Decoding the art of minimising ecommerce return rates

In the fiercely competitive online fashion realm, return rates aren't merely statistics; they represent the backstage tumult impacting profits, driving up operational expenses, and eroding customer loyalty.

While larger brands may accommodate longer return windows, smaller direct-to-consumer (D2C) ventures struggle with return tracking and associated costs, which can chip away at profits by up to 25%.

Amid this landscape, consumer business owners should recognise returns as a norm rather than a business burden, particularly in the online commerce sphere. Businesses can glean invaluable insights by delving into the unique challenges of fashion ecommerce regarding returns and reverse logistics.

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The return landscape in fashion ecommerce

According to Unicommerce’s India ecommerce Index Report 2023, return orders comprised 10.4% of total orders in FY23—a slight uptick from 9.8% in FY22. Notably, clothing stood out as the most returned online purchase category, with return rates ranging between 25% - 40%.

Supported by a recent Coresight Research study, the average return rate for online apparel orders surged to 24.4% in 2023, significantly eclipsing the global online return rate average of 16.5%.

Fashion ecommerce faces return rates over 20% higher than brick-and-mortar stores, attributable to the absence of tactile experiences for online shoppers. Unable to touch, feel, or try on items, they resort to higher return rates.

Understanding the why

Online apparel returns stem primarily from receiving damaged or defective items and the lack of standardisation in sizing, quality, and colour across brands and platforms.

Additionally, the preference for cash-on-delivery (COD) payments contributes to return rates, with COD ecommerce order returns rising to 20.3% in FY23 from 19.3% in FY22.

Moreover, customers engaging in bracketing—purchasing multiple items in various sizes or colours intending to return what doesn't suit them, along with wardrobing and returning used items—comprise 50% of all return fraud.

Navigating returns: Best practices for online success

Here are a few key brand-facing and customer-facing strategies that can help minimise return rates and transform the customer experience, fostering brand loyalty and sustained profitability.

Addressing RTOs

Returns typically fall into two categories—Return to Vendor (RTV) and Return to Origin (RTO).

RTOs occur when the parcels fail to reach customers and are returned to the seller's pickup address, while RTV involves products returned directly by customers. You cannot control RTOs, but you can track reasons for returns and aim to keep the percentage below 10%.

To keep the issue of RTOs under check, D2C brands can consider adopting a strategy of increasing prepaid orders on their websites. To encourage customers to opt for the prepaid option, brands can offer minimal discounts compared to Cash on Delivery (COD).

By incentivising prepaid payments, brands can effectively reduce the likelihood of RTOs and improve their bottom line.

Analysing RTVs by category and price points

Unlike RTOs, RTVs must be examined in depth.

Return rates vary across product categories and price points. Lower-priced items typically have lower return rates compared to higher-priced ones.

To manage returns effectively, categorise products by price ranges (e.g., less than Rs 500, Rs 500-750, Rs 750-1000, etc.), and analyse return rates within each category. This segmentation helps establish return benchmarks for future reference across different product categories.

Implementing benchmarking strategies

D2C brands can use their website’s historical data or industry standards to establish benchmarks for return rates. For instance, if the average return rate for products priced under Rs 500 is about 32%, brands can use this benchmark to assess the performance of newly launched products.

Products with lower returns than this benchmark are deemed successful, while those exceeding it may require quality, design, or size adjustments to minimise returns.

Identifying root causes of returns

Besides benchmarking, D2C brands should analyse returns deeply to uncover root causes like fit issues, fabric quality, or discrepancies between product descriptions/photos and the received item. For example, if the benchmark for a category is 32% and your return rate is 58%, it suggests a fit issue.

Collecting additional data points from marketplaces and your website—where consumers may explicitly mention fit, fabric quality, or description mismatches—can provide valuable insights. One can identify and address these issues by examining returned products.

Establishing efficient return management processes

Effective return management is crucial for handling returned products promptly and accurately, when dealing with marketplace returns.

Begin by verifying its condition and checking the associated order ID upon receiving a returned product. Confirm the returned item matches the originally sent product and assess whether it has been used or if a wrong item has been returned.

If the product is incorrect or used, contact the customer if it was sold through your website. For third-party marketplace sales, submit a claim explaining that the item cannot be refunded due to its used status. Video proof is vital for processing such claims. Ensure to record the opening of every returned product as evidence.

Understanding and adhering to marketplace policies is essential to maximise claim opportunities and mitigate business losses. Failure to file claims can result in significant financial setbacks.

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Customer-facing strategies

Extended return period

By offering an extended return period of at least 30 days, customers will feel less pressured to make hasty decisions, which would increase the satisfaction and trust in the brand. According to a study conducted by Sendcloud, extending the return period from 14 to 30 days can lead to a 57% reduction in the return rate.

Detailed product presentation

Prioritise high-quality product images and encourage customer reviews to enhance online shopping. Accurate descriptions, including product details and transparent return policies, empower confident purchases and reduce return rates.

Utilise 3D/AR technology

Embrace the power of 3D and augmented reality (AR) to allow customers to try on products virtually. Enable them to visualise how items look and fit in their own space, mitigating uncertainties and reducing the likelihood of returns.

Keep your customers informed

Keep your customers engaged throughout the returns process with proactive updates. Leverage channels like email, Facebook Messenger, or SMS to provide timely information on return status and anticipated refund timelines.

While it may not be possible to drop return rates to zero, consumer companies must understand their products and customers to minimise returns. Return rates are more about understanding your product and identifying areas for improvement.

Retailers can significantly reduce return rates and enhance customer satisfaction by implementing a multifaceted approach combining brand-facing and customer-facing initiatives.

CEOs can aim to lead the way in redefining ecommerce success—one hassle-free return at a time.

Alok Paul is the Co-founder and COO of Berrylush.