by Karel Schindler, CEO at ROI Hunter
The 2022 festive shopping period saw a sharp rise in online returns, with a 27% jump in November marking a record high as Black Friday shoppers sent back unwanted orders. In fact, nearly half of (49%) of online shoppers have admitted to returning items in the past year, presenting a problem for retailers that goes beyond lost revenue.
According to research by ROI Hunter, 47% of consumers state that they are willing to boycott an online retailer if they charge a fee for returns. With potential revenue, customer satisfaction and even sustainable practices under threat, retailers cannot continue to facilitate returns at the current rate, especially not with an added cost.
Losing customers when they are most needed
The risk of permanently losing customers is too great for most retailers to take, particularly during a period where many consumers have reduced spending in the face of a cost-of-living crisis. Over a third of consumers expect to spend less on clothes due to the squeeze on disposable incomes (35%), and the same percentage still consider pricing as the most influential factor when making purchasing decisions. It spells bad news for fashion giants such as Zara, who last year introduced a £1.95 charge for online returns. The organisation has since been closely followed by Mountain Warehouse, THG and Moss Bros.
With increased competition among online retailers and demand from consumers slowly shifting from online to bricks and mortar post-Christmas, pressure to deliver is mounting on digital marketing strategies. Rather than pass on the cost to consumers, retailers now need to decipher how to prevent returns from happening in the first place.
Are retailers adding to the issue themselves?
What retailers may not be aware of is that frequently returned products are unwittingly receiving extra promotion from the ad networks. The Google and Meta algorithms measure more conversions on often returned items due to those returned items being restocked: if a retailer has 100 red shirts in stock, they sell all of them and none are returned, the algorithms record 100 transactions. However, if they have 100 blue shirts, and 50 are returned and cycled back through the sales process, the algorithms can record as many as 150 transactions off the stock of 100, making the product seem like the best one – it appears to the algorithms that the blue shirt had 150 conversions whilst the other had only 100.
Without visibility into the performance of these items, retailers are likely to find themselves in this feedback loop, spending extra budget to promote the products most likely to be returned.
Through better use of product performance data like return rates, marketing teams can limit the promotion of these highly returned items, and save their budget for the products that are best for their margins.. Based on our work with over $1B in ad spend, ROI Hunter found it’s common for 80% of a retailer’s impressions to be spent on just 5% of their total catalogue. Without visibility into and control over which items are promoted, retailers will inevitably end up wasting budget on items with high return rates, low margins, or other factors that don’t match their business priorities. Product performance data can help retailers find and focus on the products that do match.
Not only can retailers save budget, by avoiding high returns and focusing on the items that customers want to see most, they create happy customers and foster their loyalty.
From a sustainability perspective, avoiding returns also aids retailers in their journey towards net zero emissions targets. With consumers no longer required to send items back for a refund or replacement, carbon emissions can be reduced as travel to a drop off point or from a courier arranging a collection is no longer necessary. Returned stock which can’t be resold also avoids ending up being sent to landfill.
Ensuring customer engagement
In an age where consumer behaviour has changed more rapidly than the weather, marketing remains a crucial part of a successful retail strategy, but success relies on efficiency. Most retailers cannot afford to take the risk of permanently deterring customers via chargeable returns, particularly in a time where value-for-money is so important. To add to the urgency, the online retail landscape is becoming increasingly competitive and online experiences must be fully optimised to capture the reduced amounts consumers are still willing to spend.
With product performance data being used in conjunction with product performance management tools, marketers have all the equipment they need to identify which products are right for their current business priorities, and communicate that knowledge to the ad networks. Frequently returned items can be taken out of the spotlight, and those that resonate most with consumers can take centre stage.