Can retailers ban a customer who returns too much?

Can retailers ban a customer who returns too much?

Mark Beresford
September 1, 2022

Over a decade ago, EDC’s Retail Practice was advising a fast fashion brand that had blacklisted several customers with an unusually high number of returned items that appeared to have been worn. To ban a customer for high returns is not new, particularly if a customer is known to be using garments for their ‘big night out’ and returning them the next day. This specific retailer had a team of revenue protection representatives checking their customers’ social media to find evidence of their garments being used.

The number of banned customers has significantly increased as ecommerce sales have equally increased, and the leading fast fashion retailers have made the returns process easy and free, partly driven by the pandemic. To return items to a physical store was not always possible during a lockdown. Return policies were made more flexible. As a result, consumer shopping habits have changed since the pandemic, and there are now different challenges.

Process of Bracketing

To calculate the return rate, a retailer will divide the number of return items by the total number of sold items and multiply by 100. That’s your return rate. Based on EDC research of retail payments processing, the return rate for items purchased at a physical store can be around 8%, while for items bought online, this can be as high as 25%. In the fashion industry, consumers are more commonly following a process of ‘bracketing’. This is where a customer fills up online shopping carts with multiple sizes and colours of the same item. The plan is to try them on at home, decide what they like and send back the rest. The act of buying products with the intention of sending them back has become so common that around 30% to 40% of all clothes bought online are returned, based on recent research conducted by Eco-Age.

Debenhams, the department store chain that operated 124 locations across the UK, went out of business just as the pandemic started to have a big impact on retailing. Several years before the pandemic, Debenhams were in a dialogue with EDC’ Retail Practice to resolve the high return rates as their omnichannel strategy progressed and consumers took advantage of bracketing and the flexible returns policy. Not directly related to the pandemic, but it was probably a contributory factor, the business failed in 2020 to secure any buyers to save the 244-year-old brand.

Turning unhappy experiences into incremental sales

In the US, no federal laws require a merchant to refund money unless the product they sell turns out to be defective, despite the federal consumer protection regulation enforced by the Federal Trade Commission (FTC). The National Retail Federation (NRF), the US retail trade association, recently conducted research in partnership with Appreis Retail and found that for every $100 in returned merchandise accepted, retailers lose $10.30 to return fraud. Bracketing is only part of the returns problem.

A private business has a right to refuse service and choose who it wants to serve or not. This can include selling products, and services, asking customers to leave the store’s premises, refusing to allow customers to register via their online store, or taking other steps to refuse them to make new purchases.

EDC has already written about the 5 best practices to improve the returns process that can increase sales (read here). Retailers may be within their rights to ban customers who consistently return items. At EDC, our view of a returned item is an unhappy experience for both the customer and the merchant. However, it represents an opportunity for merchants to further engage with customers, as it provides an additional point of interaction to enhance the overall consumer experience through carefully designed customer payment processing and refund processes.

Where is Debenhams today?

If you want to experience a Debenhams store, go to the Middle East, where its licence is operated by Alshaya Group and has 23 Debenhams stores across Kuwait, KSA, UAE, Bahrain, Egypt, Oman and Qatar. In July 2021, Alshaya Group announced a new partnership with Boohoo to expand the online version of Debenhams in the Middle East. We know that at Alshaya, a returned item is an opportunity to enhance the overall consumer experience and drive incremental sales.

The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).

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