Extended returns policies to have mixed impact on retailers

As more retailers respond to the COVID-19 pandemic with extended returns policies, a new report by digital commerce solutions specialist, Kooomo, says there will be pros and cons to this strategy, but could result in a more loyal customer base.

As the retail industry is on one of the hardest hit sectors by the coronavirus outbreak, retailers are being forced to make critical decisions in a very short space of time to help their customers navigate the current climate.

As a result, extended returns policies are becoming more commonplace. H&M, for example, has extended its return policy from 28 days to 100 days – for both in-store and online purchases, and TK Maxx has stated that if a customer is unable to return an item within the usual 28-day window due to store closures, then it will accept returns for 30 days when the stores re-open.

Kooomo CEO, Ciaran Bollard, says: “Although this is great for consumers, the strategy could have implications for retailers by affecting accurate conversion rates, profit margins and incurring a lot of unsustainable waste. It will therefore be crucial that retailers regain control of this area when normality returns.”

Returns can skew the profit projections of retail businesses. Returns, especially when made to online retailers, are often unlikely to be deemed fit for resale given such widely extended return times, resulting in negative cash flow and a surplus of useless units.

Returned clothing in particularly is often superseded by next season’s range, thus having “little or no salvage value.” Anything received back in less than the original condition will need to be sold at a discount, and the increase in waste can impact on environmental responsibilities.

Additionally, the time of year is less than favourable as we approach the change in the seasons. Bollard adds: “As consumers typically begin to stock up on holiday clothing essentials, we may see a surplus of summer clothing being returned that retailers will find difficult to shift in the winter months - hopefully when some normality has been restored.”

While extending a returns policy may sound like a difficult decision for retailers, Bollard still believes there are many positives that can result from these extensions. “The coronavirus pandemic has forced retailers to reassess their returns systems and adapt accordingly, as online returns can be easily made in-store, but the reverse may not be necessarily true for in-store returns online.

“This is an opportunity for retailers to reconcile their store systems with their online systems to ensure that the processes can save retailers time and manpower when they are issuing returns. When normality resumes and people return to the high street, in-store returns will help to reduce shipping fees and it will offer retailers the opportunity to generate more sales from their physical store.”

Increased customer loyalty is one area where retailers can benefit from being more flexible. Bollard concludes: “It’s important to remember that over half your customer base will appreciate any flexibility with returns policies and for now, extending returns policies will be much more beneficial to retailers in the long term.

“Having generous policies will likely result in fewer customer losses and churn. Consumers themselves are going through a difficult period and will likely remember the businesses who made their lives that little less so.”

Even so, with online sales of clothing and footwear generally taking a hit as people become more wary of spending their money in such uncertain times, increased discounting so early in the season will continue at pace, which could potentially spell yet more return and refund requests coming farther down the line.

Add to that, retailers are no doubt going to be faced with an avalanche of returns when bricks and mortar stores do re-open.