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Understanding Customer’s Return Behaviour to Create Value

by Ellie Turner, Business Development Manager, Clear Returns

Reverse Logistics Magazine, Edition 53

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Clear Returns, returns intelligence specialists, share their research into consumer shopping and returns behaviour conducted with UK fashion retailers, highlighting the key concerns for retailers.

It is well reported in the industry that on average 1 in 3 clothing items bought online is returned, as The Guardian (1) for instance, reported in January of this year. For online and multi-channel fashion retailers this can be a huge blow to their revenue and profit margins, globally returns were estimated to cost the sector $200 billion in 2012 (2).

In a time where e-commerce has taken off and fashion retailers are under increasing pressure to compete, retailers must now look to optimize their profits and back-end processes to improve their bottom line, rather than focusing purely on sales. As the online channel continues to grow, domestically as well as internationally, so too will the problem of handling reverse logistics.

Clear Returns are an award-winning provider of analytics software to the retail industry that helps reduce return rates and associated costs - here we share some of our insightful research into consumer psychology around online shopping and returns. Over the last year the team has been analysing sales and returns data from several UK fashion retailers and has uncovered some interesting findings about how shopping behaviours have shifted in a multi-channel retail environment.

For example, certain customers have clear preferences to ‘over-buy’; in other words they love to bring the shop to them. These customers will buy several clothing options online to try on at home, fully intending to return a large chunk of their purchases. They may think they are a retailers golden customer and retailers may see them as being their most loyal customers just by looking at how much money they spend, how many items they buy and how often they buy. Yet if a retailer doesn’t measure their return rate alongside their order history then they can be getting the wrong picture.

These ‘over-buyers’ can easily be mistaken for loyal customers but our research indicates that a small percentage of customers stand out for their exceptional value. These customers regularly return to their preferred brands to make several high-value purchases, and account for a high percentage of total sales. Each individual can bring in thousands to tens of thousands of pounds in revenue, contributing a large amount to retailers profits. Therefore it is crucial for retailers to separate these groups from each other, as they should be treated very differently.

Our research also shows that the largest proportions of returns are often caused by first time, dissatisfied customers. Generally these customers make a small purchase of one or two items with a fairly low basket value meaning they may not appear to be a lucrative prospect, but once they receive an unsatisfactory product or experience they won’t buy from you again. This means the true cost isn’t just a refund - it’s the potential repeat purchases of these customers who could bring in millions of pounds of additional revenue.

There are also customers who have a habit of ‘wear and return’ behaviour - those who regularly buy outfits they can’t afford, wear, and return them in depreciated condition. Although generally they make up a very small percentage of customers they can account for as much as 10-15% of returns. However we have also discovered that certain retailers can have much more trouble with this group, costing them much more annually. Similar to customers who like to ‘over-buy’ their spend may appear attractive but after refunds and other costs to serve are removed – the retailer may actually lose revenue. Our research highlights that these individuals can cost thousands of pounds every year, even in tiny numbers they can drain millions of pounds from profit margins.

How can retailers then create value from this behaviour? Clearly there is a need for retailers to understand what impact customer’s returns behaviour, as well as their shopping behaviour, has on both their revenues and profits. Currently this is not being measured with great effectiveness, except by those exceptionally large companies who can afford to build internal teams and systems to deal with this.

By analysing returns behaviour, retailers will understand their customers much more and they will be able to spot these groups within their own customer base. This will allow them to target customers more appropriately and cost-effectively, as well as spotting crucial opportunities to encourage greater loyalty and repeat purchasing which will in turn benefit their revenue and profit margin.
Ellie is a 1st class Honours Fashion Business graduate from Glasgow and has worked with Clear Returns since the company was founded in 2012 using her fashion knowledge to build their market research, PR strategy and sales pipeline. Further information can be found on the Clear Returns website.
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