Hello, everyone, and welcome back to Herb's hot takes. I'm Tyler Kern, and I'm joined as always by herb billings, the VP of technology strategy at DataScan. Or welcome back to it's your show. Why am I welcoming you? But welcome to another episode of Herb Takes. Well, I'm happy to be here. We are starting a new series today, a four part series on returns. And today, we're gonna be diving in a little bit more and talking about the the growing problem of returns for retailers. Why is this an important topic for us to discuss today, Herb? Well, it's a big problem for retailers right now. Before omnichannel sales before online sales. You could go into a store. You could try on items. You could touch the fabric, feel what was going on. If you liked it or not, see how sturdy the product was, And and again, before online sales, retailers typically had strict return policies that prevented or discouraged returns. Returns cost money for the retailers. And so they wanted to eliminate that as much as they could. Now though with online shopping, returns have become a really big deal, and they have gone up in quantity and in cost every year since online shopping began, and the increases are almost all due to online shopping. That's a really interesting point. That was that was something I wanted to discuss with you was the impact of online shopping because obviously there's a risk there for the consumer. Right? I can't touch, I can't try on, I can't do all of the things that I might normally do with merchandise before I buy something. Right? And so there's a little bit of a higher risk for both retailer and and consumer that might get this thing and it might not fit the way I want or it might not be the exact way that I wanted it to be. So there's a little bit of risk there which I'm assuming gets put back in when it comes to returns? That's absolutely right. And and the ways that the reasons for returns, the way that that it works typically is best described with the apparel industry or footwear. The fit is a a common problem. In fact, seventy percent of shoppers in America last holiday season turned at least one item due to fit reasons. Wow. It that shows the size of the problem. Another thing that retailers will will have to support is that home is the new fitting room. It was that way prior to the pandemic, but even more so once the lockdowns hit, It it's the new fitting room. So you'll get two or three sizes just like you might in a store, try them on, return to back. The feel is a very, very difficult thing to assess in an online description. What does the term soft mean? And then what is the opposite of soft? T shirts are are a big deal for me. I wear a lot of t shirts, but if it's too soft, I don't want it. I want a hundred percent cotton that feels right. Right. How do you describe feels right in a description? It's impossible. Color is another big reason for returns, and you don't have to look far. I believe it was a couple of years ago, maybe just a year ago, was that dress online blue or was it gold? Right. And nobody could agree how in the world do you get this right in an omnichannel site. The descriptions are, you know, not just about the feel, the fit, or the color, The descriptions are a challenge. They can be misleading. Mhmm. They can be incomplete. I've seen many with poor wordings, And then, you know, you look to reviews to be helpful, but if there are not a lot of reviews, you have to question whether this review is an honest one or not. Right. Is it somebody's friend that's putting it in? Is it an employee of the company? Those are a challenge as well. So There are many ways to get this to get this wrong and mislead the the consumer either intentionally or unintentionally. Most of it's unintentional, and and returns are a big deal as a result. You know, and that's a great point. Everything that you're describing is also a matter of opinion that can differ between person to person. What you describe as soft might not be what I describe as soft. And so you can just see how many problems there are when it comes to that for retailers. Now, one of the things that that I was wondering is you use that seventy percent number, seventy percent of people return something that they got over the holiday season last year due to fit. So I'm curious if you could go a little bit broader beyond just the holiday season and give us an idea of how big this problem really is for for retailers. Sure. The National Retail Federation or the NRF does an annual study on this. And in twenty twenty in the US alone, Consumers returned about four hundred and twenty eight billion dollars of merchandise, which represented about ten percent of all retail sales. Now that's brick and mortar plus online. That's a twenty percent increase over twenty twelve just eight years prior. Online returns, as we've discussed actually have a much higher rate of return. Mhmm. Overall, it was about eighteen percent in twenty twenty. That's interesting and and a whole lot more than just the ten percent. But the apparel in shoes seem to be the biggest problem, and they can suffer between thirty and forty percent return rates. It definitely differs by category and it depends on what you're returning. Wow. So that's kind of the size and the scope of this issue. What other problems or what shoes are there for retailers when it comes to returns? You know, it's not just the quantity of items that are returned. That's what we've been talking about so far to try to get an idea of the size of the problem, but also the cost of each return. You know, the policies used to be much more restrictive. Stores would say, You know, you have seven days to return an item, or you may only return an item if it's defective. And then once you return it, you can only get in store credit. Those were the types of things we lived with prior to online sales. Now Well, back in the early days of online selling, Zappos is a really good example with shoes. Nobody would want to buy a pair of shoes without trying them on. I mean, there's always a width and a length problem, and how does it feel? Zapos was a pioneer in that market, and what they came up with was free returns. So the shipping, the return shipping was free. Not only was it free, they preprinted the label for you assuming that they had a a high enough number of returns that that made sense. So the label to return it was included in the box. It was the easiest thing you could do. Try on they encouraged multiple pairs. You would try on what you what you received and return the rest. This increased the cost for all retailers because They could no longer have restrictive return policies. They could no longer, say, in store credit only. They have to give you your money back. At least to compete. And so today, it's it's all about, you know, free, easy, painless. And that is definitely costing retailers more money in the long run for them to manage a returns process. So for this episode, our primary goal is to set up the problem that returns are creating for retailers, the issues and all of that to give people an idea of where we're going for the rest of the series. So today, setting up the problem. So tie a bow on this episode for us if you would and just give us a nice little summary of the issues that are created by returns for retailers. Sure. The the returns environment right now for consumers is great. But what we don't realize is that we are, in fact, paying for it. A retailer has a tremendous amount of expense dealing with returns. We pay for that through the prices of their other products that we actually keep. Retailers are estimated to lose up to a third of their revenue and returns. It's a big, big problem, and they need to address it. We will be looking forward to what actually happens to returns. And how to minimize returns and what are the best practices in future episodes? That is what we in the business call a tease. So stay tuned for upcoming episodes of Herb Satakes where we will dive into those further topics on the issue of returns. In the next episode, we'll be talking about what happens to those items that you do return, and and where they go and all of those sorts of things. And so a lot coming up on future episodes of Herb Takes. But for this one, we are tying a bow on it and wrapping it up. So her billing's VP of technology strategy from DataScan, I've been your host Tyler Kern. We'll see you for the next episode of Herb Takes.
