To Return and Refund or Just Refund? That is the Question.

Michael Foy, Reverse Logistics | November 21, 2022

To Return and Refund or Just Refund. That is the Question.

Omnichannel retailers should ask for items to be returned in-store. 

Conveniently, 60 percent of shoppers prefer to make in-store returns — where they receive a refund or store credit on the spot. Armed with fresh funds, they’re likely to make new purchases while they’re there, connecting the online experience to the physical store. When executed properly, this can differentiate your banner, boost shopper loyalty and increase customer lifetime value. It’s also more sustainable, since returns are collected at the store, which is already integrated into the company’s supply chain and logistics.

For out-of-store returns, the economics are vastly different.

When it comes to pure-play e-commerce retailers and out-of-store returns for omnichannel retailers, the decision tree has more branches. In the early days of e-commerce, the decision to return or keep was based on a static formula — return the item, provided its resale value exceeds transportation cost. 

It’s important to note, however, that during this period most returned goods were sent directly to landfills. Today, there are more options, so companies are able to make landfills a last resort. Brands and merchants, understanding that shoppers with the highest number of returns are often their best customers, know they have to find a better approach to returns management.

Product returns are becoming more sophisticated thanks to AI and ML. 

Advanced returns management systems will eventually answer the return-or-keep question based on configurable rules engines. Cost analyses will be expanded to include:

  • All-in return transportation costs, including accessorial charges
  • Labor costs, including receiving, inspection and put-away 
  • Inventory holding costs
  • Projected demand and price dilution
  • Optimal value recovery method

Customer lifetime value, shopper returns history, seasonal nuances and SKU history are just a few of the factors that will feed the decision. Sustainability measures, optimal value recovery, speed-to-resale, and of course, costs, can further augment the decision to return or keep. This will provide a platform for multidimensional decision support.

For example, let’s say a customer returns a $17 lamp. The system quickly determines this product should be slated for liquidation because returning to stock would be cost prohibitive. Or the system recognizes this is the first order ever received from this shopper; therefore, the best solution is to let the newbie collect a refund without returning the lamp in order to establish goodwill and trust. In this case, letting the shopper keep the item is an investment. 

Other processes and technologies could be implemented to mitigate returns. Enhanced quality control measures would reduce the number of returns caused by merchants, such as shipping the wrong product, inaccurate site content or damage in transit. Brands and merchants could also use augmented reality (AR) to let shoppers virtually try before they buy. 

Return-less refunds could invite bad actors into your shopper base.

Return-less refunds could invite bad actors into your shopper base.
Issuing a refund without requiring the item may seem like the right choice, economically and environmentally, but this practice could backfire. The shopper that was told to keep the $17 lamp may try to return a higher-priced item. Or they may encourage friends to order similar products from the same retailer, then initiate a return to see if they get the same offer. 

According to the National Retail Federation, organized retail crime (ORC) costs retailers 7 percent of their total annual sales. Fraudulent returns exceed 10 percent, and it’s growing. So, seller beware. 

The real answer is, “it depends.”

Whether or not a merchant should offer return-less refunds depends on their goals and where the organization is in their digital transformation. A recent Inmar survey revealed that maybe 50 percent of retailers understand the hard and soft cost of a return, but even that shaky number may be inflated. After all, you don’t know what you don’t know. 

So remember, when asked “when do you let a shopper keep a return?” the answer is, “it depends.”