Interviews, insight & analysis on Ecommerce

Resolving the ramifications of rampant returns

By Keren Ben Zvi, VP of data, PayU GPO

Ecommerce sales have seen a dramatic increase over the last few years, sped up dramatically by the Covid-19 pandemic. They also show no sign of slowing down. In 2021, eCommerce sales amounted to approximately $5.2 trillion worldwide. The figure is expected to grow by 56%, reaching $8.1 trillion by 2026. While this rise in sales is seemingly a positive outcome for the retail industry, it comes with notable challenges. One particular obstacle that many ecommerce retailers are now tackling is the relentless rise of returns.

Today, at least 30% of all products ordered online are returned. This is particularly prevalent in the fashion industry, with clothing and shoes topping the list of most frequently returned products. Mass returns can be detrimental to merchants – slashing profit margins and putting their business growth at risk. In order to reduce these return rates, fashion retailers should look to adopt Big Data strategies and analyse customer shopping behaviour in detail to understand the reasons behind these high return rates.

Additionally, by offering fast refund functionalities or specific payment features, retailers can cushion the impact of returns by preventing unwanted products from being shipped out in the first place. It’s crucial that merchants take action and begin implementing some of these strategies as soon as possible to keep profit levels up and remain competitive.

Understanding the ecommerce consumer

Visibility is vital when trying to understand why so many online shoppers choose to return their purchases. The ability to leverage data gained through advanced analytics can help merchants identify return habits which, in turn, can improve business strategies and drive ecommerce growth.

Returns data can help merchants to identify the key challenges causing returns. A popular reason for high online returns is ‘bracketing’ purchases – where consumers buy multiple sizes of the same item and return the ones that don’t fit. By using data analytics, merchants can identify which items they offer are most often susceptible to bracketing. This can then enable them to fix the issue at the root, for example giving more detailed measurements for each size so consumers can see just by looking at the product webpage which one they need.

Other solutions could include enhancing their ecommerce sites to offer size guides for individual items or virtual fitting rooms. Not only will this help to reduce returns, but improving the online customer experience can encourage customers to revisit an online store, with 96% of customers believing that customer experience is a key aspect of brand loyalty.

Data plays a crucial role in assisting online fashion retailers in identifying significant time periods characterised by high return rates, extending beyond the expected events like Christmas and Black Friday. By employing anomaly detection techniques, these retailers can uncover patterns and trends that might otherwise go unnoticed. For instance, through rigorous data analysis, a brand may discover that a considerable portion of its customers tend to return clothes during the summer holidays. Armed with this valuable insight, the brand can proactively adapt its returns policy, well in advance, to cater to the specific needs and expectations of its customers. By leveraging data analytics, the brand not only gains a deeper understanding of customer behaviour but also ensures that they are well-prepared to handle the surge in returns during these peak periods, ultimately enhancing customer satisfaction and optimising their operational processes.

Improving refund and payments processes

58% of consumers want a hassle-free ‘no questions asked’ return policy. To put it simply, they want their money back as efficiently as possible and will likely go elsewhere if a brand can’t deliver. This means that outdated refund methods aren’t going to cut it, particularly as refunds on online card payments can take several days to be processed.

Instead, retailers need to embrace new, innovative payment solutions that can help streamline the returns process. For example, account-to-account refunds via Open Banking happen in real time, making refunds instant. For retailers, this solution enables them to bypass the card networks and their associated fees, which reduces operational costs.

Another alternative payment example is Release on Delivery (RoD), where money is released to the merchant once the product is received by the buyer. This offers consumers faster refunds and more control of their money.

Another major worry that hangs over the return process is fraud. Retail return fraud can be prevented by merchants’ ability to immediately match the return claim to their customer’s history. Centralised payments through a single legal entity make it considerably simpler for businesses to link customers to their purchases across all sales channels. This means merchants no longer need bank accounts in a country to receive payments; central bank accounts make payments to them. By doing this, retailers can strengthen their defences, making it more challenging for someone to submit a false return claim.

Best-of-breed payment service providers can provide merchants with access to hundreds of local and global payment methods, such as Open Banking and RoD. By partnering with payment providers like this, fashion retailers can improve their refund processes – driving customer satisfaction and retention, which can help to cancel out the loss of returns and boost overall revenue.

Payment service providers (PSPs) also have a key role to play in the fashion refund process. PSPs securely handle payment information and ensure the successful transfer of funds. When a refund is requested, PSPs come into play by verifying the refund authorisation and eligibility. They also manage the funds, confirming that the correct account is debited from the merchant’s account. PSPs also play a crucial role in transaction reconciliation, making sure the refund is debited to the original payment method. In short, PSPs streamline and facilitate the refund process, offering a seamless experience for both merchants and customers.

With the rate of online returns continuing to increase, business leaders in the fashion industry need to open their minds to the solutions provided by Big Data, PSPs and alternative payments. Not only can these methods help overcome the ramifications of returns and maintain profitability, but they can also enhance the shopping experience for customers – it’s a clear win-win.

Refunds and returns are an important component of the customer relationship equation that shouldn’t be ignored. It’s crucial to strike the correct balance between offering clear and consumer-friendly refund policies and attempting to discourage customers from returning items if merchants want to keep growing in the current economic climate.


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