5 departments, 5 ways: How to reduce return rates across the business

According to Shopify, in 2023 alone consumers drummed up an eyewatering $743 billion worth of product returns, around 14.5% of total retail sales. Yes, returns are an inevitable part of the online shopping experience, so how do you keep them under control? In today's economic climate, it will come down to holistically handling your return rate as a business.

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Alyssa Thomas, head of E-commerce at Aje, revealed in Style Arcade’s returns webinar that the Aje team has added return rates as KPI for each department. This business-wide mindset change holds each team member accountable and has resulted in quick wins based on decisions made during Monday Trade—while the products are still in season. 

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“We will look week on week how returns are trending,” Alyssa said, “Whether something is selling well in store or maybe getting returns online—what’s the reasoning behind it? Is it based on fabrication, or is it based on the way it was styled? We will look at all aspects.”

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To start getting a cohesive understanding of your return rates and where to begin reducing them, here are 5 essential strategies that can be implemented across the business. 

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1. Merchandise planning

Decreasing your online return rate begins with being scrupulous about the performance of your product and categories. It is key to constantly refer back to what your data is telling you.

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As Style Arcade’s head of Brand & Community Brogan Hembrow discussed in the returns webinar your data analysis should have a 3-pronged approach; your product mix, supplier mix and price mix.

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Product mix 

If you are selling more units of a category with a high return rate, relative to other categories, then your total returns will increase.

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For example, if footwear has a return rate of 40% and dresses 25%, selling proportionally more footwear will push your return rate higher than it would with an alternative product mix. 

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“Being strategic about assortment planning and investing more in low-returning categories is going to give you the ability to manipulate your overall return rate and move the needle on your return frequency,” Brogan explained.

Price point mix

With higher price points, comes a naturally higher return rate. This is due to a longer decision-making process that extends beyond the checkout with the customer evaluating if the quality and need for the garment is equivalent to the investment. A healthy mix of price points in the business will naturally lead to a healthier return rate. 

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You can also calculate your return unit economics to compare your profit per category, and see which price tiers are costing you more - or creating a net positive. 

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Average profit per unit sold - (minus)

Average cost per unit to returns

= Net profit per unit after returns

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Supplier mix

Being able to analyze your returns data beyond the product alone is going to reveal any red flags before the next season. Looking at your supplier mix by return rate and return reason is important, particularly in mitigating risk before expanding into new categories or ranges with them.

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Consider if one supplier has a significantly higher return rate than other, or if there are quality issues attached to this supplier.

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For example, if you’re best-selling dress is being returned at the velocity it's selling due to fit or fabrics, it may be time to reassess your assortment plan and find a more reputable supplier. Having a sound supply mix will ensure better working relationships with suppliers to ensure product availability, quality, and cost-efficiency.

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2. Buying

The rule of thumb for buyers to reduce return rates is to purchase based on after returns (AR) figures from last season. Not the before returns (BR) figures. If your team isn’t looking at the data from the "end" of the customer and product lifecycle, it can negatively affect a size curve analysis. 

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For example, if only smaller sizes were returned by the end of a season, and the customer kept the larger sizes - the data is telling you this particular style is suited to the customers with a larger size preference. 

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Buying based on after returns (AR) data, means you’re truly listening to your customer. What did they really want at the end of the life cycle? You can also use BR vs AR data to understand where there may be underlying block issues that need to be addressed by the product team. 

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Understanding return data at a numerical and customer analytical level is game-changing to know what to lever for the next season. 

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Do you need bigger prints because they returned items with dainty prints last season? Do you need to adjust our curve because smaller customers don't tend to hold onto that style? Or, do you need a block change because every customer is returning and sizing up?

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Ultimately, AR is the end cash in the business and the balance on your OTB — and you can't buy for cash that doesn't stick around.

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3. E-Commerce

Return rate is just the beginning when it comes to the online metrics you should be tracking to analyze your returns. According to Loop, customer obsessed brands are becoming more aware of how they can use the following metrics to gain more insight into the returns process, and reduce their impact.

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Refund rate 

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Refunded orders in a time period / Total returns in the same time period

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The refund rate is often used as a quality assurance metric and can indicate that manufacturing facilities are below par, the product is not delivering on what marketing is promising, or the materials are not meeting customer standards.

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Exchange rate 

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Exchanged orders in a time period / Total returned orders in the same period

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This will tell you whether the right product is getting to your customer by showing you the percentage of returns where you are still keeping a customer. The higher your exchange rate is (as a percentage of total returns) the healthier your business will be. 

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Retention rate 

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(Customers at the end of the period - customers acquired during the period) /

Customers at the start of the period

This metric shows how effective your return process is at keeping a customer. Your return process should be encouraging customers to remain a customer, which we go into detail about below. 

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4. Shipping and fulfillment 

As an e-tailer, how you deal with returns can make or break the customer experience. The key is to create a shopping-like experience at this end of the customer journey. 

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Try extending the post-purchase experience as a fully realized part of your customer’s journey in the following ways: 

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• To keep your customers as satisfied as possible post-purchase, ensure the product is delivered in the customer’s expected timeframe. If it’s too late, the customer may have missed out on the specific reason they made the purchase, or have had a change of mind. 

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• When a customer requests a return, make sure you’re using a returns form or platform that asks them to provide a reason. Then, based on their answer, you can enable the platform to suggest replacement options automatically.

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• If you introduce a return fee, try offering a number of different, convenient refund and exchange methods: instant refunds, free exchanges, at-home pick up? Get creative!

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• Consider adding free returns as part of your loyalty program. This not only encourages "free returns for loyalty members" messaging, but drives repeat purchases and rewards your most profitable, loyal customers (who are also less likely to return than new customers!)

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• If they're requesting a refund, you could sweeten the deal by offering them extra store credit as a bonus for exchanging the item. 

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5. Marketing and Customer Service

Website content and marketing feeds must help to ensure shoppers are as confident as possible before they purchase to reduce the likelihood of returning. 

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Marketing feeds

Be careful when including specific high-risk return products in marketing campaigns, and remember to remove them from your product feeds, if specific acquisition channels are resulting in high returns.

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However, a product or category that has a high return rate doesn’t always mean you should write it off. Analyzing your acquisition drivers is just as important when looking at your return rate; don’t start pulling back spend on your high-returning categories simply to reduce returns. 

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Check if these categories are key acquisition and retention drivers, then find out why the product is being returned. Take back the control of the product you’re putting in front of the customers through your paid acquisition and shopping discovery campaigns, and take action in-season by addressing the return reason. 

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“If you're running a business with a high paid channel mix it's a good idea to automate your shopping campaigns to exclude products with over-indexing return rates,” suggests Brogan.

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“Not only will this help keep a handle on return rates, but ultimately improve that first time customer experience by not suggesting a product to your audience that is likely to be returned.” 

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Website content

Loop suggests leveraging user-generated reviews to help your shoppers understand how items fit before they order, citing 72% of consumers believe that reviews are more credible than branded communication, and 76% have purchased because of a recommendation. 

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Ensure product descriptions are extremely detailed, and the images are high quality and relatable, so the customer can picture the end use in their own life. Add size charts, in-depth size guides, size recommendation tools and any other information you can to help the customer avoid buying the wrong size.

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Loop also suggests packaging as another way to communicate with customers and extend the online experience. For example, you could include a piece of cardstock with a QR code that says, “Not happy? Let’s exchange it for something different”.

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Then the customer can scan the QR code, and be met with an exchange-first optimized returns portal.

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Use live chat support not only during the purchase experience to help the customer choose the right product and size, but also on the returns portal page, as a real-time defense against avoidable returns.

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And finally, ensure your returns policy is crystal clear and easily available, especially concerning final sale items that you do not want returned unless faulty. 

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Returns are one of the known evils of retail, but by drilling down on up-to-date data and seeing what the source of the return issue is, you can begin to improve your return rate — and your bottom line. 

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Main image credit: Who what wear