May 9, 2013, 12:59 PM

Web-only retailers turn in the lowest return rate

Online-only retailers have the lowest return rate among Top 500 merchants.

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Web merchants are probably just as unhappy to see product returns as any other retailers, but they are certainly more vulnerable to them. Unless web shoppers have actually touched, smelled or tasted an online-only retailer’s wares, they must trust product descriptions and images on the e-commerce sites.

While that can mean a lot of trust, web merchants in the 2013 Top 500 Guide generally reported lower return rates than industry estimates. And web-only retailers, perhaps the most at-risk for product returns, kept their average return rate to 3.47%, well below the overall average of 4.96% for the Top 500.

Merchandise return rate is an important metric to online retailers, as it can indicate problems in web site content, customer service or fulfillment operations. A high merchandise return rate might suggest that product descriptions on the merchant’s e-commerce site are not accurate or complete, that call center agents aren’t adequately responding to consumer questions, or that warehouse personnel are too often shipping the incorrect product or size.

This year for the first time Internet Retailer asked Top 500 merchants about the percentage of products returned and received a response from 80—16%—of the ranked retailers. Although the numbers vary widely by merchant size, type and merchandise category, the median return rate of 3% is well below some broader industry studies. On average, data compiled from about 50 Kurt Salmon clients shows that online consumers return 20% to 30% of orders of apparel and other soft goods, with women usually at the high end of that range, and men at the low end. That compares to a return rate of less than 10% for hard goods like gifts, home products and toys.

Results from 42 web-only retailers in the Top 500 show their average return rate is 3.47%, ranging from a low of .20% reported by Comp-U-Plus, No. 238 in this year’s Top 500 Guide, to 21.40% reported by Shoebuy.com Inc. (No. 93).

Better World Books (No. 282), a seller of new and used books and one that donates books and raises funds to improve literacy, reported a return rate of just .44%. They achieve it by setting consumer expectations upfront on the web site, says John Ujda, vice president of marketing. For example, product pages indicate the availability of new or used copies of a given book title, and if used, its general condition such as “good” or “very good.” “Plus we pick, pack and ship accurately so shoppers get the book they expect,” Ujda says.

In addition to paying close attention to operations, Better Book World employees take pride in what they do. “It’s also the passion of our employees for our literacy mission. They want to get it right for our customers, both because they want to serve the customer and because they know that better sales and margins help to raise more funding for literacy around the world,” Ujda says.

At custom sign-maker Smartsign.com LLC (No. 446), its .40% rate comes from a combination of templated designs and educated, often repeat business-to-business customers, says Blair Brewster, president. In general, large custom orders from businesses have the lowest return rate. Consumer orders that involve only a small number of stock signs or, at the other extreme, signs that involve an individual’s art “masterpiece” or extensive photography tend to have higher return rates, he says.

“We spend substantial resources on educational pages, photography, product comparisons and specifications, which all mean that our buyers become smart, “ he says. “And that, in turn, leads to better buying choices and lower return rates.”

Retail chains had the next-lowest average return rate at 6.45% based on results from 20 retailers ranked in the 2013 Top 500, ranging from Monkey Sports Inc. (No. 241) at .90% up to DSW Inc. (22%). Thirteen catalog/call center merchants reported an average return rate of 10.46%, ranging from LifeWay Christian Resources (No. 175) at .25% up to ShopNBC.com (No. 98) at 22.60%. Only five consumer brand manufacturers responded to the question and their responses ranged from V2Cigs.com, a manufacturer and retailer of electronic cigarettes with .30%, to Tory Burch LLC (No. 186) at 17%.

Not surprisingly, the highest return rates in all four categories were reported by apparel retailers, as fit and feel are so important when buying clothing. The retailers with the highest return rates in each category include two that focus on shoes (Shoebuy and DSW), one that sells its own branded shoes and apparel (Tory Burch) and the fourth, ShopNBC.com, which is a mass merchant that offers a wide array of apparel, shoes and accessories.

Low return rates equate with high customer satisfaction and the web-only merchants who do the best job of meeting their customers’ expectations will excel, says Scott Savitz, managing partner at venture capital firm Data Point Capital, and founder and former CEO of Shoebuy.com.

While each retailer’s situation is different in terms of product types, pricing and profit margins, there are many ways web-only retailers can improve return rates. At the business level, it’s as simple as discontinuing high-return items that are unprofitable or creating a negative experience, Savitz says.

Other suggestions from Savitz for ways to improve at the business level include:

  • Tighten quality controls, because lower-quality items tend to be returned much more often than well-made products and kill the integrity of the retailer’s brand. “It’s so important to quickly recognize if a manufacturer is sourcing from somewhere new, like a different country, and if this is having an impact on the quality of their goods,” he says.
  • Create or update processes for faster ship times--the longer it takes to ship the greater the returns.
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