Markets and Economy

How Technology Is Helping Online Retailers Battle Returns

Learn about some of the innovative ways retailers are using technology and processes to help reduce online returns.
Lou Mastrianni, Head of Apparel, Middle Market Banking & Specialized Industries, Commercial Banking
March 9, 2017

Apparel e-commerce is big. For the first time, clothing and accessories formed the top online sales category in the US last year, even topping computer hardware.

That translates into serious transactions. The Census Bureau estimates that in 2016, domestic retail e-commerce sales amounted to $394.9 billion, a year-over-year jump of 15.1 percent.

For all the good news, though, online apparel retailers have one big challenge: returns. Research varies, but consumers report sending back anywhere from 20 to 50 percent of online apparel purchases, which can add up to profit-killing totals.

Returns cause sellers to take a hit because they involve more than just an item being returned to them: Each return also includes time and manpower spent managing the process with the consumer, examining products when they arrive and potentially writing off some of the items. In total, returns processing adds up to a considerable sum out the door and can cost an average 8.1 percent of total sales.

The extra work can quickly eat up more than the profits made from the original sale. Get too many returns and expect the accountants to say that red is the new black in this season’s ledger. To combat these costs, some innovative retailers are using a variety of technology and processes to help curb returns.

Data Mining

The easiest way to reduce returns is to try to eliminate them altogether. Some apparel e-tailers have employed big data analysis to identify the items and variations that cause the biggest problems. By examining margins, return rates and costs of handling returns, merchants can see if the accumulated losses equal or exceed total margin dollars brought in by an item over time. This information lets managers decide whether to keep or discontinue an item.

Sizing

Problems with clothing fit account for a reported 17 percent of apparel returns, which may not be surprising considering the lack of uniformity among manufacturers’ sizes and the consumer’s inability to try on online purchases.

Size charts are fairly standard among e-tailers, but even converting small, medium and large to numeric sizes can become a problem. For consumers who don't own a tape measure—and are unsure of their detailed measurements—the range of measurements that they can choose from can be confusing, rather than helpful.

To remedy that issue, technology offers alternatives to simple size charts. Some systems ask for a few pieces of information, such as height, weight, age, shoe size, waist size, etc., and then calculate the most likely fit. Others let customers specify a clothing item they already own and then compare an on-screen silhouette of the currently owned article with the one under consideration. There are even 3D models that attempt to show how clothing will hang and move on someone’s body.

Eliminating Surprises

Size is just one factor that can result in product returns. Another is lack of consistency, particularly when clothing ordered online looks different than what the customer expected.

Technology can help better set expectations. Implementing 360-degree images, so the buyer can see an item from all angles, is one method. Another is high-resolution photography that lets consumers zoom in to better see each item’s details. However, as with the other potential solutions highlighted in this article, these both face their own limitations. For example, most online shoppers don't typically have color-calibrated monitors, so the colors that appear on the monitor may not match the colors in the photograph. And even the best photographs may not have complete fidelity to hues and shades.

Customer reviews are yet another tool to help set expectations. Consumers who have already purchased an item can post a review or product rating, and even leave feedback for the merchant that can be incorporated into the product page. Actual experience can better inform consumers and also provide merchants the ability to react and respond to customer complaints.

Helping consumers avoid purchasing products that aren't right for them can save merchants money and, more importantly, can improve customer experiences. And the more trust a merchant builds, the more likely they are to build long-lasting and increasingly profitable relationships with their customer base.

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