Shoppers are abandoning store dressing rooms for their own homes, and it's sparked a wave of returns
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- Returns hemorrhaged $309 billion in the retail industry in 2019, according to the "2019 Consumer Returns in the Retail Industry" report from returns fraud Appriss Retail.
- A cottage industry has risen up to help retailers cope with the rising tide of returns.
- Newmine is one such startup focusing on returns reduction solutions.
- Business Insider spoke to Newmine CEO and founder Navjit Bhasin and COO Mark Holmes about Amazon, "bracketing," and how retailers can make returns more sustainable.
- Visit BusinessInsider.com for more stories.
At Newmine, a returns reduction technology startup, they have a saying: "The best return is the one that never has to happen."
Returns proved to be a $309 billion headache for the retail business in 2019, according to a report from Appriss Retail, a service that tracks and bars customers from making purchases after they have made too many returns. Of those returns, online sales accounted for $41 billion. And an entire cottage industry - including Newmine - has sprung up to cater to retailers struggling to stem the tide of returns.
Business Insider spoke to Newmine CEO and founder Navjit Bhasin and COO Mark Holmes about the current state of returns and how they're altering the face of e-commerce.
"Returns cannot be eliminated," Bhasin told Business Insider. "That's the nature of retail."
Thanks to the inherently uncertain nature of shopping online, the dominance of giants like Amazon, and consumers' tendency to opt for an in-store "dressing room" experience, returns have exploded in recent years. But, in the view of Bhasin and Holmes, they can be mitigated.
'Just another storefront'
Bhasin says that the problem of returns dates back to the 1980s and 1990s, when catalogue businesses were still booming. The issue of returns was far more "contained" in those days, he said.
Then, e-commerce exploded.
"The typical retailer did not anticipate how deep a negative impact returns were going to have on the business going forward," Bhasin said. "Everyone thought of e-commerce as just another storefront."
But, as Bhasin said, the "equation changed from 2000 to 2019." As e-commerce started maturing and growing into a bigger percentage of the retail business, the pain set in.
"What might have been $1 million returns in a year, quickly ended up being $25 million to $30 million and up to nearly $100 million in returns a year," Bhasin said.
And it's no surprise that returns have proliferated in the era of online shopping. Holmes said that e-commerce has always had a trust issue.
"The risk of shopping online is greater than going into a store," Holmes said. "You go into the store, you see the product, you touch it, you try it on, and you walk out with it."
To convince shoppers to take a chance, early e-commerce retailers were prompted to enact liberal returns policies. That trend was further bolstered by the company that Holmes calls the "800 pound gorilla" in the world of retail: Amazon. Competing with Amazon's generous returns policy quickly became an "uphill battle." Amazon itself has had a tremendous impact on "driving consumer behavior" and expectations around returns, according to Bhasin.
And so, as the result of Amazon's policies, the rise of rental-based retailers like Rent the Runway, and vestigial in-store shopping instincts, returning items has morphed into new shopping strategies for some customers, especially in the apparel space.
"Bracketing" refers to the practice of buying a number of different sizes or colors of a garment. The shopper will select the appropriate or favorite item and then return the rest. "Wardrobing" refers to buying an item - say home goods needed to stage a house or shoes to wear for a special occasion - only to return the purchases when they've served their purpose.
Bhasin said that the impulse to "bracket" makes sense from a consumer perspective: it saves the shopper a potentially fruitless trip to a brick-and-mortar location, while allowing them to benefit from a "dressing room" experience nonetheless. That being said, from the retailers' perspective, it's important to "deploy certain strategies to avoid the abuse" of such practices, he said, because this wave of returns may not be sustainable for many.
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'Really simple fixes'
Unlimited returns may be a fair prospect for a giant like Amazon, but it's a damaging trend to contend with for smaller players, according to Bhasin and Holmes.
"This concept of 'buy as many as you want, return as many as you want,' works great if you've got huge margins and you have a very lean cost structure," Holmes said.
Holmes said that apparel and footwear, especially, tend to attract higher return rates - often up to 30%. The results? A hit to e-commerce outfits' margins, plus added markdowns and labor costs. According to Holmes, returns are handled by seven people on average.
Bhasin and Holmes agree that the best strategy that retailers can employ is taking steps to ensure that the consumer won't want to return their products in the first place.
"If it never comes back, it means by definition the customer's happier," Holmes said. "They're keeping it after all. That's a big win right there. And if it doesn't come back, it doesn't come off the books as a return. You keep the margin."
But preventing returns is far from a zero-sum game, or a one-size-fits-all proposition. What's right for an office supply company will differ from what's right for a clothier or a nutraceutical outfit. And, cutting off consumers for fraudulent behavior should always be the last, most "extreme" resort.
Holmes said that Newmine uses "data at a merchandise level, at a supplier level, and at a customer level" regarding "what you keep, what you return, why you returned when you did it, and how many times." The goal is to help retailers both staunch the flow of returns and to create "a better selling situation."
He gave the example of a shopper purchasing a polo shirt. Noting half-sizes or whether or not the garment runs large or small might help the customer make a decision that the consumer is ultimately happy with. And if they attempt to purchase a large when they traditionally buy - and keep - a medium, a data-driven solution may be to remind them that they typically gravitate toward a different size.
"If you can bring a number of things to bear, like recognizing the problem when it happens and not two months later," Holmes said. "It could be really simple fixes that make all the difference in the world."