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Turning Retail’s Return Problem Into Its Next Reinvention Opportunity

Turning Retail’s Return Problem Into Its Next Reinvention Opportunity

May 26, 2021 at 06:26PM
by PYMNTS

One of the unanticipated and expensive consequences of consumers’ great digital commerce shift has been an explosion of retail returns clogging the system, but a spate of new tech and a growing consumer acceptance of it are poised to turn this costly challenge into a golden opportunity.

Add in the fact that the returns problem is not only bad for business but is also bad for the environment and forward-thinking retailers are doubly motived to address it.

“Retailers know it can make the difference between a sale that’s profitable and a return that’s damaging to the bottom line,” Ronen Luzon, founder and CEO of virtual fitting firm MySize, told PYMNTS. “A retailer that’s not reexamining their approach to returns is a retailer that’s bleeding money. It’s such a massive issue and such a make-or-break profitability factor for these businesses, that online apparel retailers have no choice but to clamp down.”

The MySize solution is a variation on the virtual fitting room, using sensors already built into smartphones, as well as machine learning (ML) and artificial intelligence (AI) algorithms, to ingest manufacturers’ sizing charts along actual customer feedback to provide customers with hyper-accurate clothing sizes that make it easier to buy the right size the first time, leading to fewer returns. It solves a problem that Luzon said apparel merchants can no longer afford to sleep on given the radical upswing in the amount apparel sent back to stores over the last year.

That uptick isn’t exactly accidental. In fact, it stems from a growing consumer habit called order bracketing, wherein they knowingly order multiple copies of the same thing to try it on, buoyed by the certainty of free shipping and returns. And that willingness to leverage returns has in turn created a $9 billion problem for retailers that involves nearly 40 percent of online footwear and apparel orders are now sent back.

And intentional practices like order bracketing is on the tip of the returns problem iceberg. Liberal returns policies, CO-OP Financial Services Chief Information Security and Privacy Officer Paul Love noted a recent conversation with PYMNTS — creating an easy entry path and desirable for both professional fraudsters and friendly fraudsters looking for an opportunity to cash in on some ill-gotten gains. Seconding that idea, Jason Howard, Ethoca’s executive vice president at Mastercard, told Karen Webster that the digital age of commerce demands that financial institutions and merchants pull back some control in their returns processes and policies to avoid getting swept up in the tidal wave of fraud that has built up as consumer have increasingly re-oriented their lives around digital.

They knew the digital shift was coming, Howard noted, but it showed up a half decade ahead of schedule as a result of the pandemic, which has in turn put a lot of pressure on retailers to up their game, digitally speaking. And though the pandemic is finally fading into the background with the rollout of vaccines in the U.S., the great digital  pivot it inspired is, by all accounts, here to stay. Mastercard has estimated that 7 in 10 consumers intend to stick with their online buying habits, while PYMNTS data indicates there are  97.3 million U.S. consumers who are classified as  “digital shifters” — those who have done more in the digital channel and less in the physical channel for the same activity. For consumers living in large cities, the digital shift is even more dramatic, with 47 percent of all consumers in those urban locales defined as digital shifters.

But that great digital uptick has comprised more than digital natives upping their online habits. Consumers are now  discovering new brands online and shopping them, while a whole new class of consumer is joining the world of online commerce for the first time — some 20 percent of consumers are defined as new to the internet. And that many new users, he noted, is a recipe for confusion that will create a run of returns and chargebacks like the world has never seen, and retailers are going to have to come up with an innovative response. Responses, he noted, that will be derived from and built out of better data about consumers and how they shop over time.

Most importantly, through using better tech and data, “both the merchant and the issuer are delivering much better user experiences — and that’s really the name of the game,” said Howard.

Merchants and the tech players that enable them are working overtime to delivery the better retail experiences that it is hoped will eventually stem the rising returns tide sweeping through retail. Earlier this month Walmart  announced its acquisition of Zeekit to give consumers a virtual reality (VR) alternative to the fitting room in store that will, in essence, let consumers digitally try their clothes on before they buy them — and reduce the need for practices such as order bracketing.

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