Ecommerce Returns Management: Industry Overview, Challenges, and Best Practices
Did you know that of the $1.29 trillion ecommerce sales recorded in 2022, retailers incurred $212 billion—a staggering 16.5%—in product returns? What’s worse, 10.7% of the returned merchandise (worth $22.8 billion) was lost to return fraud.
As a retailer, if you’re constantly dealing with lost revenue from returns and nightmarish logistical challenges, know that you're not alone. Returns and refunds are inevitable for e-commerce businesses, as customers can’t see or touch the products before buying.
But here’s the thing to remember: Customers dislike returning products. And the only thing they detest more is a cumbersome, unclear, or lengthy return process.
In fact, our research at parcelLab found that 92% of respondents say a brand‘s returns policy sways their purchase decisions. In addition, 62% of shoppers say they are unlikely to shop with a retailer that provides a poor returns experience.
In this article, we'll explore the challenges and pitfalls of e-commerce returns management and share some best practices for improving the returns experience and boosting customer satisfaction. We’ll also cover the role of returns management software and how it can help improve your practices.
Challenges in e-commerce returns management
Managing e-commerce returns isn’t easy, which is why most retail experts believe the best way to deal with them is to minimize their occurrence. How? This is something we’ll explore in the subsequent sections, but first, let’s look at some of the pressing challenges in e-commerce returns management.
High return rates: Due to the convenience of online shopping, customers are inherently inclined to buy products online, try them out, and return them if they aren’t satisfied—especially if shipping and returns are free.
In 2022, clothing topped the charts at 26%, followed by bags & accessories, and shoes, at 19% each, in the list of most returned online purchases in the US. As such, managing a high volume of returns can be pretty challenging, particularly in peak seasons like holidays or promotional events. Needless to say, it should be a priority for brands to reduce return rates.
Reverse logistics: Managing the process of returning items, including reverse logistics, can be quite complex. To do it right without compromising the customer experience, you may need to hire additional staff, add more warehouse space, and even establish a dedicated department to handle reverse logistics. All of this translates to greater costs and complexity for online retailers.
Product condition: The returns process involves shipping products back and forth, which greatly increases the likelihood of them getting damaged in transit. Not only does this impact their resale value, but some may be rendered completely unusable. Sometimes retailers are compelled to destroy these products—all of which result in financial losses.
Cost: Returns management turns out to be costly for retailers as they must shoulder the expenses of return shipping, handling, and restocking. What’s more, these shipping costs aren’t just financial but also environmental.
A study found that returns in the US alone generate 15 million tons of carbon emissions and five billion lbs of landfill waste every year. That’s equivalent to the amount of trash produced by five million people annually!
Lifetime warranty: Returns for products with a lifetime warranty can be particularly tricky. These may be owned by different consumers in their life cycles, so identifying and providing a process for returning them can be quite challenging.
How do you manage returns on e-commerce?
Did you know that consumers are 3-4X more likely to return items bought online than products purchased in-store? However, the vast majority of retailers (81%) still do not have a strategic returns program in place. They simply continue to perceive returns as a cost of doing business.
Fortunately, there are some tried-and-tested strategies that can help you minimize returns to a large extent. Here are a few of them:
1. Include detailed fit information
Our research shows that 33% of shoppers have returned items due to size and fit issues—and it’s the top reason behind product returns.
The best way to tackle this is to use customer data to propose the most appropriate sizes for shoppers.
For example, athleisure brand Fabletics offers detailed product descriptions on its website with information on the type of fit (light to max compression), size guide, and performance features (chafe resistant, moisture wicking, etc.).
The site includes a fit survey that collects data from shoppers on how a product fits (e.g. true to size, runs small, runs large, etc.). In addition, customers can upload pictures of the product and submit their reviews. The site also asks visitors to fill out an attribute survey to understand the customer’s body type (athletic, lean, petite, curvy, etc.) so it can recommend the best products for them.
You may even take a leaf out of Walmart’s book that now offers a “virtual try-on” feature on its app and website to help customers visualize how a particular item of clothing may look on them. Shoppers can upload their photos and superimpose clothing products on them to get a sense of the style and fit before buying a product.
2. Charge customers for returns
Another popular tactic that many online retailers (including Zara and H&M) are now using to minimize product returns is to charge customers for returning products.
Although free returns help to boost customer retention and loyalty, charging for returns can be especially helpful at thwarting “bracketing,” a practice where customers buy multiple sizes or colors of a particular product with the intent to retain the best variant and return the ones that are unsuitable.
How to improve e-commerce returns experience
According to Gaurav Saran, CEO, ReverseLogix, “Making returns easy for consumers is a way to create a loyal customer.” If you can make the process as seamless as possible, returns can be a “superpower.”
With that in mind, here are a few best practices you can adopt to improve the returns experience for your customers:
Highlight your return policy
A clear return policy can help set customer expectations appropriately and reduce the risk of dissatisfaction. This is especially important in the current landscape, where 92% of respondents say a brand‘s returns policy sways their purchase decisions at least some of the time.
So make sure that your return policy is displayed prominently on every product page. It should include information on the types of items that are eligible for returns, the costs (if any) associated with them, and the time frame within which they must initiate the return.
Optimize the returns process through e-commerce returns solutions
Besides your return policy, you must also display the steps involved in your returns management process with clear instructions for customers. There should be no room for ambiguity. You may even create an easy-to-use self-service return portal where customers can generate pre-filled labels or QR codes and process their returns without any involvement from your company.
That’s exactly what Conrad Electronics did to streamline returns for its customers.
The company implemented a new returns process in 2020, utilizing parcelLab's order status page and returns portal to replace its previous analog system. As a result, customers no longer receive a physical returns label with their orders. Instead, they must register their return on Conrad's online store to obtain either a QR code for their smartphone or a label to print.
Although this requires slightly more effort on the customer's part, they can now track the status of their return online.
Conrad's switch to an online portal gave the brand several advantages, including:
Having clear and transparent return transit times, all the way through last-mile tracking
Conrad gets early data on whether or not returns can be reused
More sustainable returns
Faster returns processes and lower costs due to automated booking
Automated returns and post-purchase communication
Highlight your sustainable disposal policies
Make sure to let your customers know about your policies for returned products that cannot be restocked. Also, mention the methods you use to dispose of them sustainably (e.g. recycling or donating them to charitable organizations, etc.).
Use data and analytics to identify return trends
Be sure to gather data on customer returns—including how often they happen, which products have high return rates, and more. By analyzing returns data, you can identify patterns or trends that may indicate issues with your products, website, or internal processes.
For instance, if a particular product is frequently returned due to sizing issues, you may need to update your size guides or provide more accurate sizing information. Or, maybe you discover that products are often damaged in transit; in this instance, you may need to evaluate your shipping practices to avoid mishaps.
Whatever the case, collecting—and acting on—returns data can lead to smarter processes, improved customer satisfaction, and reduced costs associated with returns processing and restocking.
As we said from the get-go, product returns are inevitable. Follow the e-commerce returns tips mentioned above to nip them in the bud and protect your bottom line. At the same time, make sure to communicate your return policies and processes clearly to customers so you can set expectations and build trust and loyalty with them. To learn how you can achieve all this seamlessly, contact parcelLab today
Read all of the Returns Management Playbook Chapters:
Chapter 1 - What is Returns Management?
Chapter 2 - Returns Management: Challenges and Best Practices 👈 you are here
Chapter 3 - How to Reduce Your Return Rate: 11 Tips For Fewer Returns 👉 read next chapter
Chapter 4 - What is Self-Service Return?
Chapter 5 - Guide to Retail Returns Management
Chapter 6 - The Best Return Management Software
Chapter 7 - Understanding B2C Europe Returns
Chapter 8 - The Complete Guide to Retail Returns Marketing
In ecommerce, returns are typically handled by the retailer or the seller. Shoppers get in touch with retailers who’ll then facilitate the process of reverse logistics and refunds.
In some cases, third-party logistics providers or fulfillment centers may handle returns on behalf of retailers or sellers. These providers can handle retail returns marketing, and they can take care of the returns journey on behalf of the retailer.
Whether or not you “have” to accept returns is determined by your returns policies. For instance, if you require customers to return items in unused condition and within a certain timeframe (e.g., 30 days), and a customer follows these guidelines, then you must honor the return. On the other hand, if someone fails to meet the conditions you set in your policies, then you’re not obligated to accept the return.
This depends on your returns policy and internal processes. Broadly speaking, ecommerce returns are handled through the following steps:
- The customer initiates a return, ideally through a self service return portal (though manual processes still exist)
- The return goes through the reverse logistics process, where items are sent back to the retailer
- Once the brand deems a return as valid, a refund is issued to the customer
Ecommerce return policies can come in different shapes and sizes, depending on the brand. That said, they usually include the following:
- Time limit - The period during which customers can return products
- Product condition - This specifies the condition in which the product must be returned—e.g, unused and in its original packaging
- Returns procedure - How the customer can return the product—e.g., via mail, in-store, etc.
- Refund method - The return policy will specify the method of refund, whether that be a refund to the original form of payment, store credit, or an exchange for another product
- Costs - This would include the cost (if any) to return the product; a retailer may choose to charge shipping or restocking fees when needed
According to the National Retail Federation (NRF), the average rate of return is 16.5%, though yours may be higher or lower depending on your industry. Our research at parcelLab found that the majority of shoppers (78%) have had to return their purchases. Just over a fifth of consumers (22%) said they‘ve never returned an online order, while 54% said they return online orders less than 10% of the time.
Tobias, the CEO of parcelLab, brings a unique blend of experience and passion to the logistics and supply chain industry. Having grown up in a family logistics business, Tobias developed an acute understanding of the industry's shortcomings, which led him to recognize the opportunity to bring a new perspective to the sector. With a keen eye for customer experience, Tobias saw an opportunity to transform the traditional focus on cost and speed into one of engagement, creating a new paradigm for operational processes and data.
Through his work with parcelLab, Tobias has become a pioneer in the industry, spearheading the company's mission to bring brands and people closer together by breathing new life into data complexity. Over the past seven years, Tobias has helped define parcelLab as the global Post Purchase Experience leader, working tirelessly to build a team of experts who share his vision for the future of logistics.Read more from Tobias