An increase in product returns and less patience from customers have made the returns process a nuisance. Many businesses feel that they are in a bind—returns chomp at their profits, but they fear driving customers away by charging for returns. That’s for good reason—most consumers now carefully check for a free and easy return policy before buying anything.
To make life simpler, many retailers contract out part of the returns process to third parties. One such company, Happy Returns, created software and a returns system that makes it convenient, cheap, and less wasteful to return items, one that doesn’t require printing or packaging, and refunds are almost instantaneous. This makes the return process a breeze for merchants, customers, and the environment.
In a recent podcast, David Sobie, Vice President of Happy Returns (a PayPal company), and Daniel Keyes, Senior Analyst of Merchant Services at Javelin Strategy & Research, discussed the state of how companies do returns and how the systems can be improved, especially with third-party help.
Returns Can Be a Pain
Typically, the process of returning items by mail is painful. The customer must print a shipping label, find a box, package the item, then deal with the uncertainty of whether the return will reach the retailer and when the refund or exchange will be received.
On the retailer side, returns are costly and complex.
“For businesses that sell shoes or apparel online, return rates can be as high as 30% to 40%,” Sobie said. “This means that a large portion of the items shipped out will eventually come back as returns. This results in increased costs for shipping, inspecting the returned items, refurbishing them if possible, and managing their resale.”
There is a third stakeholder to consider as well: the environment. The packaging used to return products often ends up in landfills.
“A beautiful return process is one that eliminates friction for shoppers, reduces costs for retailers, and minimizes environmental impact,” Sobie said. “That is what we are striving for.”
Happy Returns’ Approach
Happy Returns provides a convenient solution for shoppers, retailers, and the planet. From the customer’s perspective, the key advantage is being able to drop off the return at one of more than 9,000 partner stores.
“Just like returning an item to a physical store, our service allows shoppers to initiate their return online,” Sobie said. “Instead of printing labels and packaging items, they receive a QR code and directions to nearby drop-off points. Shoppers can bring their item and QR code to these locations without the need for packaging, and the return process is initiated instantly.”
For retailers, combining multiple items from different shoppers and merchants into a single shipment reduces processing costs.
For example, Sobie said, “if you’re returning a shirt from Everlane at an Ulta Beauty drop-off point, your item will be sealed in a bag and placed in a reusable tote along with other items. Throughout the day, this tote gets filled with returns from different merchants. By shipping these aggregated totes instead of individual packages, the cost per item in shipping is significantly reduced.”
Another source of cost savings lies in cheaper shipping costs.
“We work with about 700 different merchants, and their returns are sorted by merchant at regional return hubs,” Sobie said. “Instead of using traditional parcel shipping, we switch to freight shipping on pallets, which is much cheaper.”
This system not only benefits retailers financially but also improves customer service. When shoppers drop off their items in person and receive an immediate refund, there is no need for customer service calls regarding an order’s status or refund inquiries.
For the environment, Happy Returns adopts reusable shipping totes, which replace cardboard boxes.
“The totes we use are made from recycled plastic and can be used approximately 100 to 150 times before being recycled into new totes,” Sobie said. “So, it’s an environmentally friendly solution that reduces waste and promotes sustainability.”
Providing customers with an immediate refund when they make a return is also a crucial part of Happy Return’s process.
“If you can give them their money back right when they drop off the item, it greatly improves their experience,” Keyes said. “By partnering with a service like Happy Returns, merchants can enhance the return process, create a positive customer experience, and potentially increase customer loyalty.”
It may seem counterintuitive, but making returns easy for customers is actually beneficial for retailers. When returns are hassle-free, shoppers are more likely to purchase from a retailer and become loyal customers.
“Eighty-plus percent of people will read a retailer’s return policy before they check out,” Sobie said. “If the return process is difficult, it can deter shoppers from completing their purchase. So, by making returns easy, retailers can improve their conversion rates and increase customer loyalty.”
Retailers Are Adapting to E-Commerce
Although there has been discussion about the end of free returns, research shows that shoppers prioritize free returns when they choose a merchant. However, not every return method needs to be free.
To address the cost of returns, some retailers are starting to charge for returns by mail because shipping items back individually is costly and inefficient. At the same time, they offer free return options to their stores or through cost-effective services like Happy Returns.
“The goal is to guide customer behavior while managing costs and maintaining customer satisfaction,” Sobie said. “An example of this approach is seen in the return policy of Steve Madden, where returning to their stores is free, but there’s a small fee for returns through Happy Returns and a larger fee for returns by mail.”
This effectively guides customers toward a free (or inexpensive) return option, which they want.
“It is still important for merchants to provide some form of free returns, whether it’s free mailing returns or other convenient options like Happy Returns,” Keyes said. “Giving consumers the choice to return items for free is crucial because not everyone can or wants to mail in their returns and pay the associated costs.”
There are other pluses to having customers return products in-store.
“Instead of immediately offering a refund, retailers are engaging with customers to understand why they want to return the item and explore alternative options,” Sobie said. “This could include exchanges for different sizes or colors, or even suggesting other products the customer might be interested in.” Personalized support during the return process can turn a refund into a continued relationship with the customer.
New Trends in Returns
With the rise of e-commerce, customers are strategically changing not just where they shop but also how they shop.
“Online shoppers often buy multiple sizes or colors with the intention of returning what doesn’t work for them, a practice known as bracketing,” Sobie said.
Returns by mail are becoming less popular. Customers and merchants find it inconvenient and costly. Instead, merchants are offering alternatives like drop-off points at their stores or through third-party networks like Happy Returns.
“These networks have expanded, and now almost 90% of U.S. households are within a 10-mile radius of a drop-off point,” Sobie said,
Merchants are still figuring out the best policies and methods to charge for returns without frustrating customers. It may take a few years for merchants to refine their processes and offer more cost-effective and consumer-friendly return options. But Happy Returns’ approach is clearly a step in the right direction.
The aggregation of items and use of efficient shipping methods make this method of returns a win-win-win situation. It provides a hassle-free experience for shoppers and cost savings for retailers, and it contributes to a more sustainable future.
