Customer return rate evolution

Customer return rate evolution–whether return rates decrease or increase over the course of the customer-firm relationship–is of great economic importance to retailers. Analyzing the complete purchase and return behavior of customers of an online fashion retailer over six years, we show that the average customer’s return rate increases by 48% from their first to their tenth purchase. We investigate how customers’ past behavior explains returns for their current purchase and ultimately return rate evolution. Our results provide evidence for a brand experience effect: A greater number of previously purchased items indicates a decrease in return rates. We also find evidence for a return habit effect: A greater share of previously returned items indicates an increase in return rates. We quantify both effects and show that return habits dominate, resulting in an increase in customer return rates. For managers, understanding the return rates evolution has important implications. If managers at the focal retailer ignored customer return rate evolution, they would overestimate cumulative customer value by about 40% after ten purchases. This evolution poses a particularly acute challenge for retailers operating on slim margins and facing high customer retention costs, potentially transforming profitable customers into financial liabilities.