E-commerce is trapped by return rate

In recent years, the return rate in the e-commerce industry has been getting higher and higher, and platform merchants are suffering from this problem. Based on this, this article deeply analyzes the reasons for the high return rate and the adverse effects of this phenomenon on merchants. It is recommended for you who are interested in the e-commerce industry.

"I started selling on Taobao in 2013. At that time, the average return rate for women's clothing was less than 15%, and many successful stores had a return rate below 8%. But now the average return rate for women's clothing on Taobao is around 40%-45%, and the average return rate for livestreaming sales is over 60%."

Miaomiao is a clothing merchant. Having been engaged in the clothing business for many years, she has deeply felt the rising return rate of e-commerce. She also said that the trend of rising return rate of e-commerce has become more and more obvious in recent years, and the magnitude has been increasing.

"Returns" are a consumer protection measure for e-commerce shopping. It is normal for consumers to return goods due to objective reasons such as the clothes they bought do not fit or encounter product quality issues.

But in recent years, more and more external factors are pushing up the return rate in the e-commerce industry.

As the direct responsible parties for consumer returns, platform merchants are suffering from high return rates.

As the clothing merchant mentioned above said: "For returns caused by specific issues such as quality and size, we can work hard on our own products, improve quality and precise sizes to reduce the return rate. But now most of the seven-day no-reason returns are beyond our control as merchants." For example, changes in consumer shopping habits, the lowering of logistics thresholds, and the iteration of e-commerce decision-making models are all accelerating this phenomenon.

For merchants, the increase in return rates caused by external factors has become uncontrollable.

1. The maturity of online “fitting rooms”

The other side of the increasingly frequent returns and exchanges in e-commerce is the full improvement of the e-commerce infrastructure, which is also the result of e-commerce platforms constantly reducing consumers' wariness of online shopping.

An e-commerce industry insider said: "There are more and more returns and exchanges on e-commerce platforms now. The most fundamental reason is that it is becoming more and more convenient for consumers to return and exchange goods. The time and money costs for users to return goods are already low enough."

On the one hand, the popularity of express delivery indirectly increases the return rate. Domestic express delivery has developed rapidly. Ten years ago, e-commerce express delivery was still at "one week" or even "half a month", but today, the key words in the industry are "half a day" or even "hour". It is becoming more and more convenient for C-end delivery, which in turn reduces the threshold for consumers to return and exchange goods.

The domestic express delivery industry has been deeply integrated with e-commerce, and has even entered the stage of developing customized services for e-commerce platforms. For example, door-to-door pickup for returns and exchanges has almost become a standard feature of all e-commerce platforms, allowing consumers to return goods without leaving their homes.

In addition, the introduction of the freight insurance policy directly reduces the cost of returns and exchanges for users. For merchants, opening a freight insurance policy is a means to increase store sales, especially for categories such as clothing, where freight insurance is directly linked to sales.

"We have shipping insurance, you can buy it back and try it out" and other similar phrases have become standard marketing slogans for online stores. Encouraging consumers to buy it back and "try it out" with shipping insurance as a prerequisite directly lays the hidden danger of increasing the number of store returns.

Taking Taobao and Tmall as an example, services such as four times compensation for fake products, return shipping insurance, fast refunds, door-to-door return, and seven-day unconditional return and exchange have basically become standard for sellers. These services are the embodiment of the platform's continuous improvement of consumer services and protection after the in-depth development of e-commerce.

As the above-mentioned e-commerce industry insider said: "It cannot be unilaterally said that the platform's return and exchange rules have led to the increase in the industry's return rate, but it is undeniable that these return and exchange policies that benefit consumers have significantly improved the convenience of consumers' returns."

At the same time, from the perspective of the macro development of e-commerce, the industry is becoming more and more competitive, and the platform's consumer-based services will only increase and not decrease, which also indirectly cultivates a stronger shopping mentality among consumers.

According to a blogger on Xiaohongshu, many fashion bloggers would buy items, take photos and then send them back in order to save costs in the early stages, because there is a "seven-day no-reason return policy" and there would be almost no loss.

Linlin is an avid online shopping enthusiast. Her daily shoes, clothing, jewelry, skin care products, etc. are all purchased through Taobao and Tmall. She said that she has basically developed the shopping habit of "ordering multiple items at a time and choosing the most satisfactory ones after receiving the goods."

"Especially when buying clothes, I only buy those with shipping insurance. Many times it is difficult to make a decision just by looking at pictures, so I usually order multiple pieces, keep the ones I like, and return the others," said Linlin.

"Nowadays, many consumers buy things online just like it's a game," said Miaomiao, the clothing merchant mentioned above. When online shopping becomes a common thing, consumers' caution in making purchasing decisions also decreases, and it also indirectly boosts the arrogance of some low-quality buyers and wool-gathering parties.

"In addition, from the perspective of the platform, for a long time they have paid more attention to the growth of GMV rather than net transactions. Under this trend, it is difficult to reduce the return rate." Linlin said.

Six years ago, Alibaba did not disclose GMV data in its financial report for the first time. Last year, Alibaba also stopped publishing the specific GMV of Double 11. The growth of the number of followers is no longer a sign that Alibaba's e-commerce has entered a mature stage. In the early years of Miaomiao's entry into Taobao, Taobao e-commerce, which was in its growth stage, would inevitably give consumers benefits in order to boost GMV, just like today's Douyin and Kuaishou frequently emphasize "free shipping insurance, seven-day unconditional return, and free return for damaged goods" in their live broadcast rooms.

Public data shows that from 2012 to 2021, China's express delivery business volume climbed from 5.7 billion pieces to 108.3 billion pieces, an increase of 18 times. The continuous improvement of e-commerce infrastructure has promoted the expansion of online shopping, and the industry's return rate is proportional to it.

2. Passionate shopping drives up return rates

As the scale of e-commerce increases, the return rate is getting higher and higher, which is irreversible. "But live streaming is accelerating this trend," said an operator of live streaming e-commerce.

The return rate of live e-commerce is generally higher than that of traditional e-commerce platforms. This is closely related to the consumer decision-making attributes of live e-commerce, as well as various factors such as industry maturity and standardization.

Livestreaming is more inclined to impulse buying, and consumers are more likely to regret after placing an order. The above-mentioned livestreaming operator said that compared with shelf-based e-commerce, livestreaming is more interactive and entertaining, and consumers are easily influenced by the host's words and atmosphere, leading to impulse buying. Consumers lack sufficient thinking and comparison when placing an order, and may regret the purchase afterwards and apply for a return.

At the same time, promotional methods such as performative bargaining, hunger marketing, and routine order-holding have long been common. The anchors use all kinds of exaggerated and routine rhetoric to create an atmosphere of "you will suffer a loss if you don't sell", and consumers are guided to place orders without having time to think too much.

He also said that the return rate of live e-commerce is also related to the platform's traffic recommendation logic. Take Douyin's interest recommendation as an example. If a user browses or orders a product in a live broadcast room of a certain anchor for a long time, Douyin will continue to recommend similar live broadcast rooms to the user. If the user sees that the price of this product in other live broadcast rooms is cheaper, many people will choose to refund and place a new order.

Generally speaking, compared with the uniform display of shelf-type e-commerce, live streaming e-commerce weakens the price comparison link of the platform. However, Douyin's interest recommendation model indirectly strengthens this feature. Douyin recommends similar live streaming rooms to users, so the same or similar products have the opportunity to compare prices in different live streaming rooms. In addition, the pricing of live streaming products is linked to the fan level of each anchor, so the price difference of the same product in different live streaming rooms is very large.

"However, there are differences in the return rates of different types of live broadcasts. Generally, consumers have higher trust in brand-run live broadcasts, and the return rate is lower than the average return rate of live broadcast sales. In addition, live broadcast sales by influencers are divided into product-oriented and anchor-oriented types based on fan preferences. Many vertical bloggers tend to be product-oriented, while celebrities are more of the anchor-oriented type. Generally, the return rate of anchor-oriented types is higher than that of product-oriented types." said the above-mentioned live broadcast operator.

Live streaming sales are different for different people. The styles, professionalism, and product selection capabilities of different anchors directly affect the transactions in the live streaming room. The return rate is also inevitably closely related to the personal characteristics of the anchor.

In addition, "fraud" in the live streaming e-commerce industry is another major reason for the high return rate.

The above-mentioned operator said that on the one hand, many organizations hire online trolls to fake orders in order to make their anchors look good. On the other hand, there are fake sales. For example, jewelry is a typical example of a high return rate on the platform. The return rate of many jewelry live broadcast rooms is as high as 90%. "There is even a supply chain behind them that specifically produces fake appraisal certificates in batches for them, with each certificate costing less than one yuan."

The standardization of the live streaming e-commerce industry is still being improved, and non-compliant phenomena such as false advertising and fraud are also inevitable during the industry's rapid growth period.

In addition to live streaming e-commerce, the increasingly frequent e-commerce promotions also fall into the category of passionate shopping. Big promotions and discounts on purchases over a certain amount are all increasing the return rate of e-commerce.

Almost all consumers who have participated in e-commerce promotions have had the experience of "full discount to make up for the order". In order to meet the full discount standard, consumers buy some unnecessary products to make up for the order, and then return them. This has become a common practice among users.

At the same time, e-commerce promotions inadvertently stimulate consumers' irrational shopping psychology, and crazy shopping during promotions and crazy returns after receiving the goods are all true portrayals. Every year after Double 11, it is the peak period for e-commerce returns.

In addition, a daily household goods merchant said that for stores like theirs with a low overall average order value, many merchants usually do not open freight insurance, so the overall return rate of this category is low. Since the average order value of the goods is not high, there is a phenomenon that the goods are not as expensive as the freight, and consumers are less willing to return the goods. Therefore, when such merchants face consumers' dissatisfaction with the goods, the most common way to deal with it is to apologize with a nice attitude and then compensate with a red envelope.

"But during big promotions like Double 11, Tmall platform forces merchants to activate freight insurance, which will also lead to a significant increase in store return rates during the shopping festival," said the above-mentioned daily household goods merchant.

The popularity of content e-commerce and the increasing frequency of shopping festivals are actually a microcosm of the e-commerce industry entering a stage of stock growth. The industry has come to an end based on the growth of GMV, AAC and other quantities, and has turned to focusing on stock to stimulate users' potential shopping desire. Therefore, under this major trend, the phenomenon of impulse consumption driven by platforms and merchants will only become more and more common.

3. High return rates hurt merchants

"The impact of return rate on store profits, transaction volume, and reputation has a critical point. If the return rate exceeds the store's tolerance, it will affect normal operations." Miaomiao, the above-mentioned clothing merchant, said.

First, in terms of cost, if there are too many returns and exchanges, the direct increase will be the courier-related costs. "Most merchants have opened freight insurance. The platform's freight insurance cooperates with insurance companies. The merchant's freight insurance rate is linked to the return rate. If the return rate increases, the corresponding freight insurance cost will also increase." Courier fees and freight insurance increase simultaneously with the increase in return rates.

"If the industry's return rate continues to rise, a large number of merchants will cancel freight insurance and free shipping, or directly increase prices to cover the return costs." When the return rate exceeds the merchants' tolerance, it will eventually undermine the industry's service level and infringe on the interests of consumers.

In addition, inventory, shipping labels, packaging, labor, etc. will all generate some additional expenses, and even affect the store's DSR score. When the return rate and negative review rate increase, the system will lower the store's weight, affecting traffic recommendations and user selection. "If the score is low, you will not be able to participate in many activities on the platform, which will have a chain reaction." Miaomiao said frankly.

For the platform, an excessively high return rate will give the outside world a stereotype that the platform’s product quality is poor and the service is bad, which will cause users to distrust the platform, leading to the loss of users and merchants.

The current Douyin e-commerce and Kuaishou e-commerce are still facing such problems, which is why the platforms are vigorously introducing brands and encouraging brands to broadcast themselves. Through brand endorsement, the overall reputation of the platform is improved.

The above-mentioned e-commerce person said: "As a platform, they are certainly not happy to see the return rate of the platform increase. In addition to affecting the overall reputation of the platform, the high return rate is also related to the platform's revenue. Generally, the cost of returns and exchanges for merchants has increased, so the budget for advertising, platform activities, etc. will be more conservative."

As the overall competition in the e-commerce industry becomes increasingly fierce, the general trend of platforms being more "biased" towards consumers is irreversible. The "refund only, no return" policy that has troubled merchants is actually a manifestation of the platform's bias towards consumers.

In this process, in order to attract users, the platform has created a more relaxed and convenient shopping environment. After enjoying the user dividends of the platform, merchants have to bear the cost of giving benefits to consumers.

It seems difficult to define who is right and who is wrong. However, as the rule maker, it is important for the platform to grasp this "degree". As merchants, all they can do is to continuously improve their products, enhance services, and enhance their overall core competitiveness.

(All interviewees in this article are pseudonyms)

Author: He Furong; Editor: Wu Xianzhi

Source public account: Photon Planet