For most retailers today, the key principle of their integrated omnichannel strategy is to place the customer at the centre, enhancing the customer experience and providing greater convenience. Some notable developments in the last few years in omnichannel retailing have been, for example, the use of in-store self-service kiosks, the use of mobile POS and tablet devices enabling new points of interaction for the consumer, and a mobile-first customer experience design. Much of this work has been around the customer’s point of interaction with the retailer.
There is one area that is often overlooked and remains to be a significant challenge for many retailers. This is the store’s returns process and the returns policy. The consumer’s statutory rights for returning items must be within the legislation which will vary from market to market. Dealing with returns is an inevitable part of retail. This is one of the unhappy customer experiences, and retailers need to know how best to manage returns and refunds. Keeping costs down and providing a great customer experience at the same time is a relentless challenge.
To calculate the return rate, a retailer will divide the number of returned items by the total number of sold items and multiply by 100. That's your return rate. Based on EDC research of the retail payments processing, the return rate for items purchased at a physical store can be around 8%, and this can be as high as 25% for items bought online.
In the fashion industry many consumers are more regularly following a process of 'bracketing'. This is where a customer fills up online shopping carts with multiple sizes and colours of the same item. The plan is to try them on at home, decide what they like, and send back the rest. The act of buying products with the intention of sending them back has become so common that around 30% to 40% of all clothes bought online are returned based on recent research conducted by Eco-Age.
Buy Now, Pay Later (BNPL) schemes are quick and easy to sign up to at the checkout, but returning items isn't always as straightforward. Consumers are using BNPL schemes to make bracketing easier by ordering multiple sizes or styles to try on at home, allowing you to spread or delay the payment for items you'll likely to return. Unfortunately, the returns policy is not always aligned with the BNPL scheme, and it differs from store to store. This has caused nightmares for many consumers because the returns process hasn’t been aligned to have to the method of payment.
Some consumers have had their BNPL accounts frozen, or their credit score has been affected. BNPL customer services are not prepared to deal with customer queries, preferring the store to deal with the customer. This is further exasperated when the return is made face-to-face in-store versus via a centralised returns warehouse. Store staff are unfamiliar or simply untrained as to how to handle the refund when it involves a BNPL transaction.
A clear and concise returns policy will help explain everything customers need to know, especially, if they use alternative payment methods, for example, PayPal or BNPL. Furthermore, for in-store purchases, the store’s point-of-sale systems (front-end) must be integrated into other parts of your business, including the order management and inventory systems (back-end).
When customers buy online and return in-store, the retailer must create a seamless shopping experience. In addition, in-store product returns are way more convenient when the customer can return in any store or even a third-party collection point. The retailer’s staff should be able to view and process all orders of different stores. An integrated POS and order management system will also ensure that inventory is updated in real time. When the return is complete, the change in order, inventory, and customer should be reflected across all the systems.
At EDC, our view of a returned item is an unhappy experience for both the customer and the merchant. However, it represents an opportunity for merchants to further engage with customers, as it provides an additional point of interaction to enhance the overall consumer experience through carefully designed customer payment processing and refund processes.
With over four decades of experience, EDC has built up a unique knowledge pool of payment optimisation scenarios that has been applied to different retail verticals – including grocery, general merchandise, luxury, and hospitality. Although verticals differ in what they sell, by applying EDC’s proprietary 360° Payments Diagnostic and using our benchmark analytics, the complexity of payment acceptance and returns can be demystified, and significant cost savings can be achieved. A returns policy that can surprise and delight customers can be a differentiator in any retailing scenario.
Mark Beresford is a Director at Edgar, Dunn & Company (EDC) and has over 25 years of strategic consulting experience in the payments sector. He is responsible for the company’s Retailer/Merchant payments practice, working with omnichannel merchants and payment service providers across the globe.
Edgar, Dunn & Company (EDC) is an independent global payments consultancy. The company is widely regarded as a trusted adviser, providing a full range of strategy consulting services, expertise, and market insights. EDC expertise includes M&A due diligence, legal and regulatory support across the payment ecosystem, fintech, mobile payments, digitalisation of retail and corporate payments, and financial services.
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