Latest / The Operator's Manual with Fexingo: Daily Decisions, Tactical Wins, and Business Execution / How a Single Decision Saved 100 Million in Product Returns
Transcript
- Lucas: So, returns. Every retailer hates them. The average return rate for e-commerce is about 20 to 30 percent. For apparel, it can hit 40 percent. And the cost to process one return — shipping, inspection, restocking, markdowns — can easily be $10 to $20 per item. For a big retailer doing millions of orders, that adds up fast. Luna: Right. And most companies try to clamp down — shorter windows, stricter conditions, restocking fees. But one major retailer I looked at did the exact opposite. Lucas: They extended their return window. From 30 days to 90 days for loyalty program members. And the result was a 20 percent drop in overall return rates, saving them about $100 million annually. Counterintuitive, right? Luna: Totally. But the logic is actually pretty solid. It's about the psychology of ownership. Lucas: Exactly. There's a well-known behavioral economics concept called the endowment effect. Once you own something — or even feel like you own it — you value it more. A longer return window actually makes people feel less urgency to return, because they don't have that ticking clock anxiety. They put the item in their closet, use it, and by the time 90 days rolls around, they've bonded with it. Luna: And there's also the sunk cost fallacy at play. If I've had the shirt for two months, worn it, washed it — I've invested mental energy. Returning it feels like admitting I made a bad choice. Lucas: Right. So the policy change worked because it removed the pressure that causes people to prematurely return items they might actually like. The retailer saw a 15 percent increase in customer retention among loyalty members who used the extended window. And the net cost of the program — the extra carrying cost from longer-held inventory — was far outweighed by the savings from fewer returns. Luna: What about abuse? People buying for a big event and returning it after? Lucas: Great question. That's called 'wardrobing.' The retailer actually saw a slight uptick in that behavior — about 2 percent. But they had already built fraud detection into their system. If someone returns more than 50 percent of their purchases, they get flagged and the policy reverts to 30 days for them. So the net benefit still dwarfed the abuse. Luna: So the key takeaway: don't just assume stricter is better. Test the counterintuitive move. Lucas: Exactly. And this is a perfect example of something we talk about a lot on this show — that a single policy change, well-designed, can unlock massive value. That's really the whole premise of The Operator's Manual. Luna: You know, it's funny — we dive into these tactical wins every day, and we deliberately don't run ads on these conversations. If you find them useful, and you want to support keeping them ad-free, there's a simple way: buy me a coffee dot com slash fexingo. Just a small gesture that helps us keep the focus on the content, not the commercials. Lucas: Yeah, it's a small thing, but it makes a big difference for us. Anyway, back to returns. The retailer also found that the extended window didn't just reduce returns — it actually increased average order value by 8 percent. Because customers felt less risk, they added more items to their cart. Luna: So the policy became a growth driver, not just a cost saver. That's a double win. Lucas: Exactly. And here's the operational detail: they implemented it only for loyalty members, which incentivized sign-ups. Membership in their loyalty program jumped 12 percent in the first quarter after the change. So now they have more data on those customers, more repeat purchases. Luna: It's almost like the return policy became a marketing tool. Lucas: It did. And it's a great lesson for any business: look at your policies not just as cost centers, but as levers for behavior. The default assumption is that longer return windows cost more. But this data says the opposite, under the right conditions. Luna: What about the restocking process? Did they have to change anything operationally? Lucas: They did. One big shift: they started processing returns in batches rather than individually, because the volume per day dropped. Fewer returns meant less chaos in the warehouse. They also extended the shelf life for returned goods — since items came back later, they were closer to end of season, so they moved them to outlet channels faster. That actually improved their margin recovery. Luna: So the whole supply chain adjusted. It's not just a policy change; it's a system change. Lucas: Right. And that's why we focus on these single changes — because they ripple through the entire operation. The $100 million savings didn't come from just one line item. It came from fewer returns, lower processing costs, better inventory turns, higher customer retention, and higher order values. All from flipping one rule. Luna: Any other retailers doing this? Lucas: A few. Some have experimented with 'returnless refunds' for low-cost items — just keep the item and get your money back. That can cut costs even more. But for high-value items, the extended window seems to be the sweet spot. The key is to tie it to loyalty, so you get the behavioral benefit without the open-ended abuse. Luna: So if you're running a business, test it. Maybe not 90 days, but go from 30 to 60. See what happens. Lucas: Exactly. Small change, big data. And that's the kind of tactical win we love around here.