With the holiday season rapidly approaching and the headache of the East Coast port strike averted for now, brands are thinking about their next biggest holiday obstacle: returns.
Every year, returns grow in frequency. Last year, more than $620 billion worth of products was returned. Studies have found that each returned product costs brands an average of $10-$20. For lower-priced items or items with thin margins, that can quickly make a product into a net negative on a brand’s line sheet.
In the last year, brands have increasingly started to use the strategy of charging customers for returns. The latest is Asos, which, last week, implemented a return charge fee of a little more than $5 for customers who regularly return items and keep less than $50 worth of goods.
It’s a good way to dissuade people from abusing return systems and costing brands potentially millions of dollars a year, but it also has its downsides. Brands like Pretty Little Things and H&M have faced criticism from customers for their return fee policies, so much so that H&M rescinded it policy last year. Increasingly, brands are looking for alternative ways to reduce returns without charging return fees.
Markarian, a New York-based womenswear brand founded by designer Alexandra O’Neill has found a novel — and direct — way to address excess returns without charging for them. Quite simply, if the Markarian team notices one customer ordering the same item in multiple sizes — a frequent indicator that all but one will likely be returned — the customer care team will reach out to them. They will ask the customer for their measurements and offer to help them better understand their size. The hope with these calls is that customers will rethink their multiple-size order and just buy one dress.
It’s a gentler way to dissuade excess returns without the punitive element of charging a fee, O’Neill said.
“At the end of the day, we want our client to be happy,” she said. “We want them to feel taken care of and catered to. Returns are tricky. [Retailers] have made shopping online so easy and convenient that returning a lot is just how people shop these days.”
Markarian is particularly sensitive to returns since most of its clothing is made to order. Someone may order three dresses and return two of them, but all three were made by hand to fulfill the order. Those returned dresses still get sold on Markarian’s website at full price, but it threatens the balanced inventory that Markarian’s made-to-order strategy is meant to maintain.
“They think we have tons of these dresses laying around, but we don’t,” O’Neill said.
O’Neill said, even after the brand reaches out and discusses sizes, some customers opt to order multiple sizes anyway. It’s not ideal, but “at least you get feedback from the client, which is valuable,” she said.
Meanwhile, the contemporary fashion retailer Revolve managed to reduce its return rate without charging for returns. While the rate dropped only from 60% to 59%, it is the first decline in more than three years at a time when return rates are generally increasing across the industry. Co-CEO Mike Karanikolas attributed this reduction to several changes Revolve has made in the last year, including a simple one: shortening the return window. Starting in early 2024, customers have 30 days, rather than 60, to return clothes for a cash refund. But they still have 60 days to make a return for store credit. This simple change has helped push Revolve’s return rate down and, according to Karanikolas, hasn’t led to any noticeable pushback or frustration from customers.
Even a small reduction in return rates can be a big benefit, Karanikolas said.
“The financial benefits of potentially reducing our return rate in the future are compelling, considering that for every one-point decrease in our return rate, we’d expect to realize cost savings of approximately 30-50 basis points in reduced selling and distribution and fulfillment costs,” he said on the company’s earnings call in August. “Importantly, many of our efforts to reduce the return rate further elevate the customer experience, including by providing improved size guidance and leveraging technology and data for more personalized merchandising of products less likely to be returned.”
Ultimately, returns are a service problem. O’Neill said offering in-depth product imagery and videos of products are some other helpful things brands can do. Nikki Baird, vp of strategy and product at retail tech company Aptos, said service is ultimately what sets today’s retail and luxury brands apart.
“Retail right now is a mixed bag — some winners and some losers. And a lot of that comes down to the experience offered,” Baird said. “Consumers have higher expectations for what a retail experience needs to offer compared to five years ago.”
