Why the Pandemic Has Caused Ecommerce Returns To Increase 70 Percent

The ease of free returns is causing consumers to order more different sizes and colors in order to replicate the in-store shopping experience. 

But that has caused returns to rise exponentially, cutting into merchants' profits in an already difficult year. Merchants are responding with AI-driven virtual dressing rooms as well as simply telling customers to keep products below a certain price and demand range in order to better manage costs. JL

Suzanne Kapner reports in the Wall Street Journal:

The share of online purchases that are returned averages 30% or higher, three times the rate in physical store. The number of e-commerce packages returned in 2020 rose 70% from 2019. One of the top reasons is improper fit. Free shipping and other return policies have gotten consumers used to ordering multiple sizes and colors and returning what they don’t want. “Consumers are looking to recapture some of the magic that happens when you walk into a store and can try things on.” Every $1 million reduction in returns can translate to $500,000 added to the bottom line.

The surge in pandemic-fueled online shopping has created a new urgency to solve a decades-old problem: returns.

Companies such as Walmart Inc. and Amazon.com Inc. are telling customers to keep unwanted items. Some retailers are introducing virtual dressing rooms and made-to-measure clothing so that shoppers keep more of what they buy. Others are scoring shoppers based on their return rates, much the way credit-ratings firms tally consumers’ creditworthiness.

Behind the push is a painful economic reality of e-commerce. The share of online purchases that are returned averages 30% or higher, depending on the category, three times the rate in physical stores, according to industry executives.

“There was a huge shift to online shopping, and the numbers won’t go back to where they were before the pandemic,” said Oliver Lange, who runs H&Mbeyond, the brand’s innovation lab.

Consumers got comfortable buying everything from groceries to makeup online, as brick-and-mortar stores temporarily shut and anxiety mounted about spending time indoors. In a recent survey by technology company Pitney Bowes, 42% of consumers said they plan to shop even more online once the pandemic ends than they do now.

Levi Strauss & Co. is using a tool that lets shoppers see how clothes look on various body types.

PHOTO: LEVI

That shopping shift is placing more importance on solving a problem that dates to the early days of online shopping. Free shipping and other accommodating return policies have gotten consumers used to ordering multiple sizes and colors and returning what they don’t want.

The number of e-commerce packages returned in 2020 rose 70% from 2019, according to Narvar Inc., which processes retail returns. One of the top reasons is improper fit, the executives said.

For a typical retailer, every $1 million reduction in returns can translate to $500,000 added to the bottom line, according to Navjit Bhasin, the chief executive of Newmine, which makes software that helps retailers understand the reason for returns.

“Consumers are looking to recapture some of the magic that happens when you walk into a store and can try things on,” said Raghav Sharma, a co-founder of Perfitly LLC, a technology company that powers virtual fitting rooms for retailers.

Replicating the in-store experience online is tricky, industry executives said. The technology is still nascent, customers don’t always measure their bodies accurately, and they can get annoyed if the process is too long and cumbersome.

Yet there are signs that virtual try-ons are gaining traction.

Ulta Beauty Inc. introduced virtual makeup try-ons in 2016, but the feature didn’t take off until last year, when makeup try-ons increased 12 times over 2019 levels, according to Prama Bhatt, Ulta’s chief digital officer. She said she expects the technology to be a core part of the retailer’s business.

Levi Strauss & Co. and Tommy Hilfiger are using a tool that lets shoppers see how clothes look on various digitally rendered body types. Displaying clothes on different body types reduces returns by about 8%, according to Yael Vizel, the chief executive of Zeekit, which created the technology. Shoppers can also upload photos of themselves, although Levi’s and Tommy Hilfiger aren’t currently using this feature.

“You can see yourself in more than 100 dresses in one minute,” said Ms. Vizel, a former Israeli air force commander who says she realized the technology used for military mapping could be applied to the topography of human bodies. “You can’t do that in a physical fitting room.”

April Williams has used virtual try-ons to buy dresses at online plus-size retailer CoEdition, sunglasses at Quay and makeup at Sephora.

One dress from CoEdition that she virtually tried on looked tight across her belly, so she ordered a size up. For another dress, she ordered a size down, because the photo she uploaded showed excess material in the back.

The 39-year-old teacher in Gig Harbour, Wash., said she hasn’t had to return any clothing from CoEdition that she bought using the virtual fitting room, or the six pairs of sunglasses she purchased from Quay. The lipsticks she ordered from Sephora didn’t go quite as well. “The pigments weren’t right for my skin tone,” she said.

A Sephora spokeswoman said the company has been adding new tools to personalize online shopping.

Another way to solve the fit—and return—problem is through bespoke clothing, which has moved beyond luxury labels. Amazon is selling made-to-measure T-shirts, and H&M Group is testing custom-made button-down shirts and bespoke jeans.

Returns of custom-made shirts average about 5% at H&M, which started selling them in the spring through the brand’s German e-commerce site. Customers answer a 10-step questionnaire about their height, weight and body type and technology firm ZyseMe creates the pattern, which is sent to H&M factories. The shirts start at 34.99 euros, equivalent to about $42, and will be offered in Austria in spring 2021.

“We used to use body scanners, but that doesn’t tell you what a person’s fit preferences are,” said ZyseMe CEO Bobby Östberg. He said it takes about a minute to answer the questionnaire.

Unspun sells made-to-measure jeans on its website and through stores in San Francisco and Hong Kong. It is set to launch a pilot with H&M Group’s Weekday brand at its Stockholm store when Covid-19 restrictions are lifted. Shoppers take a 3-D body scan that uses 30,000 infrared dots to create a digital avatar.

Unspun founder Beth Esponnette said the return rate is less than 10%, and that those who return do so because the style or fabric wasn’t what they expected, not because the jeans don’t fit.

At least 90% of customers don’t give the right reason for why they are returning. They tend to pick the first answer in the drop-down box.

— Navjit Bhasin, CEO of Newmine

Neel Lilani said when he orders online, he usually buys multiple sizes and returns what doesn’t fit. “But packing up all those returns is a pain,” said the 41-year-old San Francisco resident, who handles client development for a law firm.

Then he stumbled on Unspun. “They are the only brand of jeans I wear now,” he said. “I have six or seven pairs.”

To solve the returns problem, retailers need to know why shoppers are sending products back. Some retailers require customers to fill out a questionnaire when returning goods, but the answers tend to be inaccurate.

“At least 90% of customers don’t give the right reason for why they are returning,” Newmine’s Mr. Bhasin said. “They tend to pick the first answer in the drop-down box.”

Newmine developed the KeepScore, which measures consumer returns much the way credit-ratings firms track creditworthiness. Newmine scours product reviews, social-media and call-center data to determine why products are sent back. Sometimes it is a quality issue with the supplier, sometimes it is due to a poorly written description. It also tries to ferret out serial returners or those who tend to return only in certain categories.

The score is based on a sliding scale with 100 equating to average. Shoppers below 85 have high return rates, with those above 120 returning very little. Customers with a bad KeepScore might not get offered special discounts, or catalog mailings.

“Why spend money mailing catalogs to chronic returners?” Mr. Bhasin said.