Amazon is Fighting Back on “Excessive” Returns
Certainly, processing returns is a normal part of eCommerce, and return rates online can be as high as 25 to 40% of overall sales. Amazon, ever the industry-changer, may have had an impact on other companies implementing their own easy returns policies based on their own no-questions-asked policy.
Despite having a generous return policy, Amazon maintains a 5.5% average return rate—much lower than that industry standard. This may be due to Amazon’s balance of categories—they’re very strong in items that are purchased with high frequency and repetition (electronics accessories or kitchen accessories, for example) but less commonly returned and other categories that are returned frequently, like Women’s Clothing, where Amazon isn’t quite as much of a dominant force.
Returns were a bit higher at the beginning of the year, perhaps due to the lasting effects of the holiday season, but tapered down to average by February. Still, even with a low return rate, the cost of processing returns, particularly covering return shipping, may be eating more of a hole in Amazon’s profit margin than the eCommerce company cares to give up. In 2017, Amazon reported $21 billion in shipping expenses, a number that’s growing at a faster pace year-over-year than its reported net sales.
Returns Are Getting Easier, Still Relatively Infrequent
According to a survey by NPR/Maris, 91% of shoppers never or rarely bother with a return. Reasons why this is the case vary, but often the hassle of repackaging an order and mailing it back is more effort than shoppers want to undertake.
This has become such a problem that there are now services popping up that will return items for you in exchange for a small fee.
A Minority of Shoppers Are Trying to Game the System
A fraction of shoppers, however, are taking advantage of easy return policies like Amazon. For example, one couple managed to steal $1.2 million from Amazon by employing a network of fake online identities. Others abuse the policy when they order a product for a company that pays for reviews. Once they have left the required review or buy a product on sale and return it when it’s full price, keeping the difference.
To combat this kind of return fraud, Amazon is banning certain people from the site using a mysterious algorithm based on past purchase and return activity.
Our data shows that 7–8% of individuals who made a return in Q1 did so 4 or more times. It’s likely this group contains the serial returns that Amazon is targeting with bans.
Should you worry? Not unless you return a high number of products. Most people who returned something to Amazon only returned once in the quarter.
The question is: is the best strategy to deal with fraudulent returns? Will Amazon see backlash from loyal customers who have no ill intent behind their returns? (It’s already happening.)
What about people who buy many items (shoes, for example) with the intention to try them all and return what doesn’t work? Right now, the algorithm Amazon uses to identify high returns behavior hasn’t been able to discern between fraud and genuine returns, so time will tell whether customers stand for this or not.