Here's What This Retailer Did to Stop Returns (Customers May Love It)

Product returns have long been the scourge of retailers. It takes time and money to process unwanted stuff and then figure out what to do with it. As a result, returns take a big chunk out of retailers’ already thin profit margins.

As e-commerce sales have boomed over the years, the problem has gotten worse, thanks in large part to retailers’ generous free shipping policies. But retailers were willing to tolerate the losses as long as overall sales kept growing.

However, growth for growth’s sake is no longer en vogue. As inflation-wary consumers have reduced spending, retailers are looking to boost profits by trying to curb returns.

Amazon Inc.  (AMZN) - Get Free Report, for example, this year started to charge $1 on some returns and label products as “frequently returned,” presumably to discourage people from buying them. In 2022, The Gap Inc.  (GPS) - Get Free Report lowered its returns window to 30 days from 45 days. Zara began charging its customers $3.95 for online returns to third-party drop-off points.

Carrot Instead of Stick

But one retailer is trying a different approach: bribe consumers. Online women apparel retailer Dress the Population, which also sells into Nordstrom and Saks Fifth Avenue, is now offering discounts of 10% to 70% if they keep the merchandise they bought.

The approach seems to be working. In the past, Dress the Population suffered an average return rate of 55%. It cost the company $25 for each item shoppers returned. But since its new policy, returns have fallen to 7% and return costs have plummeted to $12 per item. Dress the Population estimates about 14% of its customers have opted for this policy.

In some ways, the approach makes sense. Retailers risk alienating consumers by restricting returns. And people are more likely to do something if you give them a carrot versus a stick.

But all of the discussion about lowering the cost of returns seems to have ignored the reason why people return stuff in the first place. And it’s not fraud or indecision.

Ill-fitting Clothing Drives Product Returns

Coresight Research, led by former Citi retail analyst Deborah Weinswig released a report earlier this year in which it surveyed retailers and consumers about returns. Out of all of the products consumers returned, it was apparel, specifically pants, shirts/blouses, and dresses, that shoppers tended most often to send back to retailers.

The Coresight survey found that 53% of consumers returned items because the clothes didn’t fit, followed by the wrong color (16%) and damage (10%).

Lack of fit has always plagued e-commerce apparel retailers because online consumers can’t try on the clothing before they buy the merchandise. By contrast, physical stores have fitting rooms with big mirrors.

In response, retailers have been rolling out virtual fitting rooms, 3D sizing, and AI-powered tools to help properly match body to clothing size. Helping consumers find the right sized clothing would save retailers a lot of money.

Coresight estimates the average online apparel return rate at 24.4%, which could generate $25.1 billion in processing costs this year alone.

“Proper sizing is often a number-one priority in tackling online apparel returns,” the report said. “By leveraging 3D scanning and size- recommendation technology, brands and retailers can boost consumer confidence in purchases and reduce returns.”

But for many retailers, changing return policies is a much easier (and cheaper) way to curb returns versus using technology that could solve a persistent problem in buying clothes over the internet.