When examining the retail sector today, one thing is certain – the rapid growth in eCommerce has become truly impossible to ignore.
Cranked up relentlessly by the COVID-19 pandemic, the speed at which retailers and consumers alike have shifted online has skyrocketed. In fact, 2020 saw the highest growth in online retail sales of the past 13 years, with a whopping increase of 36 per cent. Despite lockdown restrictions easing, these sales will have continued to climb an estimated 13.7 per cent by the end of 2021.
Adapting to virtual sales when it was impossible to shop for non-essentials physically is what helped to keep many businesses afloat during the pandemic, but by no means did it free them from trouble. There is now a new issue to face: with ever-increasing online sales comes an inevitable rise of serial returners.
Aptly named, serial returners are those shoppers responsible for an excessive amount of returns. While some customers simply struggle to control their shopping habits, research shows that 30 per cent intentionally over-buy, with a plan to later return their unwanted items. This is particularly prevalent in fashion eCommerce, with clothing and shoes coming out on top as the most frequently returned products.
It seems to have become a modern-day habit to add multiple options to your basket, safe in the knowledge that many retailers now offer free returns. For many consumers, this even became a form of entertainment during lockdown. For retailers however, handling this rise of returns has slashed profit margins, putting their business continuity at risk.
The nightmare after Christmas
As the time for gift-giving looms, merchants must be especially prepared for an upsurge in refund requests. Last year, in the US alone there was an estimated $70.5 billion in returns following the holiday season. With the demand so high, several major retailers were forced to urge consumers to skip the returns process entirely, as it became cheaper to simply reimburse the purchase price than receive the product back.
In turn, these soaring return rates will begin to have a negative effect on consumers too, with 20 per cent of British companies already stating they have increased the price of products to cover the cost of returns. If this trend continues on the same trajectory, it is only a matter of time until other retailers are forced to follow suit.
I can’t help but think that we wouldn’t be in this position if current payment methods weren’t stacked against merchants. Traditional refund processes are broken and costly – an updated, reliable alternative is clearly needed.
Better refunds; loyal customers
It was no surprise to me to read that 3 in 4 shoppers believe the overall returns experience impacts their likelihood to purchase from a retailer again. In short, customers want their money back as efficiently as possible, or they won’t be revisiting.
With that in mind, outdated refund methods are simply no longer good enough. Not only are they costing merchants revenue, but they also take too much time. The refund needs to go through several middlemen before landing back in the consumer’s bank account, causing delays, which consequently result in dissatisfaction and customer complaints. Fortunately, open banking presents a solution to all these issues.
Faster refunds are key to helping businesses survive during this post-COVID era. As a result of the pandemic, retail profits in the UK are expected to shrink £8 billion by 2025 and 3 in 10 retailers claim that serial returners are the cause. But content customers are loyal customers and, as such, they are a sure-fire way to continue driving sales and limiting profit loss, particularly for low-margin retailers.
Account-to-account refunds happen in real time, revolutionising the speed of refunds by making them instant. Shoppers can also relax in the faith that pay-outs via open banking guarantee funds are returned to the initial payer’s account, significantly reducing the chance of fraud.
For merchants, increased customer satisfaction is only one of the many benefits that comes from switching to account-to account refunds. Open banking also allows retailers to bypass the card networks and their associated fees – subsequently empowering business growth by reducing costs, increasing conversions and improving cash-flow. It’s a clear win-win.
With consumer demands ever-evolving, businesses who fail to adopt next-generation refund processes will only condemn themselves to unhappy customers, and ultimately, loss of revenues. It is crucial that merchants get on top of this growing trend, or they will pay the price.
By Karl Macgregor, CEO & Co-founder, Vyne
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