Every e-tailer wants to see their inventory sold – but not returned. However, the unfortunate truth is that 30% of all products ordered online are returned (depending on the sales sector and the period). In 2022 this amounted to $816 billion in returned merchandise according to the National Retail Federation.
This poses a big challenge to e-commerce profitability, especially for retailers offering free shipping and returns. A high return rate may be the difference between your e-commerce channel breaking a profit and breaking the bank.
That’s why successful e-commerce returns management is a must for many retailers.
This can be broken down into two separate considerations:
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- Reducing e-commerce product returns
- Knowing how to handle e-commerce returns efficiently
Let’s take a look at some processes and best practices that can help you meet these goals, starting by wrapping our minds around the big picture of returns in e-commerce.
What are e-commerce returns?
Somewhat obviously, e-commerce returns refer to product returns that happen through an online e-commerce channel. What makes them unique in comparison to standard brick-and-mortar returns is the process of reverse logistics.
In B&M, shoppers simply bring their product back to the store where they bought it from – where it can be inspected, repackaged, and in many cases, put back on the shelves. This is not the case with e-commerce.
In a strictly e-commerce environment, the customer must first request to return a product online, then follow a series of steps to do so – including:
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- Filling out a short form
- Downloading a shipping label (usually paid for by the retailer)
- Printing the label
- Packaging the product up
- Shipping it to the specified location
Depending on the complexity of the retailer’s fulfillment and distribution, the product may need to be moved several times in order to inspect, repackage it, and re-stock it as a sellable item.
This entire process (of the product going through the supply chain in the opposite direction) is called “reverse logistics,” and sets e-commerce returns apart from B&M returns.
As mentioned earlier the rate of returns depends on the industry, but as you can see from the Statista chart below, fashion e-commerce returns are in the lead.
Additionally, the e-commerce returns process can be complex for e-tailers as it includes a variety of steps that need to be effectively managed to avoid problems that negatively impact business.
Let’s identify some of those challenges
Challenges in e-commerce returns
Customer dissatisfaction
An inefficient returns process can lead to frustration, harm the overall shopping experience and may result in lost customers.
Increased costs
More time and resources are required to handle returns, process refunds or exchanges, and restock returned items; straining finances and affecting profitability.
Damage to brand reputation
Poorly managed returns processes reflect negatively on the brand’s image, as customers share their negative experiences in online reviews; turning off new customers.
Inventory management issues
If returns are not handled efficiently, it leads to inaccuracies in inventory levels, and tracking stock resulting in overselling or stock shortages.
Lost sales opportunities
An inefficient returns process hinders the chances of reselling returned items, as they may become:
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- Damaged
- Outdated
- Lose value over time
Environmental impact
Increased environmental footprint, as more resources are used for transportation, packaging, and disposal of returned items.
So, a well-managed returns process is clearly needed and is possible by taking the following actions.
How to manage the e-commerce returns process
With the overwhelming volume of returns e-tailers experience, it’s important to have a workable returns process for both your business and your customers to use.
You’ll want to:
1. Analyze returns data
If you analyze returns data regularly you can identify areas for improvement and ultimately reduce your overall returns.
Leading e-tailers apply AI-driven analytics as a masterful tool to analyze returns data because it offers a level of speed, scale, and granularity that isn’t humanly possible.
These high-level capabilities become very important when it comes to:
Data collection
Returns data comes in from various sources, and AI-driven analytics can easily gather and analyze it by accessing it from:
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- Online returns portals
- Inventory management systems
- Customer feedback
With data pouring in from various places, an advanced analytics system helps you pull everything you need to know together in one place.
Pattern recognition
The patterns and trends AI-based analytics can find and organize for you are also invaluable as they detect:
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- Common reasons for returns
- Customer demographics
- Specific product categories with high return rates
- Reveal seasonal trends
Insights like these allow you to strategically adjust your inventory management accordingly.
Prediction and forecasting
Return forecasting is something that all e-tailers need to do and having the right return forecasting tools make life much easier.
A returns forecast can indicate when to expect future returns and roughly how many items will be coming back. If you nail down return forecasting, you’ll be able to tweak your campaigns and promotions based on the changes you see coming in customer behaviour.
For instance, AI-driven analytics might predict certain products are likely to have high return rates in the upcoming season, allowing you to make data-informed decisions about your:
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- Inventory
- Marketing strategies
- Resources
- Budgets
2. Define a clear returns policy
Make sure your returns policy is:
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- Well-defined
- Transparent
- Time-sensitive (30-60 days)
You’ll also want to include eligibility criteria for products. For instance, clearly outline which products can be returned and under what conditions (e.g., unopened, unused, with original packaging). This helps manage customer expectations and prevents misunderstandings that could lead to dissatisfaction.
Include, what types of refunds you will offer:
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- Store Credit
- Cash refund
- Product exchange
Providing customers with flexibility in how they receive their refund can increase the likelihood of them shopping with you again.
It can also be immensely helpful to leverage AI tools to test “what-if” scenarios on policy changes. For example, retailers can calculate the likely impact that changing a returns timeframe can have on the overall returns rate, as well as bottom-line margins.
3. Create an easy-to-use returns portal
To make the returns process as user-friendly as possible, design an intuitive returns portal on your website. Key features to include are:
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- User-friendly interface
- Integration with shipping partners
4. Streamline returns processing
Once returned items arrive, manage them effectively to minimize losses and maintain customer satisfaction by:
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- Assessing the condition of returned items
- Swiftly processing the appropriate refund or exchange
- Restock eligible items
- Update inventory management system
5. Continually monitor and improve the returns process
Continuously assess and refine your returns process to provide an exceptional customer experience.
Keep an eye on customer feedback and industry best practices to ensure your returns process remains up-to-date and customer-friendly.
So now that you have a good idea of how to manage e-commerce returns, I’m sure you’ll agree it’s preferable to reduce them altogether. Let’s look at the possibilities.
How to reduce returns in e-commerce
While returns are inevitable, there are strategies you can use to help reduce the volume of returns you get.
Because online customers only get to touch and experience an online product once they receive it, you’ll need to provide more details to give your prospective customer a good understanding of your product.
Here’s how to reduce returns in e-commerce:
1. Enhance product information
Provide accurate and detailed product information to customers, so they can make informed decisions, and minimize potential dissatisfaction.
Include:
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- Dimensions
- Materials
- Care instructions
- Customer reviews and ratings
- High-quality images and videos
All of these elements contribute to giving your customers an understanding of what your product is all about and how others like or dislike it. So, chances are if they order it, they’ll keep it. Or they may decide not to purchase it, which saves you the cost of sending it out and then paying for and processing the return.
2. Quickly respond to customer concerns
Address customer issues and concerns promptly and professionally, demonstrating your commitment to customer satisfaction. This can help turn a negative experience into a positive one and reduce the likelihood of returns.
If you have multi-channel support (email, chat, phone), it can make it easier for customers to reach out to you.
AI-powered chatbots and virtual assistants are ideal for this in our 24/7 world. They are always available online and can provide instant support to resolve issues.
3. Pre-sale consultations/Post sale-followup
If you sell high-investment products it’s worth it to offer support for customers seeking assistance in choosing the right product as this helps them make a more informed decision and reduces the chances of them returning the product.
And then, after-sales follow-ups and troubleshooting are a great touch to ensure your customer is satisfied with their product and offer any necessary assistance. This can help catch and resolve issues before they escalate into returns.
These activities will certainly help reduce returns. You can also support these strategies with some e-commerce returns best practices currently used in the industry.
E-commerce returns best practices
E-commerce has been constantly growing and evolving since the early 90s. Since then some best practices have come to light.
Let’s take a look at the top five actions you should focus on:
1. Leverage technology for returns management
Embrace technology to streamline and optimize your returns management process.
Modern technology, such as AI-driven analytics, can automate much of your returns process for speed and efficiency.
One important area where this technology is being applied is inventory management updates. AI-based analytics can automatically update your inventory levels to reflect the returned item’s availability; ensuring your stock levels are accurate–avoiding overstock and understock.
Additionally, advanced analytics can automatically transfer returns to the closest warehouse with the highest demand as well as calculate the most cost-effective methods and routes for returns.
This level of automation leads to increased efficiency and cost savings.
2. Engage in personalization
Consumers value being seen by the retailers they spend their money with. So, a more personal shopping experience is what consumers have come to expect.
This means you’ll want to appeal to your consumer base by demonstrating you see them. With the right technology and approach, you can create a hyper-personalized shopping experience that attracts your target audience.
AI-driven analytics analyzes thousands of data sets on customer behaviour, preferences, and purchasing habits. The insight you gain from this information gives you a better understanding of your customer, so you can promote more personalized and targeted product recommendations; so it will be less likely products will be returned.
3. Make the return policy easy to find
Did you know that according to Invesp 67% of shoppers check the return policy before making a purchase decision? That’s why it’s crucial to make your return policy easy for customers to find.
You can do this by creating a :
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- Dedicated return policy page on your website
- Link to the return policy on every product page
- FAQ page with the policy
- Link on the check-out page
You’ll foster a sense of confidence and trust for the buyer because they’ll have the information they need and won’t think they’ll be stuck with something they don’t want.
4. Offer free and convenient returns
If you want customers to continue shopping with you, even after they return an item, your best bet is to make the returns process as hassle-free as possible.
You can do this by providing:
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- Prepaid return shipping labels
- Multiple drop-off locations or pick-up services
- Notifications when refunds are complete
Providing free return shipping might be costly, but it’s a crucial step to both meet customer expectations and stay competitive.
5. Ensure sustainability
As e-commerce continues to grow, so does the importance of incorporating sustainability into every aspect of your business, including e-commerce returns management.
This is possible if you:
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- Minimize packaging waste
- Recycling returned items when possible
- Encourage responsible consumer behaviour (incentives for eco-friendly choices)
Employing these best practices will lead to the strength and growth of your e-commerce business.
Return to profit with good e-commerce returns management
Managing e-commerce returns effectively is essential for maintaining customer satisfaction and business success.
By implementing a clear returns policy, streamlining the returns process, and continuously working to reduce returns, you win at e-commerce returns management and create a positive experience for both you and your customers.
Keep in mind that the e-commerce landscape is constantly evolving, so your business needs to stay agile and adaptable, which AI-driven analytics allows for because of its speed, flexibility, and scalability.
When you implement e-commerce returns best practices you’ll:
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- Reduce returns
- Hold on to profits
- Optimize your inventory
Ultimately, you’ll be well-equipped to handle the challenges of returns management and set your online retail business up for long-term success.
If your e-commerce business needs to reduce returns, optimize inventory, and boost profits, you can contact our Team and learn more about how AI-driven analytics will help you achieve your goals.
