How to Address the Rise of E-commerce Return Rates

The rise of e-commerce has revolutionized the retail landscape, offering unparalleled convenience and putting an unlimited selection of products at consumers’ fingertips. However, this boom has also led to a significant increase in return rates, posing challenges for retailers. This trend has significant operational and financial implications for online retailers. High return rates burden e-commerce operations, increasing processing and restocking costs. Understanding the reasons behind this trend and identifying who is most likely to return online orders is crucial for developing effective strategies to mitigate returns.

E-commerce return rates have been steadily rising, often reaching 20-30% across the industry. This can be attributed to several key factors. The inability to physically inspect products before purchase makes it more likely that items will not meet customer expectations. Product sizing, quality, and functionality are common pain points leading to returns. Inaccurate product descriptions, poor-quality imagery, and lack of detailed sizing information often result in receiving items that don’t meet customer expectations. Additionally, “wardrobing” – the practice of wearing an item and then returning it – and the similar practice of “bracketing” – where customers intentionally order multiple variations of a single product with the plan to return all but one – have become increasingly common, driven by the convenience of e-commerce.

Certain product categories are more susceptible to high return rates. Apparel, for instance, can see return rates as high as 40% or more as customers struggle to find the right fit without trying items on. Other segments like luxury goods, beauty, and electronics also tend to have elevated return volumes. Ultimately, the anonymity of online shopping compared to in-person experiences contributes significantly to the e-commerce return epidemic.

Fraudulent returns are another growing challenge, with many merchants reporting incidents of thieves taking advantage of lax policies that are meant to encourage customer loyalty by endeavoring to achieve customer satisfaction. This dynamic has forced retailers to implement stricter measures to validate legitimacy and protect profit margins. Meanwhile, consumer expectations around generous, hassle-free return policies remain high, creating a delicate balance for merchants to manage.

The sheer popularity and ease of online shopping have led to a significant increase in the frequency of e-commerce returns. The 20-30% ecommerce return rate is at least double the rate observed in brick-and-mortar stores. This issue is leaving companies across industries grappling with the financial impact of unsustainable return rates.

Besides dissatisfaction with product quality, appearance, functionality, or sizing or fit issues, some other key factors driving the high e-commerce return rates include customers receiving the wrong or damaged product(s), as well as changing one’s mind about the purchase, and buyer’s remorse.

E-commerce returns are costly for retailers, ranging from 20-65% of the original item value in most cases when accounting for shipping, restocking, and potential loss in value, which doesn’t include the initial fulfillment cost of picking, packing, and delivery. Pure economic waste costs the industry hundreds of billions of dollars in profits each year. Industry estimates suggest cutting returns in half could boost profits by 25%. Effectively managing returns is thus essential for e-commerce profitability and sustainability and a well-designed returns program with a customer-friendly policy, streamlined process, and responsive communication can enhance customer satisfaction and loyalty leading to higher lifetime value and lower financial loss due to returns.

Improving product descriptions, providing size guidance and high-quality visuals, and leveraging AI to offer virtual try-on tools as well as identify “serial returners” before orders are shipped, are some of the strategies companies are adopting to reduce return rates. The effort is worth the investment because effectively managing e-commerce returns is not just to improve the bottom line, but also to build a positive brand reputation, foster customer loyalty, and drive repeat business.

Integrating e-commerce returns management with sustainable commerce practices, like product refurbishment, donation, and resale programs, can also help minimize waste and environmental impact. As consumers become more conscious of sustainability, retailers that demonstrate responsible reverse logistics can enhance their brand reputation.

Customers shopping online are more prone to making impulse purchases, which coupled with the convenient and lenient return policies offered by many e-commerce brands, can inadvertently encourage higher return rates.

Frequent returns can also damage brand reputation and erode customer trust, leading to higher cart abandonment. Businesses must strike a balance between intentionally attracting high-value customers with customer-centric returns policies and limiting sales, and thus growth, by being too restrictive in this area.

Demographics

Several research studies have been published on the demographics associated with high e-commerce return rates, and the groups returning items most often tend to be:

Higher-Income Households: These shoppers are more likely to return items, possibly because they shop for fun or take chances on products they haven’t fully researched.
Wealthier Countries: Countries with higher economic strength, like the U.S., U.K., and Germany, have higher return rates. This is partly due to more lenient return policies and higher disposable incomes.
Frequent Shoppers: Enthusiastic shoppers who are excited to explore new products tend to return items more frequently.
Apparel Shoppers: Customers buying apparel have one of the highest return rates because they can’t try on clothing before purchasing online.

These insights suggest that understanding the demographics and behaviors of a brand’s customers can help retailers implement strategies specific to their business to reduce return rates.

Summary

Changes in consumer behavior, such as the preference for easy returns and free return shipping, are driving higher return rates, which has significant operational and financial implications for online retailers, forcing them to tackle the problem head-on as it can no longer take a back seat.

A multi-pronged approach focused on enhancing the customer experience, optimizing reverse logistics, and leveraging data-driven insights can transform this liability into a competitive advantage. Offering incentives like extended return windows, store credits, or free exchanges instead of refunds can encourage customers to retain their purchases and prevent revenue erosion.

By getting returns right with clear returns policies, demographic-tailored solutions that don’t compromise business objectives, and proactive customer support, retailers can build customer loyalty, improve profitability, and contribute to more sustainable commerce. If done well, customers will buy again. Done poorly, and they will never look back.