In this video, Ajit Ghuman, Head of Product Marketing interviews David Morin, Director of Retail Strategy at Narvar on the trends he is seeing across hundreds of his Retail and eCommerce clients amidst the COVID pandemic, and specific recommendations on best practices that can be adopted specifically in the context of return policies.
Watch the video to learn:
Hi, good morning! My name is Ajit Ghuman and I’m the Director of Product marketing here at Narvar, and welcome to our series on returns. We’re talking today with David Morin. Here’s our Director of Retail Strategy and Head of customer success. He talks to retailers and eCommerce brands of various sizes all throughout his day. He really sets innovative strategies for these brands, so we’re trying to have a conversation with him today about returns, what he’s seeing in the market and specifically have a discussion on return policies. Happy to have you here today, David.
Yeah, thanks Ajit, thanks for having me. As you noted, I’ve been working with retailers here at Narvar for the better part of 3 years. Returns have always been a critical and important topic for our digital retailers, and especially has been heightened through the last six months as we’ve all had to deal with the changes through Covid—and the impact. So happy to chat with you about what we’ve seen in the market and some ways that retailers can really optimize the return strategy.
Right, for sure. And while we’re talking about Covid, I’m even going to start a little bit by taking a step back to just discuss returns and why they happen. I’m always amazed by the statistic that a third of all eCommerce returns are sent back; that many eCommerce products are sent back. You know, they’re attached to metrics that amount to $600 billion dollars per year. Retailers lose $600 billion dollars due to returns, and there’s some inefficiency in the system there: It’s 5 billion pounds of waste that’s actually just sent to landfills. So I’m just curious, what is your take on what is driving the high return rate and some of the inefficiency in this process?
Yeah, I’m with you. It’s always surprising to see that type of data. But what we’ve seen is there’s really maybe three or four core drivers to the high volume returns that happen through eCommerce purchases:
I would say the most common is anything related to size or not meeting expectations, and at Narvar we like to call that bracketing. Especially in the apparel category, we see that consumers tend to buy multiple of the same good either in a different size or different colors so that they can use their home as an at-home fitting room. They’re selecting between different sizes, different colors or even different styles that may be in the same general category. Of course, that doesn’t apply to just apparel. People may be buying multiple goods with the intent to keep one of, say, electronics or cosmetics, using that at-home experience as virtual, or at-home fitting room.
Right, right. Makes sense to us.
Additionally, I would say that over the last 10 years and even over the last 2 to 5 years, retailers have really made it a lot easier to buy online. With the surge of Amazon having an expedited premium free shipping, many eCommerce retailers have chosen to match that by having really flexible and consumer-friendly shipping policies and return policies. I think from a consumer end, it gives them more incentive to buy without having the risk to keep the item while taking advantage of that flexible return policy.
Then I would say, third, is really having the whole essence of the physical or tactical, and not really being able to replace that digitally. Of course, retailers are always trying to do great things with photos and with VR augmented reality to simulate the in-store experience as much as possible, but it’s really hard to replicate the feel of a fabric, the way it touches your skin and the fit of it. With tactical goods, any characteristics that you’re not able to determine—well, you always risk that on the digital channel.
Make sense, yeah. I liked your concept of a fitting room at home and I definitely would love to try on more products, especially if the return process was easy. During the time of Covid I would love to, and I think people just have to do that now. But that also makes sense; you can’t act. You can’t hold the shoe or the jacket in your hand that you want to buy. That makes sense, so now I’m sure retailers are always coming to you and asking questions like, what do we do? How do we optimize this? How do we make sure we retain the revenue? How do we make sure we provide the best customer loyalty? What are some of the controls that retailers have that they can deploy to start to make a little bit of sense out of this?
Yeah, sure! The first one I would say is, what is your return policy? So how long do you have, or how long do you offer your consumers to actually return that good? What is the thought process that goes behind setting that policy? Is it 30 days? Is it 15 days? Of course, the longer policy you have, the more risk you have as a retailer from not being able to resell that good when it comes back to your warehouse, potentially risking markdowns—so selling it at a lower margin. So all of that, I would say, is a balance with the retailer.
We also find that most of the retailers who utilize Narvar are able to really use the data that we're able to provide for them after a return. They apply it back upstream, making changes to their product detail page, to their product descriptions, and to their merchandising assortments to really reduce the return rate.
We have lots of stories since I work with retailers all the time, and I love to share them. Probably one of the most recent that I've heard from a retail partner was from an apparel and accessories goods retailer: They noticed that they were having a really high return rate from a single sock, and when they dug into the data that they were able to get from the digital return process, they saw that most consumers were returning that sock with the reason code “not as pictured.” So they went back to their product detail page and they looked at the picture. It was a pink sock, but the pink that they were picturing really did not match the actual color pink of the physical good! So they spoke with their merchandising team, reapplied a new photo that better matched the description in the photo and physical good, and then they saw a decrease in the overall return rate of that good in that category.
So there’s things you can do upstream to better set expectations, and then there’s things that you can do after the fact like using the data you’re able to glean to reduce return rate and set expectations.
That makes a lot of sense. I like the color aspect. Personally, it’s very hard for me to see colors on a monitor, or know if my monitor is different. Even small aspects to the color make all the difference to the product. So that would make sense that you find a way back, that you use the data to improve the website itself.
In terms of policies, it’s a good point that you mentioned, what is the return policy? How do you start to make this determination? Because I would expect that if the policy were too short, you know, you’ve frustrated customers a little bit. How do you make the determination? How do you set the policy by product? How do you set a policy? Could you set a policy based on the customer—if I was, like, a premium customer?
Well, I think, to start, what we see most common is a 30 day return policy. I think it also typically aligns with return policies in-store, as well. We find that from the research we've done on a qualitative end, with consumers, is that most consumers feel that 30 days is a fair policy. From a data perspective, we also know that regardless of return policy, most customers return within 30 days anyway.
Of course, if you offer a longer return policy, there are always going to be consumers who take advantage of that, as well. So you really need to be mindful of the risk and reward within your supply chain. For example, we know that retailers who have a high price point item and who have maybe a long consideration phase, such as a luxury consumer electronic, may want to offer a much longer return window to give their consumers peace of mind with that purchase. Whereas for fast fashion companies or mass apparel companies, they may want to offer a slightly shorter return policy because they run the risk of not being able to sell the good when they get it back, or having a reduced price, such as sales, that reduces their margin.
I think retailers need to look at their business and really understand: What is the world we live in? What, or who, is our consumer? What is the likelihood of returning? And then, what is the risk of rerun after we accept it back?
I think for Narvar, we see a lot of different levers in which retailers are adjusting their policy based on category, based on type of good, based on price point.... We have retailers who are really trying to incentivize behavior to return quicker. So they offer free returns within, let's say, the first 15 days; but they accept returns within 30 days. So what they're really trying to do is incentivize you to return faster if you know you aren't going to keep the good. Which again, is good for them as a retailer. It reduces the risk of markdown and the amount of time that the inventory is dead.
We also see retailers who have multiple categories within their own assortment. So perhaps they're offering a longer return policy for electronics, and a shorter return policy for apparel, or footwear. We also have seen, especially over the past 12 months, a lot more retailers adopt the notion of “final sale.” So, there might be certain goods within their assortment that are sold at a significantly discounted price, or that are last season’s.
They will sell these good goods, but they very explicitly state that they aren't eligible for return, at all. And they are using a platform like Narvar to enforce those final sale policies, as well.
Make sense, makes sense. Yeah, at a consumer level, it definitely holds true for me as well. I'm looking to buy—just because we are on lockdown—an exercise bike with one of those, you know, interactive programs. There's a bunch of those on the market, but they're so expensive. I'm pretty sure I could buy one, but if I got two months to return, my likelihood to buy increases a lot. So it's interesting how a retailer thinks about that, and thinking about how I would think about it personally.
I would also add that one thing that we've seen a lot of retailers do to try to mitigate returns as well as be flexible with their consumers, is this idea around exchanges. This is especially relevant in the apparel footwear and accessories market. Right off the top this is about bracketing and about sizing.
So what are ways that a retailer can recover the revenue quicker? By offering seamless like-for-like exchanges. At Narvar, we do offer that as a feature set within our returns flow. It’s allowing the consumer to quickly express the intent to exchange a good so that they can really quickly get a similar item back to them, in a different size or a different color.
Right, right. So in that case, you would send the return back, but you won't get a refund. You just get the right size.
Got it. That would make a lot of sense. So how much impact would putting the exchange program in place be? How much impact would that have on the overall return rate?
From our what we've seen in the market from the retailers who do these exchanges with us, really there's phenomenal benefit: For one of our retailers who does a lot of denim pants, they've seen the exchange rate of about 30% to 35% of all return orders, which is really great for them to be able to quickly retain that revenue. For other apparel retailers, I think we've seen adoption rates between about 15% to 25%—which is still quite high.
So again, really allowing retailers to rescue that revenue much faster and retain it faster. Also from a consumer experience end, it's much more consumer-friendly. Previously, a customer would have had to initiate the return, ship it back, go back online, and place a new order. You’d have, you know, a dual credit on their card, or have balances. So from a consumer experience, I think it’s also much easier, as well.
Totally, yeah. This does incentivize the customer to get that item. That makes sense. And then the numbers that you mentioned are actually surprising because just the exchange part, to actually optimize it from 20%, to 30% or 35% is great.
So, I'm a little curious about Covid. You know, with Covid, all the retailers had to go on lockdown when people went on lockdown. So what did you see in terms of the return rates? How are businesses coping with it? How are your retail customers coping? And, what are some learnings?
Yeah, I think Covid rocked everyone's world: retailers, consumers, and all businesses alike. From a return standpoint, we really saw three core impacts and all of them are very interrelated. The first thing we saw during Covid was the complete shutdown of physical stores. If you think about most omni-channel retailers who have a mix of eCommerce as well as physical store locations, anywhere from 20% to 50% of online purchases were being done from stores. So of course when you shut down your stores, you have to rethink your strategy. The first thing we saw was about 100% of eCommerce purchase returns are now being done digitally through a platform like Narvar.
So we saw a tremendous increase in the sheer volume of returns that were being processed online. From the retailer perspective, what we saw is a lot of flexibility in making changes to the return policy to account for the friction that they were seeing within society. And what that really meant is most retailers changed their return policy starting for purchases made immediately before Covid and made during Covid, and having significantly extended return policies, often trying to align that with the perceived (or projected) reopening of physical stores. I would say just now are we starting to see those return policies getting tightened back up, as stores are opening and consumers have a lot more options to make the return.
From the consumer standpoint (and this is really interesting for us to see at Narvar) is the adoption of consumers using different return methods. So the first thing that happened is everyone went home. Many of us don't have printers at home anymore. A lot of us rely (I know I do) on the work printer. If I was making a digital return, I had to print a label: That was all being done in an office. One thing Narvar offers with many of our retailers is what we call printless, or QR code based returns. This is the ability to use a digital QR code that can be scanned at a mail or FedEx facility, and have a label printed for you. So there was that ease of getting the label.
I think additionally, with people kind of being heightened around physical contact, it was a really contactless way for customers to process returns as well.
The second piece from adoption was, and many of you may be familiar, that last year Narvar launched what we call our Narvar Concierge Network, which is a variety of physical locations, some mail facilities, some other facilities like Walgreens, where consumers can drop off their returns. Starting in mid-April, we saw a significant uptick in the number of consumers who were choosing to use one of those convenient drop-off locations. Through Covid, places like Walgreens and FedEx facilities were open, and also in many cases are really close and convenient to consumers. So we saw that a consumer is looking to still complete the return, but by going into more convenient, close by, and quicker locations.
Understood. So this would be more relevant, for let's say, if I was purely an eCommerce brand and I know there are some brick and mortar retailers who also have a digital offering. But if I was just an eCommerce company, then I could potentially use Narvar Concierge to expand the number of return locations that I’m providing access to.
I think certainly if you're online only, it's a great opportunity. But even if you have physical locations, your physical location might not be the most convenient location. Some of our retailers certainly have thousands of physical locations that you know are really convenient for consumers. Some of them maybe have 30 or a hundred locations, and for a subset of their customers, that's really servicing them. But how else can you service your customers who don't live nearby? By giving them the ease of returning at a physical location, either through Covid or post Covid, while not having an actual branded physical store.
Right, right. Makes sense.
Now, life in retail is always planning, planning, planning and you're planning for peak. Now in August I think we're already late. So I’m curious about how retailers are planning for peak season this year. What are they expecting? How is it going to be different this year than last year, because of what's been happening? Any advice that you have?
So at Narvar we really saw in terms of behavior and volume was that Covid was an expanded peak. The volumes that we see during 2019 peak typically lasted for one to two weeks. We saw those same volumes and even higher last for six to eight weeks through Covid. As we think about going into holiday 2020, I think that it's going to be again another kind of peak season
with really high volume, really tightened and elongated supply chains, both on the outbound and the inbound. So a lot of the learnings that we've learned through Covid, I think we can apply through peak season.
I just touched on Narvar Concierge and QR codes. I think that those are huge opportunities for retailers heading into peak. It’s giving your customers more choice and convenience with how, where, and why they returning items.
One thing I didn't touch on, but I also think is a big opportunity for retailers is through Covid, is that we really saw a slowdown of the reverse logistics supply chain, both from a carrier standpoint and from an internal processing standpoint. So as retailers applied more stringent health and distance policies at their distribution centers, it slowed down the time to process, and the time to refund. This created a lot of friction for consumers not knowing when they were going to get their actual money, which as a consumer is your topmost concern.
Another thing that we saw retailers do is take advantage of additional communication touch points through the return cycle. At Narvar, we offer a number of different email and SMS type communications that can be done about the returns process. That really gave a lot more transparency to consumers about where in the network the return was, what were the next steps, and when they can expect to receive a refund based on the current constraints within a retailer's own network. That peace of mind and transparency, I think, was really relevant during Covid, and of course I think will be really relevant again heading into the peak season.
Makes sense. So what I'm hearing is that the two main things are one, the need to be nimble and flexible. We've had a lot of work that we had to do during Covid, and being flexible in terms of return policy and offering more options. Now we've seen how that happens, and you can apply it again during the holiday peak season.
But two, it's also about customer expectations. We know we can expect supply chains to be under pressure again. So, making sure the customer communications are ready. Both when you're buying a product, as well as on the flip side, and giving them the peace of mind, so that the refund arrives on time. Those things will really help.
Definitely. One thing I heard from a retail partner this year, which I love, and have been kind of using internally and with our retailers, is this idea of “it takes the pandemic.” You know, they call it (hashtag) “#ItTakesAPandemic” and for them, what it meant was, they have all these strategies and initiatives that they had been thinking about for six months, 12 months—years. And the impact of Covid was it really forced them to be nimble, be flexible, and be quick to make changes that were best for their business and best for the consumers.
I was really inspired by a lot of what we saw from retailers offering new return strategies, new return products, and new ways to communicate and offer transparency. It's been something that I've been saying internally with our team: it takes a pandemic. How can we help our retail partners and headed into peak? You know, it takes a pandemic; it takes a peak. What are the changes that you need to make? How can you be nimble and flexible to their current social climate and be able to offer the best end-to-end experience that's best for you, your business and your customers?
Makes sense. Well, thanks for being on this video with me today, David. We will definitely try to do more of these. If you saw this video and you liked it, please check us out at Narvar.com
And, we'll be back.
Thanks again. Thank you.
Ajit Ghuman runs Product Marketing at Narvar. A SaaS Product Marketing veteran, he has helped companies grow from 10M to 100M+ across different venture funding stages.