The Impact of Product Return Entitlement on the Future of CPG Companies

For anyone who has ever worked in the service industry, “the customer is always right” is a motto so essential it borders on creed. But has the time come for us to admit that we’ve helped blur the lines between customer empowerment and customer entitlement?

A single glance at return rates and impact reveals we've contributed to a problem of our own making. In 2023, 14.5 percent of retail purchases were returned. This number is admittedly down from the sky-high 16.6 percent return rate of 2021, when the pandemic led to an e-commerce surge. Still, post-COVID consumer returns continue to have an enormous financial impact on retail and CPG companies, as well as on the environment. Returns create billions of tons of landfill waste. Returns from 2019 alone created 5 billion tons of waste and produced as much carbon dioxide as from 3 million cars driving for one year.

Of course, companies need to have some kind of a return policy — it’s unreasonable to expect that consumers will purchase anything without the option to change their mind if the fit isn’t right or the quality is poor. And in some cases, returns are essential, especially if the retailer or vendor is at fault. Returns, especially those that come without an additional shipping or restocking fee, also give companies an edge in the marketplace. In an increasingly volatile economy where a single negative experience can have a significant impact, companies need to make sure they’re providing value at every touchpoint, even if that value means a refund.

However, it’s safe to say we’ve taken returns too far, especially when we consider the 63 percent of shoppers who engage in “bracketing,” whereby a customer purchases shoes or clothing in multiple sizes with the intention of returning what doesn’t fit. Free shipping isn’t the only thing that incentivizes bracketing. In fact, fixed shipping also acts as encouragement. Consumers are more inclined to hit the “add to cart” button to reach the shipping minimum because they know that they can simply return whatever they don’t want without any incremental cost.

By nature, returns add expense and increase costs. The return process is extensive and entails receiving and unpacking products, refunding customers, inspecting products and boxes for damage, and — should an item be resellable — restocking and reselling. Returns require people to handle each of these steps. The returns process has become so taxing that it’s led to the rise of return management companies like Optoro (its tagline? “Returns don’t have to suck”), which handles returns for big-box stores like American Eagle and Target.

Other companies run returns on a threshold basis. For example, 59 percent of companies offer a “keep it” service for returns that aren’t worth collecting. Companies like Amazon.com take it further: If it denotes an item “returnless,” Amazon tells the customer to simply keep the product, donate it, or throw it away. In these instances, it’s better for the retailer to lose the money from that sale than to incur the cost of processing that return.

For brick-and-mortar stores and online retailers, the rise of the return economy is hardly new news. But as anyone in the CPG industry knows, whatever strikes retail will soon head upstream — if it hasn’t already. CPG companies can protect themselves now by implementing some retail-tested strategies.

1. Narrow return windows.

Return windows have come under intense scrutiny in the past few years. Companies like luxury women’s brand Anthropologie, once known for its unlimited return windows, have scaled back to a 30-day window for a full refund. L.L.Bean, once known for its liberal return policy, now requires consumers to return a product within one year of purchase. Though holiday shopping requires that companies provide additional return flexibility, many stores have rolled out specific windows, only allowing returns through mid-January.

2. Consider return fees.

Forty percent of companies charge return fees, and that’s provided the consumer returns the item within the company’s stated return window.

Most consumers will need a return charge greater than zero to change their behaviors, so a return fee can go a long way in prompting consumers to consider if they really want to return an item or not. That said, companies want to find a fee “sweet spot” — it shouldn’t be so high that it depresses sales.

3. Add notices and flags.

Retailers are getting more and more creative with their return deterrents by including labels on both the product page and the product itself. For example, Amazon recently created a “This product is frequently returned” flag to prompt shoppers to consider whether they want to go through with their purchase. Some electronics products are now being manufactured with a label to educate consumers — “don’t return this,” it says, “call us instead.”

4. Impose penalties, offer incentives.

Other companies are using artificial intelligence to analyze frequent returners and “ban” them from shopping for a period of time (or permanently). Though it sounds harsh, educating customers about this policy and instituting “strikes” (in the form of warning emails when customers take advantage of return policies) can help curb bad behavior.

Another tack: incentivize purchases. Companies can marry returns with a shopping experience (“In conjunction with your return, if you buy something new, we’ll give you $5 off”) or offer consumers a discount to keep an item. Tread lightly, though — retailers and vendors need to be careful that customers don’t take advantage of these approaches.

5. Provide better size guidance.

Secure detailed feedback from customers from reviews and return reason surveys. If people know exactly what they’re getting, they won’t be as apt to return. Another option? Offer a fit comparison to familiar brands along with a size calculator based on easy measurements. As always, ensure consistent sizing.

6. Appeal to data and emotions.

Provide consumers with a return percentage metric, which may guilt some into better behavior. This data can be objective but can still have an impact: Consider a flag like, “You return 20 percent more than the average customer.” Companies can also combine this with larger education efforts about where returns actually go — “25 percent of returns are put in landfills.” Educate consumers with data and know that their emotions will kick into gear.

Data is critical for the consumer and for the seller. Ensure the collection of all return information for detailed analysis and learning.

Final Thoughts

Finally, and perhaps most importantly, companies should seek to stop returns before they happen. Implementing appropriate product control to minimize defects, ensure consistent sizing (returns are assured when a customer is a size 32” in item A and size 33” in item B), offering accurate product descriptions/video/pictures, and making sure packing is sufficient to protect products during shipping can go a long way in protecting CPG companies for years to come.

Robert Gorin is a managing director and consumer products practice leader at Getzler Henrich & Associates LLC, one of the nation’s oldest and most respected middle-market corporate restructurings and operations improvement firms. Laurence Sax is a managing director and member of the retail practice at Getzler Henrich & Associates LLC.