Episode 13: Returns: The silent killer of profits or a tool to build customer loyalty?

Amie Larter chats to JD Klausner, Senior VP of Business Development at Loop returns about how retailers can recognise the potential for returns to become a significant competitive advantage. 

Transcript

Intro:

Coming up, on this episode of Retail Untangled…

JD: 

The cost of getting returns wrong is just massive, and it's very likely that a return might be the last interaction with your shopper that your brand ever has. There’s so many improvements you can do from product listings, descriptions, images, the products themself to just reduce returns and over time retain that revenue.

Amie: 

Welcome to Retail Untangled. My name is Amie Larter and this is the podcast where we speak to retail industry experts and find out business hack that have helped them succeed. You won't find these gems anywhere else, and with some superb stories from the coalface, as well as helicopter insights from retail industry leaders.

Today I'm here with JD Klausner, Senior Vice President, Business Development at Loop Returns. Retailers worldwide understand the importance of returns. They've often been overlooked. However, forward thinking retailers recognise the potential for returns to become a significant competitive advantage.

Research, both through the work that Loop and Inside Retail have done together, and there's plenty more to back this up shows that a well-orchestrated return strategy can dramatically improve profitability, enhance customer satisfaction and drive sustainable growth. So, JD, if this is the case, I'm keen for you to unpack wider returns still remain overlooked and somewhat of a silent killer for profits really within the retail space.

JD: 

When a brand is growing, the focus tends to be more on product and growth, and it's only once a brand hits a certain size or scale that they really start seeing the full financial picture. And when they see that full financial picture, they start understanding, okay, this is what my cost to customer acquisition is, or my CAC is. This is what my repeat purchase rate is. And then you start realising why certain products have a higher return rate than others. And at that point in their, their kind of growth journey, uh, they start seeing and really kind of understanding how big of a leaky bucket, uh, returns can be in kind of the post-purchase journey. Up until that point, brands will try to write off returns as a kind of natural piece of the growth journey. Or they're just worried that they want to make the returns process too easy, and if they do that, then the return rate will be high. So there, there tends to be a little bit of a hesitancy as to either, is this the right time in our growth to invest in really kind of optimising the returns experience?

Or, do I want to keep the barrier high enough so I don't make it too easy for shoppers to basically wanna initiate a return? So, the reality is once merchants hit or brands at a certain point, they can turn what is or tends to be a bad experience into a fantastic opportunity to transform returns into a profit centre.

And every interaction is an interaction to deliver a great experience and drive loyalty. Returns is really kind of a high friction point where you bought a product, you're excited and then for some reason you gotta return it. Having the ability to deliver just a smooth and easy experience to initiate that return can drive customer loyalty on the basic level, and then, you know, maximise the lifetime value between the brand and the shopper.

Amie: 

Where are most retailers falling short in their returns management strategies? And can you unpack the most common pain points for retailers?

JD: 

I'd like to ask you that question. I'm sure you've purchased products in the past. Have you had an experience recently where you had to initiate a return, and it just was not a smooth experience?

Amie: 

For me, it was very much an education piece, so not understanding how to initiate it from a customer perspective. So, having to actually contact them to work out how to do the process is sort of unbelievable. There was one where returns just simply were not possible. Another where I have a store up the road and couldn't take it back to the store, which I sort of felt like was slightly infuriating for me.

That's my common experience and it sounds like I'm a big shopper, I don't do that much shopping, but still they're the ones on my end. Do they fall into a regular pain point category?

JD: 

Bingo. I'd say the most common pain point for any shopper that wants to have to go through this necessary experience, what we would call a manual experience. So, when you have to proactively reach out to them, customer support, open a ticket, copy paste your order number, the amount of time and resources it takes for you as the shopper, but for the brand team to manage these requests is exorbitant. Let's just say 20 or 25% of your products get returned. The accumulated time wasted on handling these interactions is frankly insane. And doing this manually on the brand side can also lead to just a ton of errors like accounting, reconciliation errors, and it's just incredibly inefficient to have to process this.

And this is only from a digital level, then the product needs to get returned to the warehouse, manually inspected, and then the warehouse employee has to determine, does this go into the trash? Does this get fixed? Does this go back into merchandising? Does this get donated?

Amie: 

This is just my end. I'm getting annoyed at, but then you've got the whole back end as well.

JD: 

Absolutely. Yeah. So that's where Loop really comes in. Like the magic is that we deliver on the shopper side a really self-service and automated experience, but then also the brand side or on the business side, really streamlining that reverse logistics experience. So, I'll go back to your question around where are these retailers falling short in that return experience? The manual solution is one thing where it's just like super time consuming. 

When you do have the ability to kind of create an automated experience where there's a shopper portal that's customised, you're able to really kind of deliver a streamlined experience that maximises, again, a lifetime value and keeps customers wanting to come back. We're a software business. It's important to kind of clarify. We think of it as pixels versus parcels. We don't handle any physical products. We integrate with logistics companies that will do the handling, but our software is designed to deliver as much efficiency as possible.

So, we have what we call workflows, which is really kind of a game changer for merchants, uh, especially those who came from the manual experience. It allows the business to establish well-defined return policies and really account for unique scenarios or exceptions. Without having hours of manual intervention, returns aren't a one size fits all, and so for example, create specific return windows for sales events or criteria for products that are eligible for returns and other products that are not, guidelines for when to offer store credits. There's really a lot of value and relief when you go from this manual experience to an automated one by using a software like ours. And then there's of course, a ton of brands that we work with that come from other returns vendors, so other solutions that offer a return service. But there's still a lot left on the table.

I'd say Loop’s bread and butter is to deliver what we call exchanges. So automating returns in the process is truly the first step. But when you're able to incentivise exchanges at that point of friction where a shopper is not happy and they wanna return the pair of jeans that they bought. But you're encouraging them, either with a coupon or a bonus credit to buy the same product just at a different size, but if you buy it now, you get a 20% discount. It just makes the whole experience much more delightful versus having to go back and research for the product that you wanted to begin with and all that stuff.

Amie: 

And also, you're not leaving the dollars on the table, right? I mean, just thinking about it now with my most recent purchase, I am going to send it back and because it's not going to be easy, I'm not going to buy it again, and I've never thought about it in this way so you've make such a really good point.

If you could make exchange simple, then you are making it easy for customer and keeping the dollars on the table, which is awesome. It's really good.

JD: 

That's what we call retained revenue, which is a very important. For our customers revenue that would've been lost with the refund is then retained or even expanded. Based on this exchange experience,

Amie: 

So, while I imagine there's a cost to getting it right, I'm keen to understand what's the cost of getting it wrong?

JD: 

It's hard to underemphasise how important it is. The cost of getting returns wrong is just massive, and it's very likely that a return might be the last interaction with your shopper, that your brand ever has. I'd say mission critical to get that point of friction right. And so that if you do that last interaction that you had with the shopper will not be the last one. 

A negative return experience is gonna really decrease the repeat purchase rate, which we kind of touched on earlier. It'll cause potentially loyal customers to churn at much higher rates and in today's economic state, doesn't matter where you're based, whether it's the UK, US, or Australia, acquiring new customers is vastly more expensive than retaining existing ones for brands. So, it's really an area in the post-purchase journey that is worthy of an investment, especially if you have a relatively high return rate. 

So, when we think about brands that have a high return rate, that revenue retention metric I was telling you about, which is kind of our North Star value anchor for our brands, it’s just, uh, massively missed opportunity. If you're not able to convert, uh, a potentially unhappy customer into a happy one by allowing them to just exchange products and you can incentivise them to make that exchange as well, that can have a massive impact on your bottom line if you don't do that and you just, like you said at the beginning, let your shoppers have to go down these manual rabbit holes proactively reaching out, so there's clearly revenue that's being missed if you don't do this. And then data is super important of course, if you are able to capture data on every single return and why these products are getting returned, would you don't want this data to be passed on to your product development teams? 

One certain product let's just say this specific shirt or dress has a higher return rate. You'd wanna understand why, and maybe you can make adjustments either to the size guide on the product page or the way you're explaining. There's a million factors that go into this. I'd say one core pillar for the data, and the second one is around combating return fraud. Return fraud is something that is a sleepy giant in our world where just a massive amount of returns are fraudulent and the definition of fraud is pretty wide and scary. There is what could be perceived as innocent ideas of, okay, I'm gonna buy five pair of the same pair of jeans, just try which one I like, and then return four out of the five. Technically considered somewhat fraudulent because the intention is to return a disproportionately high amount of the products that you, you kind of purchased. 

There's another one, another type called wardrobing, which is, all right, I know I have a really fancy event. In two weeks, I'm gonna buy this tuxedo, wear it, and then Sunday morning return it. That happens at an exorbitant rate as well. And the higher up in the kind of enterprise echelon you are, the more common it is on TikTok, there's influencers that help shoppers abuse, like Adidas return policy, like it's a whole underground kind of pretty big problem for enterprise brands. So, by not having a returns software, you're also missing out on that data in terms of figuring out who your good customers are and making sure that you encourage them to have a good post-purchase experience.

And then lastly, the environmental piece is massive. There's something like 5 billion pounds of return waste that ends up until landfills every year globally. So simple changes you can make, the return process can promote a more sustainable experience. So secondary marketplaces and stuff like that are massive.

Amie: 

What are customers expecting from retailers in terms of returns policies and processes?

JD: 

Shoppers today, especially the young generation or the new generation of shoppers, have very high expectations, especially as it relates to all things post-sale service. And today, the bare minimum for these consumers or shoppers is expecting fast, convenient, and hassle-free returns. And so I'll start by saying like personalisation, which I know is a little bit of a buzzword and can mean 20,000 different things is real, like if you're able to deliver a somewhat personalised shopping experience the financial upside can be massive. 

There's a ton of really great loyalty platforms out there that, you know, Yotpo being one of them, that that help brands create these really custom loyalty programs. And it's the same thing here, if you can provide, for example, longer return windows or more bonus credits for like your VIP customers that in your top tier or for first time shoppers, the ones that you really wanna delight. You can do this in like really automated ways with different systems we call workflows. And these workflows allow brands with, really powers like the ultimate kind of personalisation experience.

If you're a first-time shopper, then you get these return policies if you're, so there's a million different ways you can go about that. So, personalisation is a really important way to deliver on consumer expectations. Omnichannel, so Amie, you touched on this, where you wanted to return your product in the store, they didn't want to accept it.

So, if any brand operates online and offline, there's a statistic that states that we've seen that two thirds of shoppers will be unlikely to shop from you if you don't have an integrated experience between buy offline and drop off in store, pick up in store, return offline. And so having the ability to have this omnichannel experience will be massive. Obviously, if you live in a more remote area, the expectation isn't there but if you live in a city, expectation will be there for sure.

Amie: 

When the shop is up the road, I expect.

JD: 

Those expectations. We have what we call Loop point of sale or POS that integrates with Shopify's point of sale solution, which is a leading point of sale solution for brands that are on Shopify for offline, brick-and-mortar locations. So, this allows that experience where it's just really easy for the brand from an order management standpoint, a store employee can override a return policy, enable gift exchanges, all this to deliver like offline drop off experience. So yeah, just to recap, personalisation is a big one. And then omnichannel in terms of surpassing those expectations.

Amie: 

We know what consumers expect now. Who is doing it well?

JD: 

So, Loop supports over 4,000 brands and businesses globally, so we have a lot of good case studies. There's over 300 established businesses we support with in Australia, specifically in the Australian markets, and it's a little bit of a household favourite because they're doing well in Australia and they've expanded internationally into the US super successfully. It's LSKD, so they've been a customer for about four years now. They're massive advocates, really such great humans. Uh, we collaborate on a ton of different projects together, and implementing Loop’s software has completely changed the way they viewed returns and really transformed their returns into a real profit centre for their business.

So, saving them hundreds of hours of manual labour. Just expediting the whole process for their shoppers before Loop, an entire return process could take six weeks or longer. And so, if you're waiting to get your refund, for example, to think about that from like a shopper standpoint. 

So, they've retained hundreds of thousands of dollars by incentivising exchanges over the refunds. And I read a fund fact the other day that they're specifically retaining 53% of their returned revenue. So, from all the refunds that would've happened, they're saving 53% of those refunds and, and turning them into exchanges, which is massive. And then internationally, yeah, they, they've made some really great strides in expanding across the Pacific into the US.

Yeah, and we're super proud to be able to work with them and help them expand their products and returns globally. Logistics and reverse logistics can get pretty intense around carriers and labels. And so, through the partnership between Loop and LSKD, they're able to benefit from this immense network of cross-border shipping integrations that we work together on.

Essentially, the goal is to deliver the same experience for a local customer in Sydney, as you would in Los Angeles.

Amie: 

If you are someone that's considering this now, where to begin?

JD: 

Start with the basics, deliver just a very clear return policy that is self-service for the shopper. And once you kinda get the basics out of the way, you can really start focusing on turning this into a strategic advantage. So, tying in favourable return policies with your loyalty program, optimising your reverse logistics strategy by integrating with your 3PLs or your warehouse management system, leveraging the usage of return data for your product team to just because the goal, obviously over time is to reduce those returns, right?

So, that I'd say is on a very high level, a few ways you could basically use returns as a strategic advantage. And I think this is one that is a little bit of the underrated one, it's, it's the returns data. If you double click and actually invest time in figuring out, all right, why are these products getting returned? There's so many improvements you can do from product listings, descriptions, images, the products themself to just reduce returns and over time retain that revenue. So, that's an area that I feel like is low hanging fruit, big time to turn returns into competitive advantage.

Amie: 

Are there any quick wins in terms of cutting costs without detracting from CX?

JD: 

We integrate with the leading customer help desk or customer support software tools like Gorgias or Zendesk and Customer, that just streamlines everything. It reduces the, just the sheer volume of support tickets that need to be handled by agents, and again, from a shopper standpoint, just makes everything self-service and quick.

Amie: 

So, our chat today is primarily focused on customer driven trends in the return space. What do you envision as the next major development in this area?

JD: 

I think post-purchase in general is going through an interesting shift in dynamics where the unity economics are so challenging for brands where margins are so tight, uh, that the concept of free everything, free shipping, free returns, is gonna start getting questioned. We're gonna start seeing some changes there, we already are for sure. 

There's roughly 60% of our existing customer base in the US is already charging their shoppers for returns, mitigating costs for the brand, for their return fees. What they're doing is, they're delivering a premium experience to their shopper, saying, hey, if you pay two or $3 on the checkout, you'll get fast and convenient returns. You will be able to have at home pickup. You'll be able to have in store, like really delivering a more premium experience with like a full suite of different options at a premium fee and not just, you know, free everything. 

So, that's one thing we're seeing now significantly. And then, yeah, just much deeper customisation of experiences for first time buyers, repeat buyers, deeper integrations and times into loyalty programs, and just leveraging AI to better process your returns data in a much more efficient way. Which then in turn, you can optimise your reverse logistics strategy, like how do you route the products that are being returned to certain warehouses that will have quicker turnaround times to going back into merchandising. 

So, there's a lot going on like under the hood from a reverse logistics standpoint that I think that it'll be very interesting to see how just AI and personalisation improves efficiency.

Amie: 

Awesome. And so, what role does Loop play in this? What's on the horizon for you guys?

JD: 

Number one, deepening our partnership with Shopify. We have a very extensive roadmap ahead that we're building with Shopify to just deliver really great and rich experiences for shoppers that are buying from brands that are on Shopify. Going international, so we're expanding internationally in the UK and Australia.

So, we're US based, but we are now hiring teams and all those geographies to be able to better support our brands locally. Yeah, we have a few exciting updates coming up in terms of new integrations. Uh, I'm gonna keep everyone, uh, with a little bit of intrigue and curiosity to come check us out.

Amie: 

A big thank you to JD from Loop Returns for joining on this episode of Retail Untangled. If you've enjoyed today's episode, make sure you subscribe using your favourite podcast app, and don't forget to rate and review. 

Outro:

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