For most retailers today, the key principle of their integrated omnichannel strategy is to place the customer at the centre, enhancing the customer experience and providing greater speed and convenience. A content-rich customer experience has transcended beyond pure-online retailers, such as Amazon, into retailers that can connect their physical stores with e-commerce and enhance the in-store customer experience. Some notable developments in omnichannel retailing in the last few years have been, for example, the use of in-store self-service kiosks and mobile POS and tablet devices, enabling new points of interaction for the consumer and mobile-first customer experience design. Much of this work has been around the customer’s point of interaction with the retailer. One area that is often overlooked and commonly a significant challenge for many retailers has been the returns process.

Dealing with returns is an inevitable part of retail. This is one of the unhappy customer experiences and retailers need to know how best to manage returns and refunds. Keeping costs down and providing a great customer experience at the same time is a constant challenge.

Based on recent work, the Retailer Payments Practice at Edgar, Dunn & Company (EDC) has compiled the following top 5 best practices to improve the returns process, which will help increase sales. This list is based on EDC’s experience working collaboratively with leading retailers around the world who have struggled with their returns processes. This has particularly been intensified because of the Covid-19 pandemic. Both customer behaviour, such as buying and returning more products online, and merchant operations, such as absent back-office staff because they are isolated from being infected with Covid, have experienced significant change during the pandemic.

Best Practice #1: Consistent payment must match consistent refunds

Offering a wide choice of payment methods must be balanced with the ability to deliver a consistent brand experience and meet customer expectations for easy returns and refunds. ‘One click’ payment may boost conversion rates but not being able to use a merchant-loaded gift card online, for example, or receive a refund in-store to the original payment method will have the opposite effect.

Best Practice #2: Minimise the processing time of refunds

Although only a very small number of the websites explicitly state that refunds are only processed on products that have been returned to the store or the warehouse, in practice this is more common. A delayed refund can further frustrate the consumer because it creates the impression that the retailer has inefficient administrative processes. In the customer’s mind, it may take 2 to 3 days to return a product via the postal service to a “returns centre” or the store’s preferred centralised warehouse. Therefore, the processing and notification of the refund should not take any longer than this perceived elapsed time.

Best Practice #3: Offer store credit or a gift card instead of a cash refund

If the customer paid for the original purchase by cash, they might expect a cash refund. Unspent store credits or gift cards can be excellent reminders of your brand and encourage customers to return for more purchases. It is also a good alternative to cash if you can’t find the original order or the proof of purchase has been lost by the customer. As a result of working in the Middle East, EDC has found this is especially helpful if the customer has paid for the product using “cash on delivery”. Instead of sending money back and forth between the customer and the retailer, the customer gets the amount added to their store account or a virtual gift card is issued. Store credits make it convenient for the consumer’s next purchase. Also, they can send a gift card to their friends and family, introducing new customers to your brand.

Best Practice #4: Clear and concise returns policy

Omnichannel refund processes struggle with alternative payment methods. A retailer that accepts, for example, PayPal, must be able to generate a refund to PayPal in-store. Not all POS systems are able to achieve this and sometimes a clumsy process to generate a barcode is used in-store or another unconventional process. This only results in further friction for the consumer.

Having a clear and concise returns policy will help customers understand what they need to do when returning items. Customers are more loyal and spend higher amounts on average with retailers that offer flexible, easy, and free returns. With a flexible and easy to understand returns policy, you’ll attract more sales and increase average order value. A clear and concise returns policy will help explain everything customers need to know, especially if they use alternative payment methods like PayPal or BNPL alternatives, such as Klarna or AfterPay. This will have significant savings for the retailer’s customer services team, spending less time dealing with customer queries.

Retailers must be transparent about what are the options for returning to stores if purchased online. The retailer may work with couriers to pick up items for return directly from customers. Dealing with questions in the returns policy before the unhappy customer experience happens will create a more efficient process for customers to follow.

Best Practice #5: Integrated Front-End and Back-End software

It is essential to have a point-of-sale system (front-end) that is integrated into every part of your business, including the order management and inventory systems (back-end). The retailer must create a seamless shopping experience when customers buy online and return in-store. In addition, in-store product returns are way more convenient when the customer can return in any store, not just the one they bought from. The retailer’s staff should be able to view and process all orders of different stores, created from their counter to the self-checkout kiosk in another location. An integrated POS system will also ensure that inventory is updated in real-time. When the return is complete, the change in order, inventory, and customer should be reflected across all the systems.

Why do you need to know this?

Numerous studies show that a solid return policy increases sales without increasing the volume of returns. But a returns operation can be costly for any sized retailer. The National Retail Federation (NRF), the world’s largest retail trade association, found that $428 billion of lost sales in the USA in 2020 were returned. In most cases, returns mean extra costs for shipping to and from a customer without a sale, plus returned merchandise cannot always be resold, and those costs hit the bottom line. The NRF report pointed out “Your best shoppers often make the most returns,” so creating an efficient returns process can result in an excellent customer experience, which will increase sales in the long run.

Next Steps

With over 40 years of experience, EDC has built up a unique knowledge pool of payment optimisation scenarios that have been applied to different retail verticals – including, grocery stores, general merchandise, department stores, luxury goods, hospitality, hotels, airlines, and so on. Although verticals differ in what they sell by applying EDC’s proprietary 360° Payments Diagnostic and using our data benchmark analytics, the complexity of payment acceptance and returns can be demystified, and significant cost savings can be achieved.

The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).

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