Returns in online retail: what they cost and how they can be avoided

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The return rate varies greatly from store to store and depends on the product ca
The return rate varies greatly from store to store and depends on the product category. While hardly any items are returned for cosmetics or household goods, 20 percent of products ordered online are returned in the clothing sector.

Returns are an integral part of online retailing. Up to 60 percent of the goods ordered are returned in individual online stores. This causes high costs, as the online retailer survey by the Lucerne University of Applied Sciences and Arts reveals. An HSLU research team asked online stores how returns can be avoided. The gap between expectation and reality plays a special role. This is also shown by the e-commerce mood barometer of the HWZ: Nine out of ten consumers state a lack of fulfillment of expectations as the reason for returns. The two studies were conducted in collaboration with Swiss Post.

Anyone who orders a pair of pants, a smartphone or a new sofa on the Internet often does so in the knowledge that they can return the item. There are many reasons for returning an ordered product: The size doesn’t fit, the quality is worse than expected or the color looks different in real life than in the photo in the online store. "Anyone who buys a product online has clear expectations," explains Thomas Wozniak, study leader of the online retailer survey and lecturer at the Lucerne University of Applied Sciences and Arts. Online commerce is distance commerce. "That makes it particularly difficult to create the most realistic possible conceptions of the product among consumers," says the expert.

One in fourteen items is returned

The gap between expectation and reality is not the same for all product categories. Accordingly, there are large differences in the returns rate between the various online stores. This is shown by the results of the HSLU study, in which around 230 Swiss online retailers participated. The average return rate of all online stores is seven percent. According to the study, every fourteenth item purchased from a Swiss online store is returned. "The range here is considerable," says Wozniak. While a third of online stores have a return rate of one percent or less, there are isolated providers where up to 60 percent of the ordered goods are returned. Retailers in the fashion sector are most frequently affected by returns. Customers return an average of one in five items in this segment. "In clothing, there are many things that can’t fit. That’s why the returns rate is correspondingly high in this segment," says the HSLU expert.

20 francs processing costs per return

Not all returned items can go straight back into normal sales. This is a major challenge for online stores. Three quarters of all online retailers state that they are able to offer returns at the original price. However, there are always slight quality or hygiene defects in returned items," says Wozniak. Those products that can no longer be resold at the original price must be offered by the online stores at a discount, sold in an outlet store or, in rare cases, even destroyed. ’Returns thus become a cost factor for online stores,’ Wozniak said. According to the companies surveyed, the selling price of a returned product is reduced by an average of 18 percent. In addition, returns cause considerable processing costs. Online retailers often pay the price of shipping. They have to receive the returned goods, check that they are intact and prepare the products for sale again. The average process costs for a single return are around 20 francs, as the HSLU survey revealed.

How returns can be avoided

No wonder, then, that almost two-thirds of Swiss online retailers confirm that avoiding returns is of great importance to them. The HSLU research team has investigated how this could work. Supportive measures that encourage consumers to only order products that they will later keep are particularly promising," says Wozniak. There are many possible solutions: For example, better product descriptions or images that show the product in the context of use and illustrate how it works in a room. In the case of clothing, size is a critical factor. New tools enable customers to better assess size. Improved product information is already a popular measure among online retailers to avoid returns. Eight out of ten Swiss online stores already rely on this. In the meantime, there are also technical tools and new methods of analyzing customer data that help consumers find the right product. Some of these are already being used by Swiss online stores. Wozniak is unable to answer conclusively whether the abolition of ’free returns’, which has been the subject of much discussion in the industry, would reduce the returns rate in the long term. For the e-commerce expert, one thing is clear: ’The abolition of the free returns option would certainly not solve the problem completely. Free returns are not in themselves a reason for someone to return a product they have ordered," he says, adding that the best way to avoid returns is to provide customers with effective support in finding the right item straight away.

The return behavior of customers

The easier it is to return goods, the more likely it is that customers will change their behavior when ordering. This is shown by the E-Commerce Sentiment Barometer 2022, which the HWZ Hochschule für Wirtschaft Zürich has compiled in collaboration with Swiss Post. The study examines the habits and preferences of over 12,000 Swiss consumers. Around half of consumers already plan returns into their orders by ordering multiple items to choose from. The option of being able to return returns in the same packaging must be available to eight out of ten customers and is therefore the top aspect in relation to the packaging of the goods ordered.

More on Swiss online retailing 2022

Further information on the online retailer survey of the Lucerne University of Applied Sciences and Arts and the e-commerce sentiment barometer of the Zurich University of Applied Sciences and Arts HWZ as well as the two studies for download are available HERE.