Sustainable growth in a shifting market: Webinar recap
Samir Kamnani
·June 3, 2024
Ecommerce brands are facing pressure from all sides: As customers pull back on discretionary spending due to skyrocketing inflation rates, merchants are seeing higher customer acquisition, production, and logistics costs.
To successfully—and sustainably—build a thriving ecommerce brand in today’s economy, it’s important to leverage the techniques and technologies that will help you improve your profit margins without alienating your customers.
In our recent webinar, “Sustainable Growth in a Shifting Market,” Loop’s VP of Merchant Success, Mike Indigaro, spoke with three expert panelists: Justin Hinken, Director of Daily Operations at Cozy Earth, a luxury bedding and loungewear company; George Mikhail, co-founder and principal at the ecommerce consulting agency DYODE; and Alexandra Grundrich, head of product development at the footwear and apparel brand ALOHAS.
Our experts shared their insights on what’s working in the current market, and showcased strategies for future-proofing your ecommerce business. They focused on three key trends: responding to rising return fraud, reducing operational costs, and re-thinking post-purchase retention.
Here are some of the key takeaways from the session.
How to combat rising return fraud
Merchants are seeing increasing incidence of return fraud, with over $101 billion in losses due to return fraud and abuse in the past year. Online stores are more likely to fall victim to return fraud and abuse, with 17.6% of merchandise purchased online being returned.
There’s a broad spectrum of return abuse and fraud, ranging from unfavorable behaviors, such as bracketing or policy violations, all the way to illegal behaviors such as empty box scams and credit card fraud.
Hinken says that Cozy Earth has seen numerous incidents of return fraud—most notably, empty box scams.
After requesting a return, the customer would often modify the return mailing label so that it didn’t arrive back at the warehouse, but somewhere nearby.
“Generally what they would do is put a pair of dice or some marbles or something small into a package, they would drop that off at the carrier in hopes that it would get close enough to the destination it was supposed to go to and then it would get lost or destroyed. And then that person could call in to support and say, ‘Hey, I haven’t gotten my refund yet. What’s going on?’ And they would do this in hopes of securing a refund.”
Cozy Earth has since put strategies in place to reduce the incidence of return fraud, however.
They’ve been able to look at their data to understand which returns appear suspicious: “It was generally their first order,” says Hinken. “If it was someone who has a track record or a history with us, we don’t have to worry about it. What we also saw was generally everything was returning or almost everything. So if they got seven or eight items, all of those would come back.”
Other common threads? The orders had a high value (generally $800+), and the return request would be received right away.
After identifying the likely warning signs for return fraud, Cozy Earth built customized return workflows in Loop, enabling them to automate returns for customers with low-concern transactions, while putting a manual review and approval process in place for returns that seem suspicious. They’re now able to offer an instant return process for trustworthy customers, while putting precautions in place to protect their revenue when scam artists are taking advantage of their policies.
Bottom line? Dig into your data to identify warning signs of fraud, and put workflows in place to ensure that suspicious activity is subject to manual review, and you’ll be able to stop scam artists from depleting your profits.
Lower operational costs through smart return policies
Consumer price inflation jumped by 19.6% from January 2020 to January 2024, and brands are struggling to look for ways to lower their operational costs. Twenty-three percent of business owners said that inflation was their most important business problem.
To that end, merchants are being more strategic about what services they offer for free—which often means eliminating free return shipping.
Grundrich says that because ALOHAS ships its products internationally from Spain, they’ve built customized prices for return shipping based on the region. “We’ve implemented different tiers depending on the region because of course for us, the cost of a return from France to Spain or from the US to Spain is not the same,” she says. Under this model, most customers pay for return shipping, though they’ll still extend free shipping to VIP shoppers in their customer loyalty program.
“I think the market today is much more open to accept that you have to pay for returns,” says Grundrich. “Maybe a couple of years ago customers were not that willing to pay, but I think customers are more and more willing to accept that they have to pay for returns today.”
Another strategy for lowering your reverse logistics costs? Don’t offer returns on items that won’t allow you to recoup the value of your shipping and restocking costs.
“If you’re redlining a product and you’re trying to move inventory just to not hold it, why are you even offering returns at all?,” asks Mikhail. “It should be the final sale. You want that stuff out of your warehouse and you’re already marking it down by 70, 75%, why are you taking it back? Once something is marked down by 30-40%, you’ve lost the luxury of being able to extend a free return.”
By using a returns management platform like Loop, you can set clear return conditions broken down by product type or category, with the ability to categorize items as final sale so that shoppers don’t request refunds for products that you can’t resell at a profit.
Boosting post-purchase retention
Beyond cutting operational expenses, another key strategy for boosting profitability is increasing your customer retention.
Only 35% of business revenue comes from new customers, while 65% comes from existing customers—so it’s crucial to do everything in your power to keep your customers committed to your brand.
When a customer requests a return, it can often mean the end of their relationship with your brand—but putting a strong post-purchase retention plan in place can help you preserve those connections.
Mikhail recommends building a personalized post-purchase experience that will encourage your customer to consider other items that reflect their interests. “The bar is always set high by Amazon and big box retail,” he says. “So the consumer’s accustomed to seeing more personalized communication and more curated products. Once they make a purchase, you know what they’re interested in, how much they’re willing to spend, and you can also follow their purchase trends through surveys, through transactional data and even when they return something, if your workflows are solid and you’re able to learn in that process about the RMA itself and why they’re returning, you can further curate the experience from that point on.”
By using Loop’s workflows to determine why the customer is returning an item, you can then offer relevant alternatives to convert the return into an exchange.
“You can offer a variant exchange, which means you can change the product for another size,” says Grundrich. But because ALOHAS uses an “on-demand” manufacturing model, “we don’t always have another size available. So we moved to advanced exchanges, which means that you can exchange the item not only for the same item in another size, but for whatever item in a price range you select. So this has helped us a lot and we have really seen incredible results on retention.”
By prioritizing a best-in-class post-purchase process that optimizes for exchanges, you’ll be able to boost your customer retention and lifetime value, helping your brand lower its spend on customer acquisition.
With the right strategy and best-in-class technology to support your plan, your brand will be poised for long-term, sustainable success.
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