Retailers seek solutions to escalating dilemma of online returns


In the ever-flourishing world of online shopping, there might be only one thing more important to customers than free shipping — free returns.

As much as many online shoppers have come to expect the perk of free shipping with their orders, it is the returns process, free or not, where retail companies have much to lose. In response, retailers are seeking new ways to mitigate the cost of returns in the online environment while also enhancing the overall experience of their shopper base.

“Our customers are looking for an elevated return process that mirrors our brand aesthetic and shopping experience. They are looking for return options that are fast, easy and come at no additional cost,” says Ligon Johnson, director of fulfillment at Parachute, the lifestyle-minded bedding/bath/home décor retailer based in Venice Beach, Calif.

“Returns are part of the shopping experience and have to be considered from product conception, and anticipated in your planning process,” Johnson says, whose company’s footprint is largely online with a few physical stores in select markets.

Given that product returns have emerged as an inherent staple of the online shopping evolution, there never was a truer statement. A whopping 30 percent of all products bought online are returned, according to Invesp, a company that assists retailers with their digital web strategies via conversion rate optimization. That compares with about 9 percent of purchases from physical stores that are returned.

Further, Invesp reports 92 percent of consumers it surveyed indicated they will buy again from a retailer if returning products was easy.

Travis Heard, chief financial officer of sustainable menswear brand Outerknown, says a seamless returns process is especially vital in attracting new customers “to get them comfortable purchasing from the brand for the first time.”

New customers “don’t want any barriers to purchase, and we don’t want any barriers to purchase,” Heard says. “We want to eliminate those hesitancies, so they can place that first order online.”

Headquartered in Culver City, Calif., Outerknown has a purely online presence in addition to stocking surf shops primarily on the West Coast. Heard says the company always has offered free returns, marketing that fact prominently on its website. While he says Outerknown’s return rate is far less than 30 percent, satisfying customers through a returns process is an operational challenge for online retailers.

“For us, returns have always been an expensive piece of the puzzle,” Heard says. “It is easy to go into a store and say, ‘I got this in a medium, but I need a large’ and do an exchange. But that’s very difficult to do online from a transactional level. Obviously, you want to learn why people are returning items, so you can keep that return rate lower.”


In total, merchandise returns account for more than $351 billion in lost revenue for all U.S. retailers, or about 10 percent of all total retail sales, according to a 2017 report from Appriss Retail.

In seeking to optimize their returns processes, both Parachute and Outerknown have cast their lot with turnkey returns vendor Happy Returns, which launched its Full Stack Returns platform in October 2018.

For online retailers, the platform is designed to be a comprehensive system that reduces operating costs within retail supply chains while maximizing revenue recaptured from return exchanges rather than outright refunds. It goes without saying, according to Heard, that retailers always prefer an exchange over a straight refund.

“In a refund capacity, you are 100 percent losing the sale, and you’re also incurring the cost that was the outbound shipping and fulfillment as well as the return. It is a lose-lose all the way around,” he says.

Happy Returns attacks the returns issue in various ways, allowing retailers to reduce customer service resources. The system, which is digitally branded to the individual retainer, starts by recommending customers consider a merchandise exchange instead of a refund, depending on the items being returned and the reason for the return. Fulfillment can be via app, mail or in person.

For physical returns, Happy Returns operates what it calls Return Bars, a network of 275 physical locations in urban and suburban locations nationally where customers can walk in and settle the return. That eliminates the need for customers to have to print labels, re-wrap packaging and go to shipper locations.

As an additional caveat, the system will aggregate a retailer’s returns in regional Happy Returns Return Hubs to determine the most cost-effective disposition, especially when returned items are damaged or lose value. The platform also providers retailers with real-time analytics reporting data on their returns.

David Sobie, co-founder and CEO of Happy Returns, says a confluence of trends make returns a major pain point for online retailers, starting with the fact that there are more returns today because of the changing nature of shopping.

“What ends up happening is people shop differently,” he says. “They often will buy multiple sizes or multiple colors in an online transaction. When they are shopping online, they might say, ‘I am going to pick all the things I might try on in a store and try them on at home and return the things that either I don’t like the most or don’t fit the best.’”


Other challenges facing retailers include changing shipping protocols that increase costs to retailers, according to Sobie. Compounding that, he says, is the “friction” consumers experience when they have to physically prepare products to send back to the retailer.

“Consumer expectations around returns are changing,” he says. “Consumers expect retailers to foot the bill. Retailers want the customer experience to be as easy as possible and as cost effective as possible.”

Heard says already, through greater opportunities for exchanges and store credit on returns, the Happy Returns system is creating about a 20 percent savings for Outerknown.

At Parachute, the process has freed resources to focus on other parts of the business, Johnson says.

“Part of the appeal of online shopping is the ability to try a product at home to see if it fits into your lifestyle,” she says. “We get it and want our customers to be beyond satisfied. For us, offering an easy way to return items is just a natural cost of doing business, and helps ensure happy, loyal customers.”

M.V. Greene is an independent writer and editor based in Owings Mills, Md., who covers business, technology and retail.


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