E-commerce Returns Management: Everything You Need to Know

October 4, 2023
5 min read
E-commerce Returns Management: Everything You Need to Know

E-commerce returns have emerged as an unfortunate side-effect of the rise of online shopping. While retail sales have continued to grow steadily, the National Retail Federation estimates $816 Billion worth of merchandise was returned in 2022. 

Returns and returns fraud have become a part of doing business, and retailers need to tackle the problem head-on with appropriate ecommerce returns management. In this article, we will closely examine the impact of returns on the retail sector and how to approach returns management in ecommerce for maximum profitability.

State of Order Returns: E-commerce Returns Statistics

Order returns are common across retail sales, especially in online commerce. E-commerce returns statistics from 2022 indicate that approximately 63% of shoppers in the U.S. engaged in bracketing, where customers buy multiple sizes or colors of a single item to see which version fits them best and return the rest. 

E-commerce returns management is not just limited to reverse logistics; retailers also need to minimize returns, lost sales, and return fraud.

According to Statista, clothing (26%), bags and accessories (18%), and shoes (18%) are some of the product categories that experience the maximum number of returns. 

E-commerce returns statistics for most returned online purchases by category in the U.S
E-commerce returns statistics for most returned online purchases by category in the U.S. (Source: Statista)

Some of the most common reasons for returning online purchases are:

  • Received the wrong product
  • The item doesn't match the description
  • Received damaged or defective items
  • Experienced buyer's remorse
  • Size or fit issues

According to a study by PowerReviews, item doesn’t fit (70%) is the leading reason for ecommerce returns, closely followed by received damaged or defective items (65%), and the product does not match the description​ (49%).

Coresight Research reveals that the top three reasons for online apparel returns in the past 12 months are issues with size or fit (53%), color (16%), and damage (10%). 

Returns management in ecommerce includes refunding the customer, repackaging the product, restocking, and potential loss if the item can't be resold. The ecommerce returns process can be expensive, and not all returned items can be restocked. Damaged goods or products returned outside of the return window can result in inventory losses. However, a complicated or tedious ecommerce returns process can negatively affect a brand's image and customer loyalty. ecommerce returns statistics from USPS revealed approximately 92% of customers will purchase if the return process is easy.

Today, most customers expect a 30-day return window and free, hassle-free returns. With ecommerce returns management playing a crucial role in informing purchasing decisions, streamlining the returns process is more important than ever, especially during the holiday season and busy periods.

Impact of Returns on Sellers and Merchants

Returns have a cascading effect on a seller's finances and reputation, especially in prominent marketplaces like Amazon and Walmart. Ecommerce returns solutions allow businesses to adopt a proactive approach and identify and remedy the reasons behind order returns.

Cost Perspective

Processing Returns

When a customer initiates a return, customer service representatives must handle the return request, which might involve communication back and forth. On receiving the returned product, warehouse personnel must inspect, sort, and potentially restock the item. 

Apart from the additional labor for direct handling, there's an administrative cost associated with processing refunds, updating inventory, and sometimes, liaising with third-party sellers or suppliers about the returned items.

Shipping Cost

Many ecommerce shipping platforms offer free returns — while this is a competitive move, the seller must bear the return shipping fees, which can be significant, especially for bulky or international returns.

Lost Sales During the Restocking Cycle

When a product is returned, it doesn't instantly become available for another customer. The inspection and restocking time mean the product is out of the sales cycle, potentially leading to missed sales opportunities, especially if it's a high-demand item.

Inventory Disposal Costs/Wastage

Not every returned product can go back on the shelves. If an item is damaged, used, or returned after a considerable period, it might not be fit for resale, leading to wastage. Furthermore, the likelihood of wastage is even higher for perishable items or those with a short shelf life.

Customer Loyalty

While the occasional returns are part and parcel of ecommerce, improper ecommerce returns management can cause a breakdown in customer trust.

Shipping an incorrect or damaged product can raise doubts about a merchant's quality control and order fulfillment processes. Similarly, a complicated ecommerce returns process or delays in processing returns can deter customers, and they might avoid shopping from that merchant in the future to prevent potential hassles.

Transparent communication during the ecommerce returns process, such as acknowledging the receipt of returned goods and consistently updating the refund status, can reassure customers and build trust.

Every returned product due to an error on the merchant's part is a missed opportunity to build trust. With multiple such misses, customers may start perceiving the brand as unreliable.

Marketplace Penalties and Seller Reputation

Marketplaces serve as centralized hubs where merchants and sellers connect with a broad audience of potential customers. These platforms provide sellers with a vast and readily accessible marketplace to showcase their products. The marketplace model of ecommerce is quite popular among businesses.

Frequent returns, particularly those arising from issues like damaged, wrong, or misrepresented products, can have far-reaching consequences for sellers on marketplace platforms. Here's a closer look at the potential penalties and charges that can ensue:

  1. Increased Fees: Marketplace platforms often implement fee structures that can be impacted by return rates. When returns become frequent, sellers may find themselves facing higher fees associated with the processing and management of these returns.
  2. Suspension of Selling Privileges: Excessive returns, especially those attributed to seller errors or product quality issues, can trigger severe consequences. Marketplaces may suspend a seller's privileges temporarily or even permanently.
  3. Negative Impact on Reputation: Beyond the immediate financial implications, frequent returns can significantly tarnish a seller's reputation in the marketplace. Unhappy customers often leave negative feedback and ratings, making it harder for the seller to attract new customers and sustain a positive image.
  4. Loss of Visibility: Marketplaces value customer satisfaction, and they often reward sellers with low return rates and high satisfaction scores by granting them greater visibility. Conversely, high return rates can push a seller's listings down in search results, diminishing their product visibility and, consequently, their sales potential.

A Brief Outlook of Marketplace Policies: Amazon and Walmart

Amazon’s Policies and Charges

Amazon typically offers a 30-day return window for most products, setting customer expectations for return eligibility. If a product is returned due to a seller's fault (e.g., shipping the wrong item), Amazon expects the seller to cover the return costs. For sellers using Amazon Fulfilled by Merchant (FBM), there's an administration fee, generally 20% of the refund amount, in case of a return. For Amazon FBA, return processing fees amount to $2.12 to $2.32 per standard item and $2.40 to $3.41 per large standard item. For oversized items, it can go up to $4.19 to $75.08.

Amazon can impose penalties on sellers with high return rates, ranging from increased fees to suspension of selling privileges. Moreover, a high return rate can negatively affect a seller's Buy Box eligibility, reducing their visibility and sales potential on the platform.

Walmart’s Policies and Charges

Walmart provides a generous 90-day return policy for most items. However, third-party sellers on Walmart can set their return policies, provided they meet Walmart's minimum quality standards.

Walmart expects sellers to maintain a specific product quality and order fulfillment standard. Repeated returns can result in penalties ranging from higher commission rates on sales to temporary or permanent suspension from the platform.

Best Practices to Reduce ecommerce Returns

E-commerce returns are widespread, with PowerReviews reporting that approximately 88% of respondents in a study make returns at least occasionally. While returns and return frauds are here to say, stringent ecommerce returns policies can address critical issues to reduce returns as much as possible. Some ecommerce returns best practices are:

Improve Fulfillment Accuracy

An efficient fulfillment process can always reduce the ecommerce return rate. By refining the pick, pack, and ship processes and partnering with reputable carriers, you save on return costs and elevate customer satisfaction. Remember, the aim is to get the order right the first time, every time.

1. Pick Operations

Use barcode scanners to match product codes from the order list and reduce manual selection errors. After a batch of orders has been picked, perform a quick audit to address picking challenges and ensure all items match the order list. 

Designate specific warehouse labeling locations for different products. This oversight minimizes confusion and aids in faster, error-free picking.

2. Pack Operations

Before packing, perform a QC check to verify that the product is in good condition, is the correct variant (size, color, model), and matches the order. Use appropriate packaging materials to prevent in-transit damage. For fragile items, bubble wrap, foam inserts, or padded envelopes can provide added protection. 

Ensure packages, including address and handling instructions, are labeled correctly to reduce delivery errors or mishandling.

3. Ship Operations

Integrate your warehouse management system (WMS) with carrier systems for real-time tracking and accurate shipping estimates. Schedule to ensure timely delivery and avoid situations where customers request cancellations or returns because of unexpected delays.

Partner with reliable shipping carriers that offer insurance. This provides compensation in case of damages and indicates the carrier's commitment to safe deliveries. Periodically review carrier performance to identify patterns of delays or damages and address them directly with the carrier.

Enhance Fraud Prevention

To reduce fraudulent returns and ensure a more sustainable and profitable operation, it’s essential first to understand the fraudulent behavior and malpractice behind return fraud.

Understanding Returns Fraud

  • Wardrobing: This is when customers purchase items, use them briefly (like wearing a dress for a single event), and then return them for a refund. The item, although used, is often returned as "unworn" or "unused."
  • Counterfeit Product Returns: In this scenario, a customer buys an original product, replaces it with a counterfeit or lesser-quality version, and returns the fake product for a refund.
  • False Damage Claims: Some customers claim that a product was damaged upon arrival, prompting a return and refund, even if the product was in perfect condition.

Fraud Prevention Measures

Clearly define what constitutes a valid return

Specify the condition items must be in and the return window. Make sure the return policy is transparent and easily accessible on your website. 

Implement product authentication measures

Attach serial numbers or unique QR codes to ensure the returned product matches the original item sent, preventing counterfeit returns.

Meticulously inspect returned products

Train your returns team to inspect returned products and identify wardrobing and false damage claims. 

Leverage customer data to detect return frauds

Implement a warehouse management system to track customer return patterns. Analytics can help identify serial returners or customers with suspicious return behaviors.

Send proactive alerts to customers

Notify customers when their return behaviors are identified as potential fraud or abuse. In extreme cases, after multiple warnings, it might be necessary to ban customers who frequently exploit the return policy.

Optimize Product Pages

An optimized product page can set clear and accurate expectations and communicate ecommerce returns policies to minimize logistical and financial challenges.

Accurate Product Descriptions: Ensure product descriptions mention material, dimensions, functionality, compatibility, and other relevant details. If certain questions about a product come up frequently, incorporate those answers into the product description. This can reduce the uncertainty that might lead to a return.

High-Quality Images: Offer images of the product from various angles to reduce the chances of customer dissatisfaction after receiving the product.

Size Charts and Guides: Provide clear and standardized size charts, especially for clothing and footwear. Highlight how measurements are taken and mention if a clothing item fits true to size, runs large, or is on the smaller side. Such insights can drastically reduce returns due to size issues.

AR 3D Depictions: Consider using Augmented Reality (AR) to allow customers to virtually "try on" items like glasses, jewelry, or even furniture in their space. This interactive experience sets clear visual expectations. A 3D representation of the product provides a more in-depth look than traditional images.

Clear Returns Policy on Product and Checkout Pages: Clearly state the return policy for individual items on the product and checkout pages. Mentioning the return policy during checkout reinforces this understanding and may prompt a double-check from the customer before finalizing the purchase.

Maintain Competitive Pricing

Not to state the obvious, but competitive pricing isn't just about attracting customers; it's also about retaining them and ensuring their satisfaction post-purchase.

Customers often conduct price comparisons across various platforms before committing to a purchase. Ensuring your products are priced competitively makes customers feel they've made an informed and smart buying decision and prevents buyer's remorse. If a customer discovers the same product at a lower price after making a purchase, buyer's remorse can be a powerful motivator for initiating a return.

A track record of competitive pricing reduces the urge to continually price-shop, making customers more loyal to your brand and less likely to return items. When customers feel they're getting a fair deal, their overall satisfaction with the shopping experience improves and reduces the inclination to return products.

Managing the Reverse Logistics Process

As ecommerce grows, so does the importance of a well-structured and efficient reverse logistics system.  Companies can optimize costs and reinforce a positive brand image by ensuring a seamless return procedure.

Initiating the Return

Many ecommerce carriers offer return services at an extra cost. A return service simplifies the ecommerce returns process for customers and ensures that the returned item reaches the designated location safely and promptly.

Another alternative is enabling the customers to return the product to the specified facility. While it can save costs for the business, it's crucial to provide clear instructions to the customer regarding packaging, labeling, and the return address to ensure the process runs smoothly.

Routing to a Facility

It’s standard procedure to route the returned items to their source location, a central warehouse or distribution center.

Sometimes, it's more cost-effective and efficient to route returns to a nearby warehouse or brick-and-mortar retail store. This approach can optimize inventory distribution, particularly for items in high demand in certain locations, and considerably cut logistics expenses.

Receiving and Quality Control (QC)

Once returns arrive, direct them to a designated station separate from the regular receiving area. This process helps streamline the QC process and prevents potential mix-ups.

It's crucial to have a dedicated team trained for receiving and inspecting returns. They can assess the returned products for any damages, signs of wear and tear, wardrobing, or any other discrepancies that might affect the product's resale value.

Restocking, Disposal, or Vendor Return

If the products are deemed fit for resale after passing QC, they can undergo the standard putaway procedure to be reintroduced into inventory and made available for future orders.

Products found to be damaged or unfit for resale should be marked for disposal. Sometimes, the best course of action might be to return the product to the original vendor, especially if the item has manufacturing defects or issues that fall under vendor warranties.

Add Customer Feedback

Listening to and acting on customer feedback can reduce return rates and build stronger, more trusting relationships with the end customers.

Regular feedback can highlight recurring problems with individual products, such as consistent sizing issues, color discrepancies, manufacturing defects, or misleading product descriptions. Rectifying these can reduce returns due to unmet expectations.

Understanding grievances can lead to adjustments in return policies, balancing business viability and customer satisfaction. Feedback on damaged items can point towards inadequate packaging, prompting a review and upgrade of packaging materials and methods. If customers regularly return items because they arrive later than expected, feedback can push businesses to optimize their shipping and delivery processes.

When customers see their feedback is valued and acted upon, it encourages better engagement with the seller and marketplace platform. Trusting customers are more likely to keep a product and work with customer service on issues instead of opting for a return.

Next Steps

While returns will always be a possibility in retail, ecommerce returns management helps manage the inevitable. Returns and return fraud can cumulatively add to business expenses and significantly affect profitability if left unchecked.  Returns management in ecommerce works to reduce returns and optimize reverse logistics to maintain a balance between profitability and competitive integrity. 

Consider outsourcing your reverse logistics to a third party or integrating an ecommerce returns solution to monitor key warehouse metrics, keep customers in the loop, and prevent fraudulent behavior. Managing the ecommerce returns process well is just as important as accurate order fulfillment in the context of customer trust and engagement.

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