From return to exchange: The value of an omni-channel journey

Abstract

Omni-channel retailers typically face high return rates, particularly in their online channel. This paper examines how these returns can be converted into exchanges by leveraging omni-channel capabilities. We do so in the context of a fast-fashion retailer running integrated physical store and online channels. Our unit of analysis is a return journey, which starts with an initial online purchase, proceeds with a return, and then potentially continues with subsequent exchanges and returns, replacing the original purchase. Using a random forest with instrumental variables, we study whether store visits for pick-up or return of the initial purchase influence a consumer’s likelihood to make an exchange, thereby generating revenue for the retailer. We explore the heterogeneous effect of these store visits across different customer profiles based on the recency-frequency-monetary value (RFM) framework. Our results indicate that store visits for pick-up or return increase the likelihood of an exchange, with a more pronounced effect among less valuable customers. Follow-up analyses suggest that this effect is driven by the customers’ ability to reduce product uncertainty through in-store inspection. Additionally, a store visit decreases the likelihood of a return (consistent with previous literature) and increases the likelihood of keeping an exchange purchase when it has been made. Our findings thus underscore the critical role of physical stores for online shoppers in finding the right product and, consequently, for retailers to convert returns into exchanges.