Are retailers’ returns concerns coming to a holiday head?

Discussion
Photo: UPS
Jan 19, 2022

As is the custom, consumers are sending back their unwanted holiday gifts, but this year’s returns problem is proving to be bigger — and more expensive — than usual.

One in four U.S. customers will return a holiday gift by next weekend, according to projections from a study conducted by UPS and reported by Bloomberg. That number represents a 10 percent increase over 2020’s return-heavy season.

The costs that retailers incurred when accepting returns spiked in 2021, rising 59 percent, according to the study. It now costs $33 dollars for a retailer to process the return of a $50 item. The increase can be attributed in part to broader economic trends such as labor shortages and rising logistics costs. Returns have grown so voluminous that retailers have moved to a model of liquidating returns via online auction because it is impossible to sort through them all and determine what is suitable to restock. Some returned inventory ends up getting incinerated or thrown into landfills.

While it is well-established that e-commerce has led to increased returns due to the tendency of customers to use free return policies when comparison shopping, especially in apparel, a recent survey shows some surprising reasons that customers could be returning so much this year.

A study shared with RetailWire by Voxware indicated that in the aftermath of the 2021 holiday season, 26 percent of customers returned products that were delivered late, up from 10 percent in 2018. Retailers may also be adding to the problem, as the study found that 51 percent of customers who returned an item received a wrong item, again, as a replacement, which would presumably lead to another return. Fast and convenient returns are a perk consumers continue to expect, with 97 percent saying that how a retailer handles a return will impact their choice to shop in the future.

How retailers can keep customers happy while not losing money has become a perennial question. Some retailers have tried charging a fee for returns after a certain period, only allowing returns in exchange for store credit and tying free returns to tiered loyalty programs.

DISCUSSION QUESTIONS: How can retailers reduce the number of returns they receive or at least the cost associated with them? Can retailers cut return costs without creating disgruntled customers in the process?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"The challenge is for retailers to get the sale right in the first place by offering the right product in the right sizes while helping customers through their choices online."

Join the Discussion!

27 Comments on "Are retailers’ returns concerns coming to a holiday head?"


Sort by:   newest | oldest | most voted
Mark Ryski
BrainTrust

This is the ugly underbelly of online selling – painfully expensive returns. Returns are bad for retailers’ bottom lines and the environment. As good as online retailing has become, it’s far from perfect. Late shipments, wrong items, poor fit, there are countless reasons why customers do and will continue to keep shipping product back. Retailers need to think creatively about how to mitigate the returns expense impact, like offering additional discounts to keep product. However pricing incentives must be considered carefully, otherwise some customers will merely game the system to get extra discounts.

Ken Lonyai
BrainTrust

Omnichannel retailers with physical presences can find ways to incentivize return-to-store as the primary return path. They can also carefully frame return requirements to still give a broad policy but create better guardrails that align with reduced processing costs.

An example is the extend holiday return window. Is it really necessary? It is especially problematic for seasonal items, including clothing and to me an unnecessary perk that likely gains little on the sales side and detracts more in operating expense.

E-commerce only sellers have more challenges, but I can’t think of any I’ve purchased from that offer free returns, so the return shipping cost is a built-in throttle against over purchasing.

Neil Saunders
BrainTrust

This has always been an issue in the post-holiday period. However this year it is worse than ever. Why? Because of elevated online purchasing, because of supply chain issues forcing people to buy products from retailers they wouldn’t usually use, and because some orders arrived late and were unwanted. This is causing issues in terms of markdowns and excess stock in warehouses and stores. The potential resolutions are multifold: improved pictures and images to give shoppers a better impression of products, more detailed sizing information, stricter returns policies, and so forth. However, in some ways, returns are simply a cost of business.

David Slavick
BrainTrust

Neil, all outstanding ideas and suggestions!

Michael La Kier
BrainTrust

Let the retail return tsunami begin! Greater reliance on e-commerce comes at a cost — returns and exchanges — and retail has yet to grasp that the cost for last-mile delivery may be doubled (or more). For some categories, it will be hard to reduce the number of returns (clothing) while for others it will be easier. Retailers should calculate the cost of returns and make smart decisions about the cost/benefit of actually returning items versus letting the customer keep items under a certain dollar threshold.

David Naumann
BrainTrust

Good point on the policy to let customers keep the product rather than incurring the expense of shipping the product back, restocking it, and potentially paying for shipping again for a new customer. The costs of processing returns add up and there is a point when it is more cost effective to let the customer keep the product they want to return. Some retailers have explored options such as giving customers a percentage credit if they choose to keep the product, which can offset some of the expense of returns.

Liza Amlani
BrainTrust

Returns are not coming to an end but the opportunity for returns to drive additional sales and customer loyalty has increased.

The push towards returning goods in store or offering store credit vs. a full refund is something we are seeing more of. Zara, Knix, Indigo, and Aritzia are offering options during the return process and this is an incentive to “correct” the purchase as opposed to going through the return.

Returns are going to cost retailers more for many reasons including those stated in the article. It will also cost customer loyalty if the return is not smooth or if the customer just moves on to the next retailer. The options are endless. It’s critical to close the feedback loop with returns and get smarter with product assortments.

The challenge is for retailers to get the sale right in the first place by offering the right product in the right sizes while helping the customer through their choices online.

Dick Seesel
BrainTrust

The partnership between Amazon and Kohl’s, where customers can take their Amazon returns to the nearest Kohl’s store, makes sense because a brick-and-mortar store has the logistical skill to handle returns. There should be more partnerships like this one.

But one of the root causes of the problem stems from retailers’ execution in the first place. Did they accept orders knowing that they would be unable to ship on time? Did they ship the wrong product? Retailers who can execute better on the front end should have fewer consequences during “return season.”

Ken Morris
BrainTrust

I’m for making returns frictionless. RFID would allow legitimate returns to be literally drop-and-go. The serialization of product tells the retailer who bought the product, when and where, while the RFID reader will pick up the RFID tag without scanning. Given that 97 percent of shoppers make a determination on where to shop based on the return process, this is a great customer loyalty and journey investment. To improve item accuracy when filling initial orders and doing exchanges, retailers might want to improve staff training and review the conditions where the packing is happening.

Gene Detroyer
BrainTrust

Ken, to your comment — my wife is one of the 97 percent. Before she buys anything online she checks their return policy and, further, if she experiences difficulty with a return to a specific retailer, she NEVER shops that retailer again.

Bob Amster
BrainTrust

While not a simple solution, there are steps that can be taken and we have already discussed some in this forum. AI-based fitting for apparel and footwear can reduce returns due to fit. Charging for returns — this will happen when retailers realize that they have reached the breaking point of costs that they can withstand. Charging for the initial shipment so that customers do not over order with the intent of returning that which they do not want to keep. Free shipping will also reach a breaking point beyond which retailers will begin to charge (as they should have from the beginning). There is no free lunch. Someone has to pay. If it’s the retailers that have to pay, the cost will eventually be reflected in the selling price of the products.

Dave Wendland
BrainTrust

Although not a new issue for most retailers, this year’s deluge of returns is compounded by the pandemic, by supply chain issues, by workforce issues, and by a significant shift to digital. And this situation will become increasingly troubling as these issues mount.

Can retailers reduce return costs? The simple answer is probably not. New measures must be taken to tackle this problem — the dynamics have changed dramatically and traditional reverse logistics and returns management are no longer good solutions. Technology is likely at the center of the answer (better “try on” options and improved product images/content are good initial steps). However the issue must go all the way back to return policies, practices, and systems.

At the risk of disappointing customers, clamping down on returns must begin by establishing new expectations. Not an easy task.

Gene Detroyer
BrainTrust

“Can retailers reduce return costs? The simple answer is probably not.” Dave I must disagree. Perhaps limiting my comment to the retailers that recognize the importance of returns and put developmental resources behind that cost — of course they can and are reducing the cost of returns in every part of their systems.

Bob Phibbs
BrainTrust

The promise of everything available all the time means many things are no longer a considered purchase but a whim from a FB ad. No apparel sale is complete until it is on the back of the customer yet someone who tries it on in the store returns in single digits. Online is not profitable or sustainable. Get more people to engage at stores and get the purchase right, rather than paying $33 to return $50 items.

Steve Dennis
BrainTrust
Returns and product exchanges have been a costly problem forever, but three things have raised the criticality of taming this beast. First, online return rates are generally in the 20 percent to 40 percent range, while in-store rates are typically well under 10 percent. As online sales penetration goes up, the overall profit hit to a retailer’s P&L increases. Second, while some progress has been made at addressing some of the root causes of returns, the widespread adoption of free returns & exchanges over the years provides an on-going headwind, leading to the common practice of “bracketing,” where the customer buys, say, three of the same item in different sizes, with plans to return the two that don’t fit. Third, with escalating fulfillment costs (largely owing to postage costs but more recently escalating labor rates), the cost per return is steadily increasing. All this back and forth shipping and the associated packaging materials is also terrible for the environment. Retailers can continue to deploy new technologies aimed at root causes like helping the customer buy… Read more »
David Slavick
BrainTrust

Take a negative and turn it into a positive. The customer is in control, not the retailer. Any attempts to establish controls that make it more difficult or expensive for the customer to process their return will risk loyalty, satisfaction and potentially repeat purchase. Put plans in place to acknowledge the return, thank the customer for their business, encourage feedback on the aspects associated with the purchase and reasons for the return and reinforce customer friendly return policies, especially if differentiated for reward program members within the tier/benefit structure.

Gene Detroyer
BrainTrust

If a retailer is not including the cost of returns in their P&L and not allocating it in the price of the items they sell, that is foolish.

What they can do to shrink the cost is well explained in today’s discussion. 26 percent of customers returned products that were delivered late — solve this problem. The study found that 51 percent of customers who returned an item received a wrong item — solve this problem.

On the logistics side, Amazon consolidates returns at Whole Foods. Zappos and others consolidate returns at UPS. Others consolidate returns by using USPS.

Easy returns are a critical value to an online shopper. The leading online retailers have a handle on the cost and are trying to reduce that cost like any other cost in the P&L. And they will!

Kathleen Fischer
BrainTrust

Unfortunately, this is an unpleasant side effect of the increase in online selling. Retailers can help mitigate some of the costs by focusing on getting the right product to the customer in the first place (better visuals, detailed product information, and more sizing information) and then when a return is necessary, encouraging in-store returns (offer the customer a discount on a same-day in-store purchase).

Rich Kizer
BrainTrust

It now costs $33 dollars for a retailer to process the returns of a $50 item — wow! We have a problem that every one of us must address because it’s only going to get worse, I suspect. We also have to be competitive and match (at least closely) the competition. This is a difficult fix because customers have good memories and have a tendency to remember what you have given them. So when you want to take it away, it is only going to make it worse, I fear. We must create delivery dates that we know will/can be met, or at least least as much as possible. If you don’t want to keep the return, give it to charity and take the write-off. It will probably be cheaper that trying to eat it and eventually marking it down.

Ron Margulis
BrainTrust

There were at least three times the number of booths at the NRF show this week dedicated to return management solutions as in 2020. Some very interesting sessions on the topic too. And at least two of the keynote speakers addressed it, so it is a big deal. I even heard a anew term – bracketing, where shoppers buy several sizes with the intention of returning all but one. This is not going away anytime soon and is something that could make or break a digital retailer.

Brandon Rael
BrainTrust

The returns process is an intrinsic part of the customer experience and must be managed delicately. While we should expect the rate of returns for online purchases to be higher than in-store, regardless, the returns experience has to be a positive one, with clear and transparent rules centered around the customer experience.

There are methods and strategies that retailers and brands could leverage to mitigate the rate of returns. These include assortment optimization, localization, pricing, promotion strategies, and leveraging augmented reality to drive “true fit” experiences for digital customers. As we move to a more personalized and customized on-demand shopping experience, retailers have to account for every unique customer, their sizing, and other preferences to help mitigate the overwhelming product returns.

However if the customer has to return a product, retailers and brands must make this experience as seamless as possible. A negative returns experience is one of the main reasons why customers abandon brands.

Lucille DeHart
BrainTrust

Returns can be a sales and loyalty tool if retailers lean into this as an initiative with KPIs. Well-trained store employees can often convert a return into a full price, higher ticket item and drive more units per transaction. Similarly, the call center should be prepared to leverage the customer moment as a marketing touchpoint. Utilizing bounce-back offers with returns can also drive more frequency. Returns are a necessary evil and retailers will need to consider the act as part of the transaction trying to minimize issues upfront and, as importantly, manage the back end to their advantage.

RandyDandy
Guest
6 months 28 days ago
If a retailer of, say, a single but sizable store that still knew mostly about their inventory—of quantity and of quality—it could be presented to customers in controlled ways. Both in-person and online. And when they occurred, returns could be factored in as either brought back by whim (and, hopefully, within a reasonable amount of time) or good reason (perhaps not of the quality expected) and so forth. And their business could, just, move along. However, we crossed that threshold of return control long ago, and before the internet. It started when one store, to take customers from another, decided they would let their shoppers buy based more on pure impulse—and while saying they could bring it back, anytime. Without rules that might dissuade purchases to start (I know, why would retailers ever wanna do that?), it created a brewing free-for-all mentality among the masses, that’s blown its pot lately. Further, for years I used to think a lot (and think again) about what I was buying. Partly because I was (and can be) rather… Read more »
Steve Montgomery
BrainTrust

As noted by the comments already made, there are a number of reasons for the increase in returns. As previously noted on RetailWire, one way to cut the cost of returns is determine who the abusers of the return policies are and address it.

storewanderer
Guest
6 months 28 days ago
I see it in stores too. There seem to be way more returns this year than ever before, likely compounded by lack of staff to put returns away. I think consumers have gotten into the nasty habit of overbuying. The consumer has gotten a very entitled attitude when it comes to returns and their “right” to overbuy or speculative buy. It looks like retailers are going to need to make some changes to adjust consumer behavior on this. This won’t be customer friendly and there may still be too much competition in the US. Retailers rarely refund shipping on returns, but what about all of the free shipping where you can get full value back on a refund? Target can deduct the value of “free shipping” (which buried into your invoice details online is applied as a discount allocated to each item ordered) from a return but doesn’t seem to apply such a policy it in practice. Might be time for retailers to think about applying that concept. Another option is expansion of the dreaded… Read more »
Anil Patel
BrainTrust

Returns have always been high in eCommerce (30%-40%). However, the rate of product returns in the brick and mortar has remained rather low (5%-10%). Now that these traditional retailers are trying to hop on the digital bandwagon, they are astounded by the huge product returns in eCommerce.

Going digital is not a choice anymore. Just like eComm, traditional retailers will have to accept this fact and design their business models in a way that they can sustain a high level of product returns. Moreover, traditional retailers can also leverage their brick and mortar stores to allow for product trials, better in-person interactions, and most importantly PRODUCT RETURNS.

gscottglaser@gmail.com
Guest

Our entire industry has been too focused on making the returns process more convenient for the customer. The most customer-friendly (and P&L friendly, and environmentally-friendly, etc.) thing we could do is work much harder on eliminating the need for returns in the first place. Which, given the growth in online sales, means having great analytics in place to identify product and site merchandising issues at the SKU level. Better visuals, better product information, UGC enabled at the product level, better sizing/fit tools, etc. will all create more confident consumer purchases and lead to fewer returns. But it all starts with analytics: knowing where to focus.

wpDiscuz
Braintrust
"The challenge is for retailers to get the sale right in the first place by offering the right product in the right sizes while helping customers through their choices online."

Take Our Instant Poll

Will returns be more or less problematic for retailers a year from now?

View Results

Loading ... Loading ...