Online returns: the silent profit killer for online retailers

With online shopping growing at exponential rates, it is inevitable that online shoppers will want to return some purchases, and until recently, returns have been treated by both shoppers and retailers as a hassle. But in 2019, returns policies can be make or break for retailers who are facing a dilemma – how to respond to increasingly demanding consumer expectations without killing their profits in the process.
Power Retail has examined the issue in its latest Spotlight Series monthly report titled ‘Returns – The Profit Killer?’.
The report distils over 5,650 interviews with online shoppers and Australian online retailers, to provide insights and strategies for retailers to balance the art of attracting shoppers while remaining profitable.
Managing director of Power Retail Grant Arnott said: “In this competitive climate, retailers are attempting to both limit and encourage returns. The issue is that the benchmarks are being set, often by large international retailers, who can afford to take a short-term hit when strategising for the long-term, big-picture view. But what consumers view as the ‘new normal’ isn’t actually maintainable for many. Yet at the same time, returns are a massive marketing opportunity.
“There is no single solution to minimising returns, though online retailers such as Hunting for George demonstrate the type of multifaceted approach that is required. From educational videos to providing samples for larger purchases and offering a live chat service, they have engaged with their target audience and designed services that address their specific needs.”
Key findings from the Returns Report include:

• 91% of online shoppers consider a retailer’s returns policy when making a purchase online.
• On average, Australian online retailers have a return rate of 9%. This varies dramatically depending on the category, with some online fashion retailers experiencing a return rate of 40%.
• When it comes to the biggest hassle in returning an item, finding an opportunity to lodge the return (33%) and getting around to it (20%) are interrelated and significant issues, with some prepared to pay for a courier pick-up service.
• 41% of Australian consumers would choose free returns over a range of other desirable options, including next day delivery.
• Females (56%) were much more likely to return their last online purchase because it didn’t fit, or they didn’t like the colour compared to males (34%).
• High quality product images, information and customer reviews all help reduce returns, and Amazon Australia is currently setting customer expectations in all of these areas.

Following an analysis of this issue within the industry, Mr Arnott provides his top four predictions of returns for the next five years.

1. The report found that 24% of online shoppers aged under 25 consider returning an item compared to only 12% of those aged over 65. With this in mind, young consumers will continue to hold retailers to ransom, as they’ll only shop with retailers who offer generous returns policies.
2. Retailer profit margins will continue to be eroded as growing numbers of ‘serial returners’ take advantage of generous return policies at a significant expense to the retailer. 74% of Australian online shoppers expect free returns on all items, meaning the retailer must bear the cost of the delivery to the customer and the delivery of the returned items.
3. Offering free returns and longer return periods in pursuit of a sugar hit in sales and customer satisfaction is a short-term strategy that is unsustainable in the Australian market with the high cost of reverse logistics.
4. The genie is out of the bottle when it comes to returns, and hundreds of retailers chasing fickle consumers who love returns policies that allow them to ‘try before you buy’ are going to find themselves in a world of hurt in the next few years. Like discounting, it becomes a race to self-destruction.