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December 11, 2024
Retail Returns Add Up to an $890B Problem in 2024: Can Consumer Behaviors Be Altered?
Although holiday shopping records are set to be broken as 2024 draws to a close, as CNBC indicated, there remains one serious problem with selling such a large volume of products to today’s consumers: the prevalence of returns.
According to a recent report by the National Retail Federation (NRF) and management company Happy Returns, returns are expected to amount to 16.9% of all merchandise sales for retailers this year. This cost is estimated to come in at $890 billion in total expenses.
The Problem of Excessive Returns Seems To Be Expanding in Scope
Returns have always been a concern in the retail space, as they represent not only a lost sale but also several other associated costs: restocking fees, a loss of the merchandise altogether if it is not sellable, and perhaps even a disgruntled or lost customer if the process doesn’t go smoothly.
In the pre-pandemic era (2019), however, the annual return rate rested at 8.1%. In 2020, as COVID-19 sparked a change in how consumers choose to shop, the annual return rate hiked upward to 10.6% — then, in 2021, it skyrocketed to 16.6%, nearly doubling over the course of just two years. In the interim, little has changed, suggesting that the contemporary U.S. consumer has become acclimated to easy, hassle-free returns.
In turn, the ease of said returns, and the lack of restrictions placed on those consumers who engage in morally dubious buy-and-return habits, has enabled several problematic behaviors.
Bracketing, Wardrobing, and Other Consumer Buying Practices
According to research from Happy Returns, nearly two-thirds of all buyers are now buying multiple sizes or colors of items so that they can return the items that don’t suit them best. This practice is known as bracketing, or buying adjacent styles or sizes as something of a “safety measure,” but it is ultimately destructive to a company’s bottom line in terms of shipping and processing costs.
A majority of contemporary consumers (69%), also engage in the practice of wardrobing, according to a recent report from returns solution company Optoro. This is something of an age-old practice and happens when a customer buys an item for a single event and returns it immediately afterward. From formalwear to something to don for a date, it’s all too easy to buy something for one outing or event and then quickly return the entire outfit after the fact.
Both of these behaviors are spurring a massive increase in overall retail returns. Per Optoro, nearly half (46%) of all consumers are returning items multiple times per month, which represents a 29% increase from just last year.
CNBC quoted David Sobie, Happy Returns’ co-founder and CEO, on the subject.
“With behaviors like bracketing and rising return rates putting strain on traditional systems, retailers need to rethink reverse logistics,” Sobie said.
Furthermore, reckless returns also pose environmental concerns. Increased carbon emissions from excessive shipping, refurbishing, cleaning, and restocking represents one issue, but simple wastage — products being sent to landfills if they are not recoupable — is also worth considering. As Optoro indicated, returns in 2023 accounted for 8.4 billion pounds of landfill waste.
If Consumers Are Taking Advantage of Overly Generous Return Policies, Will Restrictions Actually Help?
There’s a fine balance to be struck between attempting to reduce returns (and stymie trending behaviors such as wardrobing and bracketing) and irritating customers.
NRF data indicated that retailers at large had endured enough on the returns side, with 66% of sellers indicating that they had started charging for at least one return method over the past 12 months. Some primary reasons given? The cost of operations to process returns has increased (44%), shoppers were becoming more tolerant of return processing fees (40%), and retailers wanted to mitigate return fraud (39%).
Gen Z appeared to be leading the way in terms of engaging in unethical consumer behavior, with those polled in that generation admitting to returning an item that had the tags removed (60%), returning an item outside of the return window (46%), returning a worn item (50%), and returning a different item than the one indicated entirely (41%) in much greater proportion than older peers over the past 12 months.
While NRF survey data indicated that charging for at least one return method had created mixed results — lower sales and a decrease in average order value were set against a reduction in return rates and recouped revenue from return fees — it seems that retailers are poised to offer more of the same in 2025.
Retailers can expect to further streamline shipping and returns operations while also launching an appeal to buyers to avoid negative purchase practices such as bracketing, wardrobing, and worse.
“Improving this experience means balancing a number of factors: Fully understanding customer expectations; effectively and efficiently managing logistics costs and inventory; creatively preparing for seasons likely to bring a spike in returns such as the winter holidays; setting and communicating clear returns policies that combat retail fraud and abuse while providing flexibility and convenience for shoppers; exploring emerging technology for returns automation, analytics and reporting; and helping consumers understand the impact of behaviors such as wardrobing and bracketing,” the NRF concluded.
Discussion Questions
Will shoppers balk at increased scrutiny over returns, particularly if algorithmic changes penalize serial returners?
Despite the immense costs of free returns and “keep it” returns, is it still more profitable for companies to simply turn a blind eye to potential abuses of the returns process?
Will a concerted attempt at cultivating a conscientious consumer as concerns reckless returns have a shot at success?
Poll
Loading …BrainTrust
Lisa Taylor
Retail Consultant, JL Buchanan
Rachelle King
Retail Industry Thought Leader
Mark Ryski
Founder, CEO & Author, HeadCount Corporation
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Let’s be honest here, returns are a part and parcel of ecommerce; they are a cost of doing business. There is no possible way to eliminate them completely. There is a big distinction between items returned because they don’t deliver what the consumer wants and those that are returned because consumers simply don’t like them or changed their minds. Other than charging for returns or making them more difficult, there is little that can be done about the latter. The former can be partly resolved with things like more consistent sizing, better photographs, more product information, and more insightful review summaries.
It’s actually part of the cost of doing business in any DTC company. Back in the stone ages I designed a returns management system for a catalog company. Even back then, a return rate of 25% was considered “good.” The closest the company was able to come to controlling returns was to put a tag on the outside of thee garment, so it had to be removed if you wore it somewhere, and if it was removed or tampered with, you could not return it.
Life is full of unintended consequences. This is an unintended, but intractable consequence of increase in online sales.
When you see retailers becoming stricter with their returns policies, you are a chill guy who wants to tell the world that it’s time to change the narrative by transforming product returns into growth opportunities.
As retailers reportedly lose tens of billions of dollars each year due to fraudulent returns, some major retailers have either announced policy changes or stricter messaging toward people abusing their returns systems.
However, every single engagement with the customer matters, especially the product returns experience.
Historically, retailers have focused on mitigating product returns, considering them a challenge or issue. With total retail returns coming in at $743B in 2023 at an overall return rate of 14.5% and online return rates at 17.6%, or $247B, there is a significant opportunity for retailers to optimize and learn from the returns processes. However, the perception of returns as a complete loss is misguided.
Shifting the mindset can change the negative narrative of returns to present opportunities not only to decrease return rates but also to drive profitable and sustainable growth across many of the core retail operational areas, including:
To provide a more seamless shopping experience, retailers have focused on improving the overall returns processes, including using QR codes, providing flexible shipping options, and, in most cases, at no cost to the customer. However, rather than just investing in capabilities to make the returns process more efficient and flexible, there is a unique opportunity to leverage AI capabilities to examine the root causes and customer feedback optimally.
Incisiv completed a recent study that found that a staggering 73% of returns are classified as “controllable.” Meaning that there are strategic and prescriptive approaches retailers can leverage to change the go-forward narrative.
Retailers across the board jumped on the ‘free returns’ band-wagon because many thought they had no choice. The pandemic super-charged the trend, and now free returns have become an expectation among consumers. It will take time (years?) for this trend to change. If it ever does. The behavior is just too engrained, and many retailers are too concerned about losing revenue to competitors who offer it. E-commerce retailers have no choice. Unless the industry gets together in some consistent way (e.g. industry returns policies that retailers subscribe to) I don’t see much change happening. And, I wouldn’t rely too heavily on ‘educating consumers.’ It’s better to create financial incentives (or disincentives) to minimize returns.
This is an apparel and footwear issue. (People don’t buy multiple boxes of Legos, then choose one and return the others.) I wear an extra small at Banana Republic and an extra large at Temu. The industry needs to come up with some kind of standardized sizing for women, similar to that already used for men. Why is that not being pursued?
You know, they tried in the aughts. When I first became an analyst, JCP, Brooks Brothers and a few other retailers were conducting the first study of what an “average” woman’s size actually is, and then they were going to size the products accordingly. I think it’s in the dustbin of history along with DAMA.
Such high returns are a profit killer during the holiday season. In theory, the season begins with “black Friday” but ends with “red January.”
Consequently, retailers need to tighten return policies even at the risk of disappointing customers and gift recipients. It is important for retailers to keep in mind that Amazon’s return policies are relatively relaxed. However, even Amazon requires that returns have a legitimate reason, and receipts – – in some form or another.
Gift givers must provide the gift recipient with a receipt, and retailers must require receipts. Once holiday shopping begins, the policy must be firmly stated or displayed. This may still be possible, if it hasn’t already been done. You do not want receivers, who may also be customers, to learn the firm policy after arriving at the store in January without a receipt. The best surprise will be no surprise.
Whatever other policies are implemented, they all need to be widely advertised throughout the entire season.
In retail’s pre-historic period, product return rates were in the low to middle single digits and retailers complained about the cost of managing the “reverse supply chain.” To help with the adoption of nascent e-commerce, retailers opted for easy and free returns. Today, categories such as footwear and apparel can experience a 30 percent return rate. While data can help identify serial abusers, most, if not all, shoppers have experienced a color that didn’t match the image, a size that’s too big or small, and items that didn’t look or fit as expected. Bracketing is a consumer coping mechanism with unpredictable sizing (many retailers expect this), but wardrobing is entirely unjustified. Abusive return behavior metrics should be tracked by category, with allowances for inherent variability (for example, higher rates in apparel and fewer for home goods).
Consumers are already accustomed to a relatively easy returns process and will reward those retailers that accommodate their purchase behavior and punish those with more restrictive rules. Talk about changing consumer behavior is a waste of time, money, and effort. With all the collected data and insights, retailers must better manage the total costs and net margins of specific vendors, products, and categories against the Customer Lifetime Value. Returns are part of the cost of doing business; retailers who can best manage it will have a significant edge over their competitors. Altering behavior must start with a retailer’s website images, sizing charts, descriptions, color fidelity, and helpful customer reviews.
I feel like a broken record repeating answers to similar questions. We’ve trained our customers to return items. Now, we are recognizing that it costs more than we thought. One of two things has to happen: Either end the liberal return policy (not eliminating it, but making changes) or raise prices to cover the costs. I am willing to bet that even if customers balk at first, they are willing to pay more to a retailer for liberal, easy, hassle-free returns.
For better or worse (probably worse), there is a direct correlation between increased ecommerce sales and increased returns. There always will be. We cannot have it both ways: increased ecommerce sales and declining returns.
While vexing to retailers, consumers see bracketing as the way they need to shop online. Despite retailers efforts to infuse AR try-ons and include more body type models, consumers will still need to try stuff on their own bodies to lock in a purchase decisions. This is par for the course in ecommerce.
Overtime, retailers can try to ease in a shared cost logic for returns, a flat-fee model, for example. But today, this would be a fine line of inviting consumers to shop more responsibly or inviting them to go shop else where.
Eventually, retailers will get consumers to be more responsibe but for now, getting their fair share of ecommerce growth may take priority for most retailers, and that’s the trade off. For now.
At the end of the day, returns boil down to a customer experience issue. Retailers need to understand the drivers of why consumers are returning a product to prevent the return in the first place. Once the customer has decided to return, it is too late. There is no saving the sale. Mitigation comes from understanding why and then putting education, selling processes or whatever needs to be done in place so you stop the return and build brand love in the process.
E-commerce majors on convenience. Shoppers can sit on their sofa at home and buy anything.
This reduced friction service leads to activities such as wardrobing, simply because it’s too easy to order multiple options. It’s also a challenge for e-commerce because people cannot try on items online.
Some European fashion businesses are now charging for returns. This caused some complaints, but it’s inevitable. Free online returns wipes out huge profits for fashion retailers. It’s no surprise that Primark refuses to offer online sales, they recognize this issue.
The fashion sector has to impose charges for refunds, or live with the reality of wardrobing.
I struggle to find a lot of sympathy for these out of control return rates. Retailers have rushed headlong into this problem by training customers to abuse returns. The only valid response now is to stop establishing the conditions which reward returns. And the first place to start is free shipping on internet orders. Were we able to know, I expect we would find the reward to the retailer for offering free shipping a financial loss. After all, having a product shipped to your home is a premium service to be offered only to those who will pay a premium. Steps like this would begin to reverse the self-inflicted damage noted in this report.
Every action has a set of consequences, intended or not. With returns, retailers have made their bed with this issue and now they’re lying in it. If they want change, then leaders will emerge and develop a new model. The market will judge it and react accordingly. Others will follow and add their own tweaks until this issue becomes yesterday’s coffee. But for now, few are willing to tackle it. I’m aligned with Shep Hyken’s logic, “either end the liberal return policy or raise prices to cover the cost.”
Efforts to reduce return fraud should absolutely continue as a legitimate business loss prevention practice. Fraudulent returns do not have a negative impact on valued customers or your brand but show violators that they should focus their efforts on other retailers.
Beyond fraudulent returns, returns rooted in dissatisfaction can be impacted by investing in better and more comprehensive product detail page content, including rich media content that tells a consumer more about the product and increases the likelihood that they purchase a product with a complete understanding of what they are purchasing, including size and color. User-generated content, including Ratings & Reviews and Questions & Answers functionality, also serves to reduce returns and creates opportunities for a shopper to access additional information about what they are buying.
All said reduction of returns is certainly a high-value activity for retailers; punishing customers for buying from you is not.
Shoppers who abuse generous returns policies will balk at increased scrutiny because their jig is up. To reduce online returns, more retailers are charging returns fees. Leading retailers ask customers to provide more product reviews, including videos, and to pay closer attention to the product specs before they buy.
Higher return rates are symptoms of a few ailments, sizing/fit and accuracy of product details/web product pages being among the top. Returns, while costly, should be seen as a customer engagement and an opportunity to build loyalty and trust. Retailers should get more innovative in their approach to “save the sale.” Smaller brands are finding ways to minimize the profitability impact. Programs like incenting customers to replace and not return their purchase is one way to keep the conversion. Offering a more generous $value if customers repurchase when they return can generate higher overall margins than just taking returns. Builing in returns to the cost of goods can also provide ways to minimize the impact of high return rates, but I would not recommend “punishing” the consumer for returns–it is a cost of doing business in today’s market.
Have we seen profit margins drop appreciably since returns have increased? If not, the retailers include the cost of return in the pricing. If they are included in their pricing, it is not a profit killer. It is merely the cost of doing business.
Retailers still have some options here, as pointed out by others. Penalize the shoppers who do this all the time, or streamline and lower the cost of accepting returns (n other words embrace it harder for a competitive advantage).
What I have not seen anyone do is educate the market on how the cost of returns ends up increasing the cost of the goods purchased in the first place. If this is a rounding error to the cost of merchandise in store, no one will care. More than that, and perhaps they start to care. If you go the educate the market route it might not hurt to add in the cost of theft and shrink too. Of course this is most likely a bankrupt idea, but it might be worth a try.
I’ve said it before, and I’ll say it again that returns are an inevitable part of doing business online. Instead of alienating customers with strict policies, retailers should embrace smarter strategies like Buy Online, Return In-Store (BORIS). This not only reduces shipping costs but also drives foot traffic, potentially leading to additional sales.
Educating shoppers is helpful but let’s be honest, some abuse will always happen. The focus should be on streamlining returns while managing costs. Returns aren’t going away, so the real challenge is turning them into opportunities for better customer engagement and profitability.
Those retailers whose knee jerk reaction is to implement return fees will miss out on a bigger opportunity to leverage customer data as a strategic asset. Personalization is the holy grail in this industry and its benefits have largely focused on engagement, forecasting improvement and top line growth. Those organizations that have invested in this capability can also use that tooling to minimize returns. A sophisticated data strategy that connects historical purchase patterns across brands could virtually eliminate bracketing by confidently recommending the right size across different retailers and styles. Its value proposition would not end at the customer preference within its own catalog but extend into other retailers’ styles to create a universal sizing intelligence ecosystem. The true industry leaders will invest in advanced data analytics that can both reduce returns and increase customer lifetime value through better personalization.