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Happy Returns

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Consumers expect a good shopping experience at all times, and the return counter is often the place that tests this expectation.

If shoppers aren’t comfortable with a retailer’s return policies before they purchase, the result could be a lost sale. If they are one of the 20 percent of purchasers who make a return, they want to be assured of a straightforward, positive encounter. Retailers that provide fast, friendly service and hassle-free returns are much better suited to meet consumer expectations for a satisfying shopping experience. When they do, these consumers will likely come back again and again.

The best return policies are the simplest. However, in order to minimize the risk of fraud and abuse, many retailers incorporate restrictions that unwittingly catch good shoppers in the same web as abusers.

Optimal return rate
Returns are not all bad. In fact, studies by MIT Sloan and Northwestern University’s Kellogg business schools have shown that retailers with more lenient return policies fare better overall. But there is a point at which return volumes can be too onerous on the retailer’s expenses. An optimal return rate is the point where overall consumer satisfaction, future sales and profit exceed the shorter-term costs of lost margin and additional expenses.

A corollary to the optimal return rate discussion is that the best customers really do make the most returns. In a recent client study, we found that shoppers who later made a return spent 67 percent more on their original sale and had 50 percent more items in their basket than shoppers who did not make returns.

The shoppers making legitimate returns are your best customers; you should be maximizing their value every time they enter your store. Having a clear picture of their purchase and return behavior ensures your profitable customers’ preferred status also extends to the returns desk. The last thing you want to do is erect a roadblock to legitimate returns; every time a blanket policy does that, it dampens the shopper’s experience.

The potential of return optimization
Providing a great customer experience while still reducing fraud and abuse involves a series of steps. You need to recognize your consumers and process all of their legitimate returns in an expedient manner. You need to enable your staff at the point-of-return with the right tools to identify your best shoppers and treat them as such — perhaps a more friendly and flexible approach to their returns, an incentive to keep them shopping and spending their refund inside your store or a message thanking them for their ongoing loyalty.

Last, you should arm store associates with an unbiased method to distinguish and deter fraudulent or abusive returners, because their actions should not cause you to negatively impact your true customers. NRF’s 2012 annual returns survey showed that between 3.4 and 6.5 percent of all returns are fraudulent or abusive, costing the retail industry more than $9 billion in annual losses.

Retailers that intelligently optimize their returns see measurable financial impact. Retail comp sales can increase by as much as 1 percent, due in part to a reduction in return dollars. Additionally, since returns and shrink are strongly correlated, optimizing returns has a direct and significant impact on shrink — as much as a 10 percent reduction. Most importantly, when customers are treated in a friendly and flexible manner dictated by their individual shopping histories, they will respond with an equally positive reaction to future purchases.