Fashion Transformation
How tech will improve return management
More than 90% of retailers are experiencing a higher growth rate in return rates than in revenue. We let the industry insiders share their best advice, and predict the next big moves.
27 Mar 2024

According to NRF, online sales do see a higher return rate (17.6%) than pure brick-and-mortar returns (10.02%, excluding online orders that are returned in-store). 1 in 2 dresses bought online in Europe was returned last year. And in the UK, 2024 is expected to be the first year during which more is bought online than in-store, HSBC reports.

What role can tech play when returns are projected to rise? Later in this article, entrepreneur Julia Söderqvist shares five keys to enhancing return management, and other insights from her years of including tech in the sector: ”It’s surprising to see how many businesses still operate using manual methods, especially in tasks like generating shipping labels,” she says. But first, we dive into two exciting tech solutions.

Oscar Rundqvist (pictured) and his team founded eComID aiming for a more sustainable online shopping and change the fashion industry’s approach to returns. An AI-powered solution not only reduces returns but also significantly minimise the environmental impact associated with them.

— It empowers shoppers to make more informed purchasing decisions while providing both merchants and consumers with personalised insights and guidance to mitigate product returns, he explains. What sets us apart is our focus on fostering an industry-wide relationship between consumers and brands, ultimately leading to fewer returns.

Returns pose a significant challenge for e-tailers — a trend fuelled by free returns policies, BNPL (buy now pay later) and, according to Rundqvist, maybe a bit too convenient delivery alternatives.

— Returns are one of the fashion industry’s most significant collective challenges, requiring collaboration between merchants and consumers. Our data reveals that some 75% of shoppers exposed to our solution will reduce their returns. Currently engaging with over a million shoppers globally each day, we’ve also found that approximately 70% of customers will share their returns-related insights provided by our solution with their friends, indicating a growing awareness of the impact of online returns and the need for change.

The overall feeling is that this issue with returns just continues to grow and grow. Are you optimistic or pessimistic about the future?

— The exponential growth in retail returns, tripling since 2019, underscores the urgency. Despite this recent rise, I remain optimistic about the industry’s ability to address this issue collectively. The surge in returns during the pandemic can be attributed to various factors, including the shift from physical to online shopping. However, by refocusing on meaningful selling and fostering collaboration between merchants and consumers, we can drive positive change, says Rundqvist. He adds:

— Notably, more than 90% of retailers are experiencing a higher growth rate in return rates than in revenue, highlighting the financial strain caused by returns. Beyond financial implications, the environmental footprint of returns is alarming, with each returned item incurring significant CO2 emissions and handling costs averaging between USD 21 and 46. H&M Group’s incubation investment in us, back in July 2023, could serve as a beacon for other large corporates, emphasising the importance of early engagement with startups to drive innovation and meaningful change at scale.

Leading Nordic e-tailer Boozt just launched Claim Intelligence, a tailor-made digital tool designed to provide insights for its brand partners into the reasons why customers return products.

— By analysing claim data and customer behaviour, they can identify patterns and trends that can help them improve their products and reduce claims, Peter G. Jørgensen, co-founder and CCO, explains. The tool also includes a feature that allows brand partners to share claim data and documentation with their manufacturers. This can help to improve and ensure that learnings are shared and that reimbursements are streamlined and simplified. It goes beyond tracking post-claims loyalty by actively rekindling it and allows brand partners to give loyalty vouchers to customers at risk, boosting store credit, and securing the business for the long run.

”Like ChatGPT is attempting to understand and predict the best answer to your question, we use it to predict the claim growth”

Peter G. Jørgensen.

How does the AI technology behind it work?

— AI is currently streamlining and challenging e-commerce in many ways from several different directions. To identify if the responsibility for a claim is related to our processes or if the vendor bears the responsibility, we can combine two models. We can use Chat GPT to streamline the process of categorising claim descriptions and this helps us to identify the responsibility. This model might provide us with some inconsistent responses and therefore, we feed the same claim description into our machine-learning model for text analytics and issue tagging. If the results are consistent, our vendors and we can feel confident about the outcome of responsibility.

— Built into it, we also have an SKU (stock keeping unit) progression feature, which combines the date of the first SKU delivered from a collection to a customer. It monitors the progression and claims growth over time and looks for exponential changes in specific products submitted as claims down to an EAN level. Like ChatGPT is attempting to understand and predict the best answer to your question, we use it to predict the claim growth. This allows us to take preventive actions and remove a specific product from our site or contact a consumer who has already purchased the product and save them from a claim experience.

— Customers’ trust in a brand is strengthened when they see that their feedback leads to actual improvements in the products they buy. AI technology is used to identify complex patterns in complaints by combining and analysing data as well as customer descriptions and images of product defects. These insights enable a more proactive approach to strategically improve quality and increase the lifespan of their products. This in turn contributes to increased customer satisfaction and repeat purchases.

You’ve also mentioned that it can create more sustainable value chains. How?

— The tool allows brands to share complaint data with their manufacturers to improve and ensure greater transparency and knowledge throughout the production chain. Product quality has a huge impact on the actual environmental impact, and we believe that with this development, we are creating the opportunity for new and increased insights into the quality of each product, which can then drive innovation, more responsible production, and minimise emissions throughout the supply chain.

After this launch, what’s next for you?

— We have already developed something special but decided to wait a little while before introducing this to our many partners. Customer loyalty is everything and our future growth depends on it. During the investigation process leading up to the development of Boozt Claim Intelligence, we found that our customer service is very good at maintaining loyalty towards Boozt when handling claims. However, until now, we have not been able to control if a customer will stay brand loyal after an unhappy product experience. The data found that only 30–40 % of customers stay brand loyal on their next purchase. In the released version, we already display customer loyalty after an unhappy product experience, but we also found a way for brands to increase their percentage by up to 80%. We call it Win Back and we’re looking forward to releasing that in the future. 

Returbo is a SaaS company that helps e-commerce automate their return and exchange process.

— We help to free up time that is currently spent manually administering their returns and increase revenue by converting the returns to exchanges, founder Julia Söderqvist explains.

”The three main questions are about how to convert returns to exchanges, automating the return process, and how to charge their customers a return fee”

How does new technology enable better return management?

— Currently, many SMEs rely on manual return methods, where customers email or fill out a paper slip to make a return. On the e-commerce side, this often involves a lot of manual steps and jumping between several different software services to manage a return. Simply digitising and then automating the return process enables a better return management process for e-commerces. For example, we have decreased the administration time for one of our customers by 83% while also improving their customer satisfaction.

— In the fast-paced world of e-commerce, returns are an unavoidable and costly element of doing business, creating unique issues, particularly for SMEs with insufficient data. However, the introduction of AI and machine learning opens up hitherto undiscovered capabilities to not just alleviate these issues but also derive important insights from returns. Businesses can make the returns process a strategic asset by employing powerful pattern recognition and data analysis.

— For example, AI may identify products with the greatest return rates, determine whether descriptions need to be improved, and provide recommendations for improvements. It can investigate common reasons for returns or problems and direct future actions. Furthermore, AI can optimally route returns to the most appropriate fulfilment centre or brick-and-mortar store, taking into account product availability.

What do your clients ask you the most about now? And what do you answer?

— The three main questions are about how to convert returns to exchanges, automating the return process, and how to charge their customers a return fee. It boils down to how to increase their profitability and make the process smoother for them and their customers. 

— For exchanges, today most e-commerce has a manual exchange process where the customer needs to make a return and then place a new order item themselves. This results in a high risk of losing the customer due to additional manual steps. Instead, they want their customers to simply exchange the item directly to a different colour or size, and for the item to be reserved until they have gotten the item-to-be-exchanged back. What is important for a lot of e-commerce is to keep the customer and avoid a return.

— Automating the process streamlines operations, saving time by eliminating today’s manual steps in handling returns. Currently, many merchants utilise multiple programs to manage a single return, a process that typically takes 5-15 minutes to complete. This involves tasks such as emailing customers, generating return shipping slips through one portal, and tracking returns. In contrast, our solution consolidates all these tasks into one automated system. This unified approach ensures that merchants have everything they need in a single platform. From automatically generating shipping labels to notifying customers about the status of their requests, our system handles every aspect of the return process. This includes managing item exchanges, communicating with customers, and processing refunds.

— It is becoming more and more common to have a return fee and put part of the cost of the return on the customer and it can also reduce the number of returns. We have a feature that allows them to charge the customers for the return, with the option to have different fees depending on the country — as long as they clearly mention it in the return policy so that their customers are aware before purchasing an item. 

What else have you learned about the sector from your years working in it?

— I’ve gained valuable insights into the prevalent manual processes and the widespread reliance on outdated systems, Söderqvist explains. It’s surprising to see how many businesses still operate using manual methods, especially in tasks like generating shipping labels. Many retailers find themselves in a loop where they have to email their third-party logistics (3PL) providers to request return shipping labels, which are then sent back to the retailer and eventually to the end customer. There seems to be a desire for change in this regard, but perhaps many are unaware of the alternatives available in the market.

— Furthermore, I’ve come to understand the diverse range of workflows and return requirements among different e-commerce businesses. Each retailer has unique needs and preferences when it comes to handling returns, leading to a multitude of processes and systems in place. This complexity highlights the importance of offering flexible and customisable solutions to cater to the varied demands of e-commerce businesses. This, in turn, highlights the manual processes, the need for change, and the diversity of workflows within the e-commerce sector.

What are the keys in order to improve return management? And why does it matter?

— Improving it is crucial for enhancing the overall customer experience and fostering repeat business. A smooth return process can significantly impact customer loyalty and satisfaction. Research shows that 80% of customers are unlikely to repurchase from a store after a negative return experience, while 92% are likely to become repeat customers if their return experience is positive, Söderqvist shares, continuing,

— In the future, it will be essential for brands and brand owners to prioritise the implementation of digital returns systems to streamline operations and gather valuable data. By adopting such systems, companies can automate the return process, freeing up valuable time and resources that can be redirected towards core business activities, such as building and growing the brand.

One of the key benefits of digital returns systems lies in their ability to collect and analyze data effectively. Through data-driven insights, brands can gain a deeper understanding of their business operations and customer behaviour. This understanding enables brands to make informed decisions, identify areas for improvement, and tailor their strategies to better meet the needs and preferences of their customers.

Julia Söderqvist’s five keys to enhance return management

— Overall, by focusing on efficiency, converting returns to exchanges, transparency, customer experience and data analysis, businesses can enhance their return management processes and ultimately drive better outcomes for both themselves and their customers, Söderqvist concludes.