When honest consumers have a legitimate return denied, the experience can be a sledgehammer to their loyalty. It’s a situation that retailers rightfully dread, and it’s one that compounds a metric they equally fear, “the insult rate.”
Retailers rely heavily on loyalty, and during uncertain economic times, impending tariffs and potential out of stocks, retailers need to cling to their most prized consumers. This is why many store managers and customer teams are highly focused on ensuring they have a low insult rate, which refers to the number of times a consumer has a valid return denied or has a purchase falsely declined at checkout.
The instances can frustrate consumers, who are already concerned about rising prices or out of stocks. AI and retail analytics that support a chain’s returns authorization strategies can be helpful tools in avoiding these insults. In fact, retailers using AI for returns witness a denial or warning in less than 2% of all returns, with virtually no wrongful denials or “insults.”
To put it another way, retailers that have assistance from AI and automated recommendations on returns enable their associates to save the energy spent on managing those returns and put it toward providing a stronger, more attentive shopping experience for loyal shoppers.
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By the Numbers: Returns and Insults Weigh on Retail
Retail associates obviously want to correctly process a return. When they don’t, they’re in for an unhappy customer and an uncomfortable situation. Yet beyond the emotional experience, shopper loyalty and returns directly impact a brand’s bottom line.
In fact, according to recent survey data, 31% of consumers said they stopped shopping at a retailer due to a negative returns experience. A wrongful denial of a return can have major ramifications, and the study adds that nearly four in 10 consumers said they have had a negative returns experience.
Retailers like fashion or soft goods brands specifically are on high alert. One study found that 75% of all returns in 2023 were clothing and accessories, with online clothing seeing a 30% average return rate.
Taking a broader look at retail, a study by the Merchant Risk Council found retailers reject an estimated 6% of online orders due to fraud suspicions, leading to an insult rate between 2%-10%. In many cases, these retailers don’t have visibility into why an automated online system canceled a customer’s order or denied a return. AI and retail analytics can close that disconnect.
AI Eases the Returns Experience
For retailers to effectively use AI to help manage transactions, it is paramount for them to have IT architectures and systems in place that are working together.
Consider a department store: the operation needs to have online and in-store data completely unified and streamlined so that all parts of the business are in sync.
When a consumer brings a return to that department store, AI can review real-time omnichannel data flowing to one centralized location, such as reviewing a shopper’s purchase history at all store locations for previously fraudulent returns behavior. During the returns process, AI anonymously checks for suspicious behavior, such as identifying if multiple addresses or credit cards are being used. AI also removes manual errors that can be made when processing a return, and can suggest ways to incentivize loyal shoppers who are being honest with their returns to recoup lost revenue.
Essentially, the more data, intelligence and visibility AI and retail business teams have into their transactions, the better retailers become at preventing fraud and accurately processing returns.
Returns Impact the Retailer’s Bottom Line
Maintaining loyalty and managing a minuscule insult rate is important, but returns also impact retailers in other ways:
- Reverse logistics costs: After a return is processed, retailers face exorbitant costs with repackaging, reshipping, and restocking a product that’s been returned.
- Unbalanced inventory levels: Particularly complex for categories with multiple packaging sizes, flavors and colors that need to be on the floor and not stuck in reverse logistics processes, returns can throw stock levels off kilter, impacting overall sales that can be made.
- Vendor relationships: Retailers that see a rash of stolen products or fraudulent returns occur within a supplier’s portfolio, such as a new line of sneakers that an organized retail crime (ORC) ring takes advantage of, can harm purchase orders, profits and partner relationships.
Retailers want to maintain strong partnerships with participating brands and meet the needs of their loyal shoppers. Implementing an AI-powered returns strategy can help decrease errors and maintain low insult rates.
Kathleen Garner is Strategic Customer Success Manager and Senior Advisor at Appriss Retail. She spent more than 13 years in loss prevention leadership at Kmart and Sears.
