Revolve Execs Outline Plans to Slash 60% Return Rate

Glenn Taylor
·4 min read

The return rate for Revolve is now 60 percent, chief financial officer Jesse Timmermans told investors in a recent earnings call.

But the e-commerce fashion retailer believes it can tackle the problem and cut fulfillment costs.

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The J.Lo partner is consolidating return shipments coming back from Canada to the U.S. And separately, in the U.K., Revolve recently started holding some product returns for local re-fulfillment without shipping the products all the way back to the U.S., which once was the standard approach. This initiative both reduces shipping costs and provides even faster service for customers in the region, according to Mike Karanikolas, co-founder and co-CEO of Revolve.

Karanikolas said the company is actively evaluating potential tech solutions to improve the return rate.

“In the third quarter, we will be experimenting with several new initiatives including a virtual try-on and size comparison feature tool that went live last month and we are testing a wide range of tools and visuals to better communicate product fit—such as enhanced fit rating, customer reviews, detailed product fit guides and video content within product detail pages,” Karanikolas said in the call.

The co-CEO also alluded to a possible returns policy change “for a small subset of our customers” but didn’t give any details.

What’s causing Revolve’s high returns rate? Karanikolas says the “macro-based” problem spans categories, order types, and customer profiles.

“Whether we look at recent cohorts of merchandise, or say, bestsellers from one or two years ago, we’re seeing the increase in return rates across the board,” Karanikolas said. “It’s clear there’s not some kind of sizing difference or quality difference or something like that going on. That’s very macro-based behavior. We’re seeing it in other retailers as well.”

Online returns were a $212.9 billion problem for retail in 2022, according to the National Retail Federation (NRF), making up 16.5 percent of total e-commerce sales. But the problem has always been a bigger issue for the size-dependent apparel and footwear categories. Coresight Research estimates average online apparel return rates at 24.4 percent, according to a March study this year.

Along with this returns tsunami, retailers and logistics companies alike are working to cut shipping and fulfillment costs wherever possible. Amazon has seen notable success in regionalizing its fulfillment network, with the growth in units shipped outpacing the increase in shipping costs. FedEx is in the middle of a massive reorganization aimed at cutting $4 billion in costs by 2025.

Revolve is hoping to hit both its fulfillment costs and its selling and distribution costs by reducing return rates. Fulfillment costs were 3.4 percent of net sales in the quarter, slightly higher than the retailer’s initial guidance, while selling and distribution costs were just under 18.6 percent of net sales.

With the higher-than-expected return rate, Revolve expects fulfillment to represent 3.3 percent of net sales for both the third quarter and the 2023 fiscal year. The company also expects selling and distribution to represent around 18.3 percent of net sales for the quarter and the year. The full-year outlook was increased for both percentages, with fulfillment initially 3.1 percent sales and selling and distribution originally 18 percent of sales.

Timmermans said in the call that the company expects to realize more efficiencies in selling and distribution costs as well, with the goal to get “back in the 17s” as a percentage of net sales next year.

When it comes to fulfillment, Timmermans said Revolve expects to reduce costs by improving warehouse capacity and utilization. The fashion firm began fulfilling orders from its Pennsylvania fulfillment center in January to help cut East Coast delivery time frames and costs, and has evaluated potential opportunities to launch small regional fulfillment centers in key international regions.

“There’ll be further efficiencies, especially as we head into next year and optimize the space in our fulfillment network, layering more automation, more processes and efficiencies with scale as we lap this increasing return rate and get back into growth mode,” Timmermans said.

In the second quarter, Revolve‘s net sales fell 6 percent to $273.7 million, while net income plummeted 55 percent to $7.3 million.

Net sales in July 2023 decreased by a mid-single digit percentage year-over-year amidst continued soft trends in the U.S., where spending on consumer discretionary products “remains relatively suppressed,” the company said in its earnings report.

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