Quantifying retail return rates may seem like simple math — add the number of return transactions and divide that negative number into net sales. But that method doesn’t factor in the impacts of exchanges, refunds, restocking fees, employee time, and potential damage to goods.
To get a true picture of a retail return rate, and the financial impact returns have on a business, retailers need to go beyond standard reporting systems. Let’s look at return rates for the modern era of retail.
Method 1: Factor in exchanges to get a ‘real return rate’
A stronger method of calculating a “real return rate” looks at pure retail returns plus exchanges, including each type of retail return such as:
- Pure return — A traditional return transaction, where a shopper returns an item (no exchanges or secondary purchases involved) and receives a refund.
- Even exchange — A balanced transaction that includes returned items and purchased items that equal the exact amount in value, leveling the return at zero.
- Negative exchange — A transaction where the shopper returns an item for a refund and buys a new product that costs less, resulting in getting money back.
- Positive exchange — A scenario where a shopper returns items for a refund and buys more products at the store, giving the retailer more cash.
Operationally, this method of including each type of retail return more precisely quantifies the impact of all returns on the retailer’s business, even if the end results are surprising.
Higher return rates happen when adding in exchanges
Following the more comprehensive method of considering returns and exchanges, a retailer may see a return rate increase that is double- or triple-digit percentage points. But there’s no need for alarm. In fact, this updated method has benefits like:
- Improved visibility into return trends and patterns.
- Stronger insights that can spot return fraud and abuse.
- Enhanced understanding of shopper behavior across channels including buy-online-return-in-store (BORIS).
Having a more accurate way of measuring return rates leads to better decision-making, ultimately improving store performance, and generating net sales.
Method 2: BORIS and ecommerce return rates
Another method of evaluating return rates — and one that delivers a better understanding of how returns vary online versus inside brick-and-mortar locations — considers BORIS and ecommerce return rates with two unique equations.
The two equations are defined as:
- Brick and mortar return rate — (Returns In-Store) ÷ (Sales In-Store – BORIS Returns) compared to (Returns In-Store – BORIS returns) ÷ (Sales In-Store)
- Ecommerce return rate — (Returns Online + BORIS Returns) ÷ (Sales Online)
Using these two equations, Appriss Retail’s internal research found return trends across seven different retailers had return rates nearly double online than in-store.
Returns are up and so is return fraud
With online purchases and returns both increasing, retailers need a reliable way of measuring retail return rates. The Consumer Returns in the Retail Industry Report uncovered total returns in 2023 equaled around $743 billion, a number on par with the year before. However, return fraud is up, accounting for nearly 14% of total returns. Per the report:
- In 2023, return fraud and abuse resulted in a loss of $101 billion, a 20% increase, year over year.
Retailers that rely on antiquated ways of reporting won’t see the full picture, including how fraud is impacting their returns.
Retail return rates unlock potential and profits
High return rates reduce a retailer’s profitability, so why wouldn’t a retailer want as much insight as possible into the root causes of rates of retail returns?
Using more comprehensive methods that include all the ways shoppers return products and that compare channel behavior, retailers can make smarter decisions and protect profits. Improved measuring of return rates helps manage inventory trends, improve customer satisfaction, and uncover trends that could reduce fraud.
It’s never too late to embrace these stronger equations.
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