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Returns and refunds: How to deal with them effectively

How to avoid retail returns, deal with them when they happen, and use them to your advantage.

17 April, 2020
 ·  9 minutes
Illustration of person receiving a broken item

Hands up who had their Christmas plans changed in December 2021?

You’re not alone. For retailers however, it was even worse since they were also saddled with a huge surge in returns caused by the cancellation of parties, gatherings, and nights out. No point in holding onto that novelty Christmas jumper if no one’s going to see it.

As a result of all the upheaval, Returns company ReBound found that UK retail returns were up 40% in December 2021 compared to the year before. This is a tough pill to swallow, especially considering a KPMG study found that the returns process was costing businesses £7bn a year. Ouch.

Nowadays, customers want to know how easy it is to return something before they even make a purchase.

As a retailer, you’re caught in a cruel paradox. You want to close every sale as quickly and easily as possible. But you also want to avoid returns and refunds. Sadly, you can’t have one without the other. Nowadays, customers want to know how easy it is to return something before they even make a purchase. They want to buy before they try and they need to know they can send it back if it’s not right. This makes your retail returns policy just as critical as your marketing and website UX.

In this article, we’ll help you navigate retail returns and refunds. We’ll look at the legal implications, how you can prevent them, and how to manage them when they occur. We’ll also look at how you can transform them into an opportunity for customer retention.

Illustration of retailer receiving in store return

Online returns: You have to offer a refund

Anything bought online (or via mail order or telesales) is eligible for a full refund. The cancellation period starts from the moment the order is placed and ends 14 days after the customer receives the items. Customers then have a further 14 days to return the items. That’s 28 days from receipt to return.

So, if you receive a return request within 28 days of the initial order, you must reimburse the customer (including the original delivery cost) using the same payment method.

What about goods returned in an unsellable condition?

Of course there’s some wiggle-room when it comes to items that are returned in an unsellable condition. But what constitutes unsellable? If it’s a new item, it mustn't show obvious signs of wear (ie muddy trainers or a stain on a dress). In that case, you have the right to deduct an amount to cover the cost. Note: Removal of presentation packaging doesn't count as a sign of wear.

Customers expect to be able to return unwanted items regardless of whether it’s enforceable by law.

In store returns: No legal obligation to offer a refund

It’s worth caveating this section by saying: If you don’t offer a refund, (regardless of your legal obligations) you will be putting yourself on a back-foot against your competitors. These days, customers expect to be able to return unwanted items regardless of whether it’s enforceable by law. That said, there is no legal mandate to return items bought in store. This exemption also extends to personal or custom-made and perishable items, regardless of where they're purchased.

Retailer processing retail return

What about faulty items?

Of course, if a customer receives a faulty item, they have a legal right to a refund within 30 days of receiving it, whether they bought online or in store. If a customer finds a fault within the first six months, you’ll have an option to repair or replace it. However, if that's unsuccessful, you must issue a refund. After the first six months, the onus is on the customer to prove the item was faulty on arrival. There are a few exemptions to this faulty item rule such as:

  • The customer knew an item was faulty when they bought it (ie second hand)
  • The customer damaged the item by trying to repair it

Guarantees and warranties

If you have a guarantee or warranty scheme, you’re still liable to provide free repairs or replacement if the above conditions are met, even if the guarantee or warranty has expired.

How to reduce returns

One way of lessening the impact of returns is to do your utmost to avoid them happening.

Have a lenient returns policy

Curiously,according to a University of Texas study, the larger the window provided to shoppers to return an item, the less likely they are to return it. Most retailers have a 30 day policy, butonly 5% of shopperswould consider returning an item after this time. There are psychological factors at play here: Firstly, a long returns policy removes the sense of urgency as the end date is so far off. Secondly, the longer people own something, the greater their sense of ownership over it.

Accurate product descriptions

There’s a number of reasons why products are returned and services cancelled:

  1. Package arrived damaged or faulty
  2. Wrong product delivered
  3. Product/service no longer required
  4. Fulfillment not possible (due to supply chain issues)
  5. Import tax issued on delivery (a big one post-Brexit)
  6. Fraudulent returns

The reason that accounts for 64%of returns is that the item didn’t match its description. We’ve all been there. That jumper that didn’t fit, wasn’t quite the right colour, or wasn’t as soft as we’d hoped.

To avoid this happening, provide as much information about an item as possible with high-res images from several angles or, ideally, a video.Gap’s DressingRoomgoes one step further using augmented reality to let shoppers try things on virtually.

Your returns policy is read by 67% of shoppers.

From returns to retention

Imagine there was a piece of content on your website read by almost every shopper. You’d go to great lengths to ensure it was one of the most convincing, consumer focused, sales driven pieces of content on your site. Right?

Your returns policy is read by67% of shoppersbefore making a purchase. So why not give it the same attention you give to your sales copy?. Here are some tips on how to write a great returns policy:

Be generous

Remember, the more accommodating your policy, the more likely shoppers will make a purchase and the less likely they’ll return it.

Make simple

Write your returns policy as if it was a letter to a friend, a friend without a legal degree.IKEA’s no-nonsense returns policyis a good example. And, since we have short attention spans these days, consider a five point overview.

You also need to be as transparent as possible and make sure your shoppers agree to all of your terms. Clearly display the two essential tick boxes, Terms & Conditions and Refund/Cancellation Policy on your checkout page. This will ensure you've fulfilled your obligation to inform customers of their rights in the event of a dispute.

Agreeing to terms and conditions

Ensure it reflects your brand

Too often brands targeted at Millenials have returns policies that seem like they were written by middle-aged lawyers. If your brand tone of voice is friendly and relaxed, your returns policy should match.

Managing returns

You could have a six hundred word description of each item on your website, photos taken by Annie Leibovitz, and a returns policy Hemingway himself could have written - returns are still going to happen. Using the practices below, you’ll make it as positive an experience as possible for everyone.

Returns are as an opportunity to establish a long-term relationship with your customers.

Communicate

Be clear, open, and responsive in your communications around returns with customers. Just as customers like to be continually updated as to the status of their orders, they expect the same level of transparency about their returns. Giving customers options for their returns, such as rescheduling of delivery, or the provision of vouchers, will go a long way towards keeping them happy.

Treat it with the same grace you’d treat a sale

Zalando is famed for its returns management. It realised early on that the best customers are also the ones who return the most orders. So it began to treat its returns as an opportunity to strengthen its relationship with high-spending customers.

If items are returned or cancellations are made, it’s important to recognise this as an opportunity to establish a long-term relationship with a customer. Better to keep a customer happy rather than risking losing them for life.

Offer cross-channel returns

Offering cross-channel returns is a nice opportunity to bring your online shopper into your store. Not only does this offer more flexibility but once there, the chances of a return becoming an exchange increase significantly.

Avoid chargebacks

A chargeback is a reversal of a previously authorised transaction. It occurs when a shopper wants funds returned from a business, the business refuses, and so the shopper asks their issuer to return the funds on the businesses’ behalf. Chargebacks, and the penalties and hassle they incur, can be avoided by quickly issuing refunds.

Setting up a refund reserve can alleviate complexity.

Traditionally, refunds can be operationally complex as the funds have to be transferred from your bank account back into the customer’s. Setting up arefund reservecan alleviate some of this complexity. A refund reserve is a pool of funds that sits in your company account on the payment processor side. Refunds can be issued automatically, cutting down on your administration hours and making sure the funds are back in your customer’s account in no time. In the Adyen platform, reports indicate when the reserve has become depleted.

Disputes

If you feel you've adequately delivered your product/service, you have the right to defend a chargeback request with a dispute. When you decide to defend a claim, it’s important to clearly articulate your case and support it with documentation. In the Adyen platform, we provide clear guidance on the documentation you should include from proof of delivery to evidence that the claim is insured and will be covered outside of you issuing a refund.

Keep up-to-date with government regulations. For Adyen customers, we’ll communicate this to you from within our platform.

Returns happen

Returns are a facet of any business. The best way to deal with them is by reducing their frequency. But, when they do happen, you can manage them through open communications and a well managed refund reserve. Using a single payments platform can also alleviate some of the pressures on your business, particularly when it comes to reconciling, executing, and disputing refunds.

Still want to learn more?

If you need help with remediation plans to reduce the levels of disputes or fraud related to your account, please feel free to contact us.

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