Online vs in-store return rate: where returns eat margin
The short answer
To compare online vs in-store return rate, calculate return rate separately for each channel in each category: units returned divided by units sold. Then multiply returned units by the cost of each return, including shipping, handling and any markdown on resale, to see where returns cost eats the margin.
Online return rate by category, worked through
Why it matters
Online returns usually cost more per unit than store returns, because they carry shipping and often come back unsellable at full price. A category with a modest gap in rate can still lose far more margin online, so the cost view matters as much as the rate.
The question to ask
Copy this into Lexi as written.
How to work it out
1. Split by channel. Calculate return rate for each category, online and in store, over a year.
2. Cost each return. Add return shipping, handling and the markdown needed to resell, by channel.
3. Compare margin lost. Multiply returned units by cost per return for each category and channel, and check which customers return most.
What the answer looks like
Illustrative output on sample data
Illustrative example: how Lexi answers this for a footwear retailer. It compares return rates and handling cost by channel and category over a year.
- Running shoes online: 23% returned, $128,800 in return costs
- Running shoes in store: 7%, $16,800
- Dress shoes online: 30%, $64,800
What the data shows
Online running shoes cost more than seven times as much in returns as store running shoes, on two-thirds of the volume.
What it means
A small group of online customers order two sizes and return one, and they account for 40% of online running returns.
What to do
Add size guidance to running shoe pages and contact the two-size customers with a fit service.
Would you like that customer group as a segment?
Frequently asked questions
Why compare return cost as well as return rate?
The rate only shows how often items come back. Cost shows what each return takes from margin, and online returns usually carry shipping, handling and resale markdowns that store returns avoid. Two categories with the same online return rate can lose very different amounts.
How should online return rate by category be measured?
Count units returned against units sold online for each category, using the original order date so returns line up with the sales that caused them. Include online orders returned in store, since they still started as online sales and belong in the online rate.
Should online orders returned in store count as online or store returns?
As online returns, because the sale and the decision to buy happened online. Track where the return was made as a separate field, since store returns of online orders cost less to process and give the store a chance to make another sale.