Imagine shopping online, picking out a product that seems perfect, only to receive it and find it’s not quite what you expected. The thought of going through the hassle of returning it might be enough to make you sigh in frustration. But what if, instead of asking you to send it back, the retailer simply says, “Keep it”?
It sounds too good to be true, doesn’t it?
Yet, this dream scenario is becoming a reality for more and more shoppers. Retailers are increasingly adopting “keep it” return policies, not just to make life easier for their customers but because these policies are proving to be a secret weapon in enhancing profit margins and reducing losses.
How does this counterintuitive “keep it” return policy strategy work, and why is it gaining prevalence?
- Returned items might cost a retailer more money to ship, repackage, restock, and resell (usually with a discount) than the products are worth, leading some retailers to give a customer a refund while telling them to keep the item.
- Products like hygiene items or perishable goods get immediately discarded by the retailer, eliminating any chance of earning money back, so the retailer tells the customer to “keep it” and provides a refund.
In these scenarios, retailers avoid losing additional costs associated with a return while enhancing customer loyalty. Customers enjoy the refund but also the convenience of not having to box up and bring an item to a returns counter or shipping location. Additionally, if they still don’t want the item, they can give it to a friend or donation center, maintaining the use of the product.
The costly reality of retail returns: $743B and counting
In 2023, 14.3% of a retailer’s sales were lost to returns. The costs retailers incur for returns include various expenses such as labor, shipping, transportation, and packaging. Returns pose a significant challenge for retailers across the board. Here’s why:
- Bulky and unwieldy items, like furniture, incur substantial packaging and shipping expenses and present a logistical nightmare when it comes to restocking them in stores.
- Low-value products, such as small toys, where the cost of managing the return process exceeds the actual value of the item, making it economically unviable for retailers.
- Perishable goods add another layer of complexity. Once these items are returned, they often can’t be resold due to health and safety regulations, adding to the financial strain of the return process.
- Cat litter raises hygiene and health concerns, making it difficult for retailers to accept returns due to sanitation issues. The logistics and costs associated with shipping or handling returns for such items can often surpass the product’s value.
Retailers, however, do need to be careful of potential abuse of the policy. In 2023, returns lingered around $743 billion, with a concerning uptick in abuse and fraud, accounting for 13.7% of total returns, up from 10.2%. This resulted in a total loss of $101 billion, a 20% increase YoY.
The impact of technology on “keep it” return policies: Enhancing strategies for loss prevention
In most cases, a “keep it” return policy will curry favor and loyalty from a customer. Still, there are potential bad actors who see the policy as an opportunity for fraud. AI can discreetly identify instances of abuse, often called “friendly fraud,” as the customer may not believe they are doing anything wrong.
Loss prevention professionals can leverage AI to identify customers who are at risk of exploiting a “keep it” policy and identify safe customers (those with valuable products with a positive history of returns). Retail industry professionals can leverage the data-driven approach to help protect against consumers taking advantage of the retailer’s goodwill.
“Keep it” return policies safeguard retailers’ profits
The adoption of “keep it” return policies might raise eyebrows initially, but it is growing in favor among retailers due to the overwhelming loss that can come with traditional return processes.
As loss prevention experts and retail leaders seek innovative strategies for the upcoming year, implementing a “keep it” return policy emerges as a promising solution to mitigate losses and bolster retailers’ bottom lines.
