
And then another theme which factors in is revenue retention, changing the mindset to think, instead of returns being a cost center, starting to think about them as profits. There are various levels of this. The simplest level is around exchanges. I'm returning the shirt because it was too small. Our software can take a look at the merchant’s inventory and if the larger sizes are available, we can make it very easy for the shopper to say yes, with simple variant exchanges around size and color.
“Another theme which factors in is revenue retention, changing the mindset to think instead about returns being a cost center, starting to think about them as profits.”
There's also this idea of maybe it's not a simple variant exchange, maybe I don't want to have a shirt and a different color, or different size. But what I really want to do is go shop at the full catalog from that merchant. Anything we can do via the online experience for the shopper to turn a refund into an exchange is ideal because that means the merchant can retain that revenue.
And the mental model we have here is if we walk into a physical store to return, they might walk to the counter to interact with the store associate. They wouldn't say, Hey, David, welcome to the store, here's your money back. They would start asking questions. Why are you returning the item? With the idea that they would like me to be happy. They would say, Why isn't it working for you? Let's just see if we can find something that will make you happy. Let's see if we can put you into a shirt that fits or something else to keep you satisfied.
We try to employ that same idea in the design of the online store the shoppers go through, to mimic that store experience of interacting with a human being, to ensure that the merchants can retain as much revenue as possible.
“We try to employ that same idea in the design of the online store the shoppers go through, to mimic that store experience of interacting with a human being to ensure that the merchants can retain as much revenue as possible.”
So back to your non-negotiables for merchants. It's about reducing costs and trying to improve that shopper experience to retain as much of the revenue as possible.
We sometimes hear people say, why do I want to make the returns easy, doesn't that mean I'm going to get more returns? And the answer to that question is, No.
It's kind of counterintuitive, but to think that if I can make returns easy, if I can take this worst part of shopping, and turn it into something delightful and positive, what ends up happening is that shoppers reward the merchants by shopping more. They don't have to make that decision at checkout: if this doesn't work out, it's going to be really painful to return it so maybe I won't check out. Instead it's, I know this is going to be easy so I'm willing to try more from this merchant.
And that's especially important as merchants expand their assortment. They want shoppers who are willing to try things to try new things to expand what they buy. Again, counterintuitive, but making returns easy actually is positive for lifetime value.
“If I can take this worst part of shopping, and turn it into something delightful and positive, what ends up happening is that shoppers reward the merchants by shopping more.”
Counterintuitive moves for merchants and creatively tackling returns and exchanges
James O’Brien
Let's go to some examples. You have a wealth of them because you get to work with clients that are making those counterintuitive moves and getting creative. Take us through a couple of examples that tell a story about how a partner, with the help of your team, changed something about the returns and exchanges tackles.
David Sobie
I'll give you a couple specific examples. We work with an apparel retailer called Pact – it's one of the case studies that you can find on HappyReturns.com. Pact was able to reduce their customer service calls by 80% after employing Happy Returns.⁶ Why? Because they no longer had to field calls about refunds.
“Pact was able to reduce their customer service calls by 80% after employing Happy Returns. Why? Because they no longer had to field calls about refunds.”
Just think about contacts to customer service. When people can drop off in-person and have that refund initiated on spot, those calls go away.
Another example: we work with a shoe brand called Cariuma, who was interested in trying to understand, if we improve our Net Promoter Score (NPS), what impact does that have on lifetime value of our customers and specifically the Net Promoter Score around returns?
What they found was that as NPS went up – in their case, it went up 43% – when they started employing box-free, in-person drop-off.⁷ They found that about half of that NPS increase was captured in lifetime value. So, about a 20% increase in lifetime value through repeat purchasing. And again, that counterintuitive idea of if you make [returns] easy, they'll shop more with you.
Last one, the bridal business Azazie that we work with. They were trying to bring a new and better process for bridesmaids trying on multiple dresses in advance of an event. Ninety-four percent of their customers – they're the highest NPS that we have – 94% said that they would recommend Happy Returns to a friend or family member.⁸ Again, taking this challenging part of figuring out what to wear for a special event and making it easy to buy multiple dresses and pick the one that fits best. So those are some specifics.
More broadly, what we're seeing is merchants are starting to use policy intelligently to drive behavior. I'll use a carrot and a stick example.
“Merchants are starting to use policy intelligently to drive behavior... merchants are starting to offer incentives to try to encourage exchanges rather than refunds.”
On the carrot side, we're seeing merchants that are starting to offer incentives to try to encourage exchanges rather than refunds. So yes, you can get your money back. Maybe I paid $100 for this shirt, but we'll give you $110 If you're willing to buy something today. Why? Because that's way better for the merchant if they can retain the revenue.
On the stick side, we're seeing a lot more forward-looking merchants who are adding fees to the return methods that are very costly for them. If you think about returning by mail, that’s very expensive for a merchant to pay for the cost to ship that item back through the mail.
Think about the cost of a pair of shoes traveling back from your house to the merchant’s warehouse: very expensive. And we're seeing merchants employ fees against methods that are expensive for them. So hey, maybe it’s free to use Happy Returns and free to return to their stores, but [they're] going to employ a fee if that shopper selects to return by mail.
Why? Because there are no economies of scale in mailing individual items back. What they're trying to do with the stick is drive a certain behavior. If I, as the merchant, have to pay for the return, meaning I'm subsidizing it for my shoppers, then I'm going to try to drive the shopper toward the least expensive return method for me to subsidize.
“There are no economies of scale in mailing individual items back.”
What are some ways that we can mitigate the impact of returns? Where can other moments happen that save money and augment the shopping experience?
James O’Brien
Question from a viewer: looking at costs, what are some ways that we can mitigate the impact of returns? Where can other moments happen that save money and augment the shopping experience?
David Sobie
It starts with clear communication of your policy. We work with a number of merchants that offer very aggressive sales, and often the deeper the discount, the more likely it is that the items are non-returnable. It starts with communication.
The worst thing is when there are surprises. We have all probably had this experience where [you] bought something and just assumed that [you] could return it, or bought something, and assumed that it was free [to return].
Now, that process of a shopper being surprised that they can't return it or surprised that there's a fee is really a hard thing to overcome in getting them to shop again. It starts with setting clear policy expectations up front, around things like the return timeframe and the methods that are available. Again, counterintuitive, but if a merchant has a return process that is easy – you know, a box-free returns method – that can be a driver of conversion upfront.
Something like 79% of shoppers will review a retailer's return policy before they check out.⁹ Why is that? What I'm trying to do as a shopper is I'm trying to project forward and think if this item I'm buying doesn't work, how painful is it going to be if I need to return it? If you have easier-to-read methods, then communicate that upfront because it's going to be important to shoppers’ confidence in checking out, and it should be used to increase your conversion rate on site.
The last thing I'll mention is just back to the idea of incentives. You know, I’m a father of two, and carrots work just as well as sticks with kids, and I think it applies to shoppers as well: creating incentives to get the behavior that you want. If it's really important to retain revenue, creating incentives around Hey, if you're willing to take store credit rather than getting a refund, maybe we'll provide an incentive for you. Or, if they’re willing to buy something else, either a direct exchange or something else from the site, there might be an incentive. Those kinds of things can be surprise-and-delight moments that I think are important to lifetime value, potentially more valuable than sticks and things like fees that I wasn't expecting.
Looking at the second half of 2023, what is Happy Returns seeing with its partners that tells us something about the near future?
James O’Brien
Looking at the second half of 2023, what is Happy Returns seeing with its partners that tells us something about the near future? Something you’ve learned that we should be excited about?
David Sobie
Happy Returns has been in business for eight years now. You know, for the first seven years of our existence, I know it was really the battle of return in-person, box-free to a third-party network versus the mail. That battle has been won; I think box-free in-person drop-off is the preferred method now. And so now the thing that we're spending a lot of time thinking about is it's no longer about the in-person return drop-off versus mail. In-person return drop-off has won. Now it's about providing shoppers two things: convenience and choice.
“Now it's about providing shoppers two things: convenience and choice.”
We've grown our network to [nearly] 9,000 drop-off points around the country. Eighty-seven percent of America lives within a 10-mile radius of a Happy Returns location.¹⁰ So that's the convenience factor, but there's a whole lot around choice: Which return drop-off point do I want to use? Why am I picking that drop-off point? It might not be the one that's closest to my house. It might be one that's in the direction that I'm going to run another errand. Or it could be because of an incentive.
We work with companies like Staples and Ulta Beauty and GameStop. And many of them offer an in-store incentive. If I bought this sweater on Everlane and now I can get a $5 coupon off a purchase at Ulta Beauty if I go return it there.
We're trying to match what a search engine does, thinking about the most relevant results for you as a shopper. It's really about choice and trying to serve the most relevant options for them around where to return.
What's interesting in the data we're finding is the place the shoppers choose is often not efficient or the closest option if they’re already headed in this direction to do something else. Or, I can combine my return trip with something else I have to do like going to the grocery store.
It's about trying to surface choices that are most relevant to that shopper. And there are a lot of things that go into that. There's a lot of a lot of factors that go into a search engine, and what results you see when you type something in, we're spending a lot more time thinking, not about how we win versus mail anymore, but about how do we optimize the experience for the shopper to be as delightful as possible when they have many options to choose from.
“We're spending a lot more time thinking about how we optimize the experience for the shopper to be as delightful as possible when they have many options to choose from.”
If you’re a merchant looking to optimize your returns experience to meet your business goals, don’t hesitate to get in touch to schedule a demo of our automated returns platform.
You might also like our latest research reports: Returns Happen or Merchant Perspectives on E-Commerce Returns.
Sources:
1. Returns Happen [TRC, commissioned by PayPal, September 8-19, 2022. The research was conducted by TRC, with fieldwork administered by Forsta across 2,002 U.S. consumers who returned an online purchase within the past year (n=2,002).]
2. Happy Returns Merchant Survey 2023 — Happy Returns [Worldwide Business Research (WBR), commissioned by PayPal, December 8, 2022 - January 17, 2023. The phone interview was conducted by WBR across 100 U.S. apparel and footwear merchants with annual revenues of $500 million or more (n=100).]
3. Returns Happen [TRC, commissioned by PayPal, September 8-19, 2022. The research was conducted by TRC, with fieldwork administered by Forsta across 2,002 U.S. consumers who returned an online purchase within the past year (n=2,002).]
4. Returns Happen [TRC, commissioned by PayPal, September 8-19, 2022. The research was conducted by TRC, with fieldwork administered by Forsta across 2,002 U.S. consumers who returned an online purchase within the past year (n=2,002).]
5. Returns Happen [TRC, commissioned by PayPal, September 8-19, 2022. The research was conducted by TRC, with fieldwork administered by Forsta across 2,002 U.S. consumers who returned an online purchase within the past year (n=2,002).]
6. PayPal Case Study 2022.
*Data source from Pact, 2022.
These results may not be typical and may vary substantially by business. This content is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
7. PayPal Case Study 2022.
*Data source from Cariuma, 2022.
These results may not be typical and may vary substantially by business. This content is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
8. Data source from Azazie, 2022.
These results may not be typical and may vary substantially by business. This content is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
9. Returns Happen [TRC, commissioned by PayPal, September 8-19, 2022. The research was conducted by TRC, with fieldwork administered by Forsta across 2,002 U.S. consumers who returned an online purchase within the past year (n=2,002).]
10. Internal analysis based on the 2020 Census population figures and Return Bar locations, 2023.