How to Reduce Product Returns and Maintain Profitability for E-commerce Success | 2023 Guide

How Product Return Can Cost Businesses? The State of Product Returns in Recent Years.

Product returns can cost businesses a significant amount of money. 

• A return can cost a business up to 66% of an item's original price, according to returns solution company Optoro. The cost of returns includes the required customer care, transport, repackaging, restocking, disposal cost, etc.
   
• According to Wall Street Journal, processing online returns can cost brands and retailers somewhere between $10 to $20 which is higher than in-store returns.
   
• A recent study by the Wharton School of the University of Pennsylvania found that roughly 10% of purchases are returned, adding up to billions of dollars a year, with online returns higher than in-store returns
   
• Returns could cost manufacturers and retailers more than $100 billion per year, or an average loss per company of about 3.8% according to a study by MIT.
   

As e-commerce grows globally, the number of returns is expected to increase, making it more important for businesses to have a strategic plan for reducing returns.

Apart from financial impacts on companies, it also impacts the environment significantly.

• Approximately 750,000 tones of greenhouse gases were emitted by returns handling in the UK in 2022. The number is on the rise due to the increased demand for online purchases and shorter delivery times commitments by brands and retailers.
   
• Each year 5 billion pounds of returned products ended up in landfills in America. They alone contribute 15 million metric tons of carbon dioxide to the atmosphere.
   

E-commerce and the rising returns

The way people shop has substantially changed over the past few years. More than ever, online shopping has become a popular choice for many individuals. 

• There are 80 million more digital buyers in 2023 than there were in 2022, a rise of 3.1% year over year. 
   
• The increasing popularity of Digital Wallets boosts the trend of online shopping.
   
• Convenience and timesaving. Customers can browse and buy products from the comfort of their homes, without having to travel to physical stores.
   
• Better price. In many cases, thanks to their business model and lower overhead cost, online shops can offer lower prices and discounts to acquire new customers. 
   
• No-questions-asked product return policy becomes the norm for online businesses. Customers feel more comfortable making purchases when they know they have the option to return the product if it doesn’t meet their expectations.
   
• Businesses of all sizes are running their own e-commerce store and marketplace.

Returns will only rise in a digital-first world. According to a study in 2023, 

• In 2022 retail trade grew by 11% compared to 2021. Returns increased by 70%.
   
• Online shoppers return their purchases 3–4 times more than purchases made in the stores.

The Top Reasons for Shoppers to Return Products

Understanding why shoppers return is important. The top reasons for product returns include unmet expectations, damaged or defective products, incorrect fit, and different than described.
According to a study from DealNews, here are the top reasons for Americans when making product returns. 

The most common products people are returning include clothing (75%), electronics (36%), shoes (32%), appliances (13%), and home and garden items (11%).
Another study on Shopper’s reasons for returning purchases from the State of the Industry Report ranked the reasons for returns:

1. Product Quality not as expected.
2. Color / Product Description mismatch.
3. Issues with product fit.
4. Wrong item sent.
5. Product arrived damaged.
6. Product arrived later than expected.
7. Bought to try.
8. Product didn’t work.

The study also found that 42% of shoppers will stop shopping at a retailer upon multiple retailer-induced returns. Brands and retailers must consider these impacts and take action to their quality control and other controllable.

Many of the Top Reasons for Product Returns are Avoidable and Controllable. Don’t Let Returns Harm Your Bottom Line

If your business continues to have a high product return rate, it can diminish your bottom line and also impact customer loyalty.

To reduce non-preference-based returns (e.g. defective products), brands should invest in their product quality control. To reduce preference-based returns (e.g. size, fit, style), you should optimize your e-commerce store with detailed product information, provide high-quality images, and enable product reviews to help customers make informed decisions. By executing these strategies, you can provide more precise content and higher quality products that not only reduce returns but also improve your bottom line and customer experience.

“Defects in products” is one of the key reasons for product returns. How can businesses improve product quality and reduce defective products?

Invest in Quality Control

Invest in QC is essential for businesses. A robust quality control measure throughout the entire production process can help to reduce the number of returns due to defects. By catching defects early on, businesses can reduce the number of defective products before reaching customers. We suggest two methods to start with your quality control measures: 

1. Know your suppliers and assess their performance

It is very important to see where your products are being manufactured. We suggest implementing factory audit (as known as factory assessment) as an effective way to evaluate your supplier. you can understand the factory capacity, working conditions, and more whether it is a new or existing supplier.

A factory assessment audits the production capability and performance of a factory against proven quality principles. As such, the key criteria assessed are policies, procedures and records that would indicate the factory’s ability to deliver consistent quality management over time. It will include below factors: 

1. Quality Management System
2. Good Manufacturing Practice (Factory Environment Standards)
3. Product Control
4. Process Control
5. Personnel

We offer a wide range of factory assessments to help our clients assess the suppliers’ capability and capacity.

2. Implement Product Inspection

Inspection is an effective way to improve product quality and reduce product returns. Brands and retailers can implement a product inspection to catch and fix problems before they reach the customer, reducing the number of returns due to defects or poor quality. 

Bureau Veritas’ inspection services help businesses inspect various attributes of a product and on-site testing in the factory to verify the products meet the quality expectations. Inspection services also help businesses and their Quality Control team to create a feedback loop to communicate with their suppliers to fix the defect areas and improve quality continuously.

Improving product quality is essential for achieving long-term profitability and sales growth. It helps build trust with customers and fuels recommendations and referrals. Excellent product quality also means fewer complaints and returns from customers, which impacts the bottom line positively and encourages business growth.

If you are manufacturing in Asia, learn more from our blog post on Product Inspection in Asia - Ensuring Product Quality for Your Business.

Please feel free to reach out to us. Our support team will support you along the way on your inspection program.

Optimize Your E-commerce Stores to Minimize the Number of Product Returns

Now we know some returns can be avoidable and controllable. Businesses can minimize the cost of product returns in several ways. Here are some of our suggestions that can implement easily in e-commerce businesses.

1. Know your cost of return. Encourage Product Exchange over Returns

One way is to understand the product's return rate and determine what it costs to process returns. Businesses can offer incentives to customers who keep the product instead of returning it, such as a partial refund or a discount on their next purchase. According to a report by The Wall Street Journal, Amazon, Walmart, and other companies are telling consumers looking to return items to “keep it.” By using artificial intelligence, the report said these retailers can determine whether it makes “economic sense” to process a return. 

2. Product detailed and accurate product information – both descriptions and high-quality images

Help customers make informed purchase decisions. Provide detailed information about the product, including size guides, materials, and care instructions. Use high-quality images to give customers a clear idea of what the product looks like to help them make informed decisions.

3. Analyze return data. Identify the most common reasons for returns

Always analyze return data on which products are being returned the most, and why. With the data, find the most common reasons such as incorrect product description, damage, and other product quality issues, and take action to address them.

4. Introduce an Online Return Page

Introduce an online return page where customers need to submit reasons for returns, which can help detect issues early and update product details quickly to avoid more returns.

5. Improve packaging and shipping times.

Businesses can also optimize the processes to improve inventory management, product packaging, and shipping times, which can reduce the average return rate. Improve packaging to reduce the likelihood of damage during shipping. 

6. Encourage customers to leave their reviews

Allowing customers to post reviews of products can help other customers make informed purchasing decisions and reduce the likelihood of returns.

Summary

In conclusion, product returns are a significant challenge for e-commerce businesses, as they can lead to substantial financial losses and harm the environment. With the growing number of digital buyers and the rising popularity of online shopping, businesses must be proactive in addressing product returns to protect the bottom line and maintain customer loyalty.

To minimize its impact and reduce the returns, businesses should understand their causes and work on improving product quality and customer satisfaction. Some tactics include focusing on quality control (product inspection and factory audit are the go-to tools to start with if you haven't already performed any quality control measures to your products), giving detailed product information, analyzing return data, and enhancing packaging and shipping. Additionally, businesses can promote product exchanges, offer incentives to keep items, and use customer reviews to help others make informed decisions.

By using these strategies and monitoring their success, e-commerce businesses can reduce returns, increase customer satisfaction, and achieve long-term profitability and growth in a competitive market.