Online return policies are crucial for e-commerce businesses to get right. Shoppers want flexibility, convenience, and peace of mind that they can get their money back if anything goes wrong.
Failure to meet these demands can prove costly for SMEs. Not only do they risk deterring new customers (many of whom base their purchase decisions on the returns policy), but they’re also in danger of creating a poor experience and losing existing clientele.
On the other hand, making online returns free and easy puts a significant financial strain on SMEs, who are losing billions of pounds to excessive online returns – and the problem is only getting worse.
So, how do you balance customer satisfaction with commercial health? Below, we analyse the critical reasons behind excessive online returns and explore practical and sustainable strategies for SMEs to help retain revenue.
Key Takeaways
- Small businesses see up to 20% of online orders returned per year
- Understanding why customers send their orders back is crucial to combatting excessive online returns
- Paid returns, encouraging exchanges, clear return policies, and care guides are key to reducing online returns
Rise of serial returners
Online shopping boomed during the Covid-19 pandemic. ONS figures show the percentage of online retail sales grew from 19.7% in February 2020 to 26.6% in May 2022.
Since then, online shopping trends have dropped slightly as people have been keen to return to the high street, but we still spend substantially more online than before the pandemic.
However, with higher online sales come higher returns, which has led to the appearance of ‘serial returners’, which hurts SMEs. Logistics company Zigzag conducted a study into this, explaining that serial returners are opportunistic, impulsive shoppers.
They have a habit of purchasing items in several colours and sizes and returning most (if not all) of them. They’re also generally slow returners, meaning they tend to return goods past peak sales periods, thus reducing their resale value and potential.
Even though serial and slow returners are a minority (accounting for 11% of online consumers), they make up almost 50% of total online returns. SMEs, in particular, see up to 20% of orders sent back. The return rate varies depending on location and industry, and a lack of capacity is cited as a significant issue in addition to the financial strain caused by online returns.
Social media trends exacerbate the issue
Social media trends like shopping hauls and ‘keep or return’ are another major cause of excessive online returns. They’re particularly popular on TikTok and involve the content creator deliberately overordering to display their online purchases.
They then generate engagement by asking viewers whether to keep or return the items. In the Zigzag study, 27% of shoppers admitted to overordering, and 14.5% said they do so to showcase their haul on social media.
- 10 marketing strategies for small businesses
- How to respond to negative customer reviews
- Nine of the best pricing strategies for SMEs
These trends are detrimental to the retailer. Depending on what you sell, the total cost of processing a return can be between £10 and £20 per item.
Overall, excessive online returns are forecast to reach £27bn by the end of this year, costing UK businesses £102bn when you factor in transport, packaging, labour, and missed sales opportunities.
Strategies for reducing online returns
Reducing online returns means healthier margins. However, considering that an astounding 65% of UK online shoppers expect returns to be free, SMEs should tread carefully and choose a balanced approach that achieves sustainable revenue growth without damaging their reputation or the customer experience.
Here are some suggestions to consider:
1. Understand the reasons for online returns
To combat excessive online returns, it’s essential to understand what’s causing them. Below are the main reasons customers returned their online orders in 2023:
Considering that clothing and shoes are the most returned online purchase category, it’s not surprising that nearly 60% of online shoppers return their orders due to sizing issues. Also, a considerable portion (27%) send items back due to damages or faults, followed by late deliveries (8%) and inaccurate website descriptions (5%).
If you don’t already, ask your customers why they return their online orders. One of the easiest and most common ways to gather this information is to include the question in your online returns process.
Whether customers fill out a physical slip or register online returns digitally, simply add a mandatory field that asks for the return reason. For speed and convenience, it’s best to offer a choice of answers, such as:
- 1: Didn’t fit
- 2: Damaged on delivery
- 3: Unsatisfied with performance
- 4: Not as described on the website
- 5: No longer needed
- 6: Found a better price elsewhere
That way, customers can select the option that best matches their circumstances. Crucially, it will provide valuable insights into your business and products and highlight key areas for improvement.
For instance, if many people report damaged deliveries, perhaps you need to evaluate your chosen courier. Or if customers claim that the products they’ve ordered don’t match the description, you might need to review the accuracy of your listings.
2. Start charging for online returns
We highlighted earlier that most shoppers expect free returns. This is an attractive feature for customers exploring new brands and plays a huge part in their decision to choose your business over others.
However, in the same study, 48% of people also admitted they’d be willing to pay as much as £20 in annual return fees. And even though free online returns are generally the norm, the Zigzag study shows that 63% of UK retailers charge customers for returned goods.
Charging for returns is an obvious way to recover some of the lost revenue from excessive online returns, but it does pose some challenges. For example, in a BBC interview, some ASOS customers expressed that they’re now less inclined to shop there and that the seemingly small £3.95 online return fee is a “waste of money” when added up over the year.
Introducing paid online returns is a difficult decision for small businesses, given the risk of upsetting customers and losing brand loyalty.
We know that most consumers are happy to pay to return their unwanted goods under the right circumstances, so the opportunity to strike the right balance is there. Small business owners considering this strategy must charge a fair fee whilst covering their own cost of processing an online return.
Charge for specific behaviours
A potential compromise is to introduce online return fees for specific behaviours. Track your customers’ shopping habits and consider applying a small return charge to those who return more than they keep. You could also charge a fee for returning heavier goods that cost more to ship.
Ensure you communicate the rules to customers well in advance to avoid disappointment. If the behaviour persists, you can then increase the online return fee.
3. Encourage exchanges or store credit
If someone is making an online return simply because they’ve changed their mind or the item doesn’t fit well, you could encourage them to exchange the unwanted item for something more suitable or store credit.
We often assume that customers only want a direct refund. However, in the Zigzag survey we referenced earlier, nearly 60% of UK shoppers said they’re happy to accept a gift card.
An overwhelming majority (83%) said their priority is an easy exchange process, allowing retailers to protect their revenue while providing a great customer experience.
4. Create care guides
Detailed care guides are another practical way to reduce excessive online returns. This is particularly useful if you sell high-value or electrical items.
For instance, if someone buys a hair dryer, you might advise them how and when to clean the filter to avoid overheating. Or, if you sell leather goods, you could educate customers on caring for the leather and suggest suitable products that help keep the material in good condition.
Not only do care guides improve a product’s longevity, but they also reduce its chances of being returned to you for quality or performance-related reasons. And if an item becomes faulty due to poor care, it won’t be resellable, leaving your business considerably out of pocket.
5. Make a clear online return policy
Your online return policy must be crystal clear and easy for customers to find, mainly if it includes any restrictions, such as paid returns or short return windows.
Customers (especially new ones) are bound to check your return policy before placing an order. Hidden or unclear rules create unexpected surprises for the shopper, causing disappointment, frustration, and dissatisfaction. As a result, your professional reputation and customer loyalty could suffer.
That’s why it’s essential to create a transparent online return policy. It should be available on your website and linked in relevant areas, such as marketing or transactional emails and individual product pages.
Try to be as flexible as possible, but remember, the aim is to reduce excessive online returns. It’s impossible to please everyone, so find a healthy medium between customer satisfaction and revenue and make a clear policy to stick to.
What does the law say about online returns?
Before implementing or changing an online return policy, it’s essential to understand the legal requirements first. The Consumer Rights Act 2015, Consumer Contracts Regulations 2013, and Consumer Protection from Unfair Trading Regulation 2008 are the key pieces of legislation that govern customers’ statutory rights when buying goods and services, both online and in-store.
Customers can legally cancel any online order within 14 days of placing it. They then have a further 14 days to send the order back to you. This is known as a ‘cooling-off’ period.
Author's Tip
You must notify the customer if they are responsible for paying for the return. Otherwise, you (the retailer) are liable to cover the cost.
Faulty or unsatisfactory items are eligible for a full refund within 30 days of receipt, regardless of the store’s individual return policy. Customers can request a replacement or repair if a fault develops within 6 months of purchase. If the repair is unsuccessful or a replacement cannot be provided, they must be provided with a full refund.
Retailers are not legally required to refund non-faulty items, such as if someone has changed their mind. Most businesses are lenient and offer a goodwill return policy, especially regarding online returns.
Summary
Excessive returns are impacting businesses of all sizes. The situation is especially problematic for SMEs, who receive as much as a quarter of their orders back.
However, there are options, such as collecting customer feedback and introducing paid returns, which many big brands have already started doing. Promoting exchanges over refunds, creating care guides, and making a clear return policy are also helpful ways to help reduce excessive online returns and protect your revenue.
If you have a business selling products online or are considering setting up an e-commerce business, we hope you have found this article interesting. Please let us know in the comments below if you have any questions, and visit the 1st Formations Blog for more business tips and advice.
Join The Discussion