In the past, many retailers have used a “keep it” return policy, where customers are allowed to keep an item they want to return.
“Keep it” use is increasing. In 2022, 26% of major retailers used this approach, but in 2023, 59% have used a “keep it” policy.
The issue revolves around the amount of returns, and the cost of returns. In the US, it is expected that $173 Billion worth of merchandise will be returned. The average return costs $30. As a result, many companies are using the “keep it” policy for lower valued items, because the cost of the return outweighs the value of the returned item.
This post is based on the Reuters article, More US Retailers Adopt ‘Keep It’ Returns Policies to Shelter Profits in Holiday Surge, by Lisa Baertlein and Arriana McLymore, November 30, 2023, and the YouTube video in the spotlight. Image source: Poring Studio/Shutterstock
1. What are the issues with the “keep it” policy?
Guidance: One of the biggest concerns is that customers will know about the policy and try to game the system for free merchandise. As a result, many retailers don’t mention this policy.
Another way of reducing this problem is the use of AI to determine when to use the “keep it” policy. The program uses criteria, such as someone being a “good customer” and the value of the item. It also looks for people trying to take advantage of the system. This AI approach results in a dynamic return policy that looks to minimize the overall return costs, and avoid customers gaming the system.
Another concern is that the kept merchandise cannibalizes future sales. As a result, some firms would prefer to destroy the returned merchandise. However, this practice has come under attack as environmentally unfriendly.
2. What are other methods of reducing overall return costs?
Guidance: There are two basic approaches to reduce return costs. One is to reduce the cost to return the item. The other is to reduce the number of returns—no return, no return cost.
There are several approaches being used to reduce the return cost. Consolidation is the most common. It is expensive to have each item returned individually. By having the customer take the item to a return location, the returns can be bundled together, allowing for more efficient shipping and sorting. For retailers with many stores, the obvious choice is for customers to return the item to their local store.
In other cases, retailers are using third parties to collect the returns, including UPS and Happy Returns.
Reducing the number of returns provides many benefits. Several different approaches are used to reduce returns.
One method is to provide the customer with better information that allows the customer to better understand what they are receiving. This includes good photos, good descriptions, and customer reviews.
Consistent quality (such as consistent sizes for clothing) is another approach. If there is significant variation in sizes, the customer may order multiples sizes, try them on, and then return the ones that don’t fit, resulting in a lot of unnecessary waste.