E-commerce retail sales increase every year because of the convenience of shopping from the comfort of your phone or computer. In 2017, online orders accounted for 10 percent of all retail sales in the United States, so it is important for brands to take advantage of this growing sales channel. Companies can use the opportunities created by e-commerce to increase their profits and customer satisfaction.
Is offering free return shipping hurting profits?
As e-commerce purchasing increases, so does the rate of online returns. It is important for companies to recognize how to prevent the rate of e-commerce product returns from creating more losses than profits.
Why high returns?
With e-commerce, it is common for people to order multiple sizes and colors of a product with the intention of returning some. People are also more often disappointed with online products than in-store purchases. Free return policies at brick and mortar stores have set the standard for e-commerce returns as well.
Return rates can vary depending on the type of product. One recent study found that book and video returns run about 2–3 percent, while returns of clothing and jewelry can run upwards of 30 percent. According to the online shoe retailer Zappos, its best customers return about 50 percent of the products they order. Consumers use e-commerce free return policies to sample products like shoes and jewelry, and a majority of them keep at least part of their purchase. Because these industries tend to have more expensive products, offering free return shipping is less of a burden on their profits. Industries that offer low-priced products will experience bigger losses from offering free returns, so those merchants should consider alternatives.
Is the expense of return shipping worth it?
Research indicates that 49 percent of online retailers now offer free return shipping. With an average of 30 percent of online orders returned, offering free return shipping can be a large strain on most brands. But, according to a July 2015 marketing survey, eliminating this service creates a problem for the 66 percent of customers who check return policies before making a purchase. Many customers will be less likely to buy unless easy returns are offered. An alternative to making customers pay for their return shipping or offering it for free is to use brick and mortar stores for returns, which we discuss in the sections below.
Bridging the e-commerce and in-store gap creates alternatives to return shipping
E-commerce as advertising
Eighty-two percent of retail customers research a product online before making any kind of purchase. Yet 90 percent of purchases are still made in-store because people want to be able to see and touch a product before fully committing to purchase. Companies can use this information about customers’ purchasing behavior to bridge the gap between e-commerce and brick and mortar stores by allowing shoppers easy access to a physical product after using reliable online sources to research it. An e-commerce website must be able to direct customers to locations where they can physically see the product and then finish the deal. To do this, companies need to pair reliable and clear e-commerce information with widespread in-store product access for customers.
Get stores to carry the e-commerce product
Offering widespread access to an e-commerce product in brick and mortar stores can result in an increase in sales while also focusing on consumers’ needs. The biggest hurdle for a company is getting the product into the right stores.
It is important to know the type of store your customers shop at and the areas they live, and it is important for customers to feel they have easy access to a store. For example, skiers who order heavy boots online will want to be able to return them in-store instead of paying for shipping. Breaking down the elements of the purchase transaction by area and store type would look like this.
- A skier is most likely to live within a certain radius of mountains. Map these areas out to recognize where skier populations are heavy.
- Another option would be to map the places where skiers live but lack access to stores that carry products they want to purchase. For example, a city like Detroit has people who ski, but not many shops carry the products they are looking for. The market need is small, but it does exist and can be capitalized on.
- Type: Skiers often shop in big outdoor sports stores, but they also may look in smaller, locally run stores. Therefore both types of stores are potentials, but it may be easier to convince one type of store than the other to carry the products. For instance, a big box store may have room on their shelves during certain months, or a smaller retailer may see immediate benefit from any increase in foot traffic.
First and foremost, in connecting with brick and mortar stores, it is important to present evidence of either high online traffic and purchases or market potential. This is key in persuading a merchant to carry a product; the store’s management needs to know that people in their area are looking for and ordering the product.
- Case 1: If a product is getting a lot of e-commerce traffic, many of these consumers will want to see it physically. If the website informs customers that they can see the product in a particular store nearby, it will drive traffic to that store. Essentially, the product company is using its website as free advertising for the store.
- Case 2: Customers who do order the product online may want to return it. If the store forces brick and mortar-style returns, the customers will have to go to the store. As they return the original product, they will be exposed to other (most likely similar) products that the store carries.
- Case 3: As noted above, even if the market for a particular product is not huge in a given location, the market of the potential customers for that product can still exist. These stores are unlikely to carry that type of product already, so adding it to their inventory will not cannibalize their business and can only be beneficial to their product sales.
By using the rise in e-commerce traffic as a source of advertising while keeping in mind the important role that brick and mortar stores still play for consumers, brands can change their strategies for profitability and keep their customers satisfied.