Today’s commerce roundup deals with an uncomfortable topic that, at some point, retail media companies must reckon with.
It’s not transparency, or MFA, or standardization.
It is the issue of rising return rates.
Why do return rates matter?
For retail media, and Amazon in particular, the data-driven ad system has, over time, been integrated into other parts of a business’s supply chain, like warehousing, delivery and sometimes even manufacturing. How long a product sits in an Amazon warehouse, how it’s priced and which particular box types or weight thresholds it fits within, are all part of a ranking formula that also includes paid media.
The next step in this trend is to incorporate the growing costs of online shopping returns, and eventually connect that information to how companies bid on audiences and analyze ad campaigns.
Last year, Amazon began what looks like a comprehensive effort to slow down the rate of product returns – by squeezing sellers. Amazon created a new processing fee on high-return items. Sellers are penalized if their return rates cross a given threshold. Amazon publishes this per category threshold, for instance, Grocery & Gourmet is 2.9%, Music Instruments & AV Equipment is 9.2% and Toys & Games are 4.7%.
Amazon also introduced an ignominious “Frequently Returned Item” badge it posts on certain product pages, if the return fees weren’t disincentive enough. This is like sales kryptonite on Amazon.
Tools to help
Amazon isn’t offering many carrots to sellers as part of this change – it’s mostly sticks. But Amazon is trying to give sellers better tools to adjust.
In 2024, the company created a new Seller UI tool called “Return Insights.” This provides feedback on which ASINs (Amazon’s version of retail SKUs, or individual product lines) are returned, and the reasons given by customers for the returns.
One Amazon-focused ad agency analyst, speaking during a hands-on keyboard session at Amazon’s unBoxed conference in Austin last October, asked a product manager how those return rates might be applied for practical targeting and attribution purposes by advertisers using the Amazon DSP. The brand might want to retarget or purposefully not target the cohort, the analyst said. It would also be useful to understand which media channels might be associated with higher rates of eventual returns.
Those products don’t exist yet, was the response from Amazon’s product manager, though the Seller Central return rate data can be ported back to Amazon Marketing Cloud, the Amazon Ad group’s cloud-based data clean room solution, and the ASINs with high returns might be connected to Amazon DSP campaigns that drove those product sales.
The seller would need many thousands of such instances of ASIN purchases and returns connected to ad campaigns for that analysis to work in AMC, though, the Amazon exec cautioned. The AMC clean room won’t allow analysis of relatively small, overlapping data sets, because the brand could reverse engineer the information to re-identify actual individuals. (If a brand has only some hundreds of returns in the US, an anonymized analysis of those customers, whose actually identity and location are in the seller’s CRM, isn’t really so anonymous.)
Returns to the future
Right now, even on Amazon, integrating return rates into DSP bidding and ad campaign attribution is a hypothetical.
But it’s tantalizingly close, not a pipe dream. And Amazon is pushing sellers hard to do that work themselves, by informing shoppers which items are often returned and adding seller fees on returns (shoppers still get mostly free returns, though Amazon added a $1 charge on UPS returns last year).
Advertisers for retail brands or online marketplace sellers should have a handle on their return rates, and start thinking about whether certain acquisition channels disproportionately generate returns.
Because it isn’t just Amazon whose approach to cracking down on excess returns and return fraud is to pass the buck to sellers. Last year, Walmart increased the shipping return rates for marketplace sellers. Though Walmart said sellers could avoid the return fee by simply allowing customers to keep the product – what Walmart’s seller portal calls the “Keep It Rule” – while also getting the refund.
Which …. Ok.
According to a National Retail Federation report published in December, done in conjunction with the UPS-owned shipping and returns software company Happy Returns, the ecommerce return rate has more than doubled in the past five years, to 16.9% of all sales.
For ad tech companies that make their bread on improving a brand’s campaign performance by even a small percent, denting the product return rate would mean the sales come at much better overall profit to the advertiser.
At some point, low eventual return rates should be an important selling point for retail media.
