Are return rates out of control?

Discussion
Photo: Getty Images/Juanmonino
Jan 02, 2020
Tom Ryan

UPS expects a whopping 26 percent year-over-year surge in the number of returns it processes on January 2, National Returns Day. Those levels would represent the seventh consecutive record number of returns.

The surging rate of returns is occurring largely due to strong online growth. Estimates for returns of online purchases range from 15 to over 30 percent, with items such as apparel and footwear at the high end of that range. The return rate for physical stores ranges from three to 10 percent.

UPS touted solutions it provides to manage the return process, including numerous drop-off points and pre-paid labels for consumers. For retailers, UPS offers visibility to anticipate impacts to inventory and the ability to route returns for repair, repackaging or restocking.

Several recent articles detailed the complications involved in mastering reverse logistics or transporting items from buyers back to sellers. These include the fact that:

  • Most returned items need to be handled individually.
  • Distribution facilities handling returns need 15 percent to 20 percent more space than a traditional facility for outbound distribution because the volume, dimensions and final destination of returned goods are inconsistent and varied, according to Optoro.
  • Various categories depreciate at different rates when returned to a retailer. For example, fashion apparel can lose 20 percent to 50 percent of its value over eight to 16 weeks, per Optoro.
  • Quick assessments need to be made on whether the returned item should be restocked in the store, sold to discounters and resellers, donated to charities or destroyed. Returns generate five billion pounds of waste in U.S. landfills annually.

Some retailers are seeking to offset the cost of online returns by choosing not to provide prepaid mailing labels, requiring a receipt unless an unwanted item is carried to a store and threatening to ban serial returners. The trend overall, however, has been toward less strict return policies that engender goodwill.

“The problem is that in this kind of competitive environment they have to make life easy,” Neil Saunders, retail managing director at GlobalData and a RetailWire Braintrust panelist, told the Financial Times. “The consumer is almost being trained to be wasteful.”

DISCUSSION QUESTIONS: Do you predict that return rates will continue to climb in the years ahead? Is a high return rate the inevitable cost of doing business online — and worth it? What solutions best mitigate the inherent costs?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"At some stage I imagine we are likely to see cost of returns cited as a reason for missing financial results. When this happens we know it is going to be taken more seriously."
"AI and other enabling technologies should help with the reduction of return rates in the future."
"I know there are ways to mitigate the problem some, but I simply don’t think ultimately it’s going to nudge the return numbers much. It’s endemic to DTC."

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37 Comments on "Are return rates out of control?"


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Bob Phibbs
BrainTrust

You know what I’d like for 2020? Transparency in breathless online sales reporting. If nearly one-third of the 18 percent of online sales is probably returned – net sales are probably one-third lower. The easier it is to return the more damage to the environment and retailers’ margins. At some point, both are untenable.

Paula Rosenblum
BrainTrust
You are so right. Back in the Stone Age, I did a returns system design for a catalog clothing retailer. Return rates were, if you were GOOD, 25 percent, which magically is at least 3X returns from store shopping. It’s frankly part of the cost of doing business direct to consumers. I hear rumors (really…they are rumors) that Amazon’s return rate for apparel is 35 percent. It’s a rumor, but it doesn’t surprise me. Sure, some of the returns come from people buying something for an occasion, only to return it when the occasion is over, but it’s not hard to find varying ways to combat this (required label on the outside of the garment, etc). But it’s just the way it works. As online sales continue to rise, and as returns replace the “fitting room” as a way to try on merchandise a customer may or may not want, this percentage will continue to rise even more. I know there are ways to mitigate the problem some, but I simply don’t think ultimately it’s… Read more »
Cynthia Holcomb
BrainTrust
Paula, you are so right about 3X return rates being good! Here are the problem retailers need to consider. Men and women “think” and “shop” differently.  In 2019, according to Bloomberg, “women make more than 85% of the consumer purchases in the United States, and reputedly influence over 95% of total goods and services purchased.”   Yet to date, almost every shopping technology a woman uses in her day to day life is built based upon computer science protocols designed by engineers, predominately male.  Female intelligence is the subject matter expert when it comes to shopping! Imagine engineers selling clothes to women on the retail floor! No wonder returns are the financial Frankenstein in a $33 trillion dollar digital marketplace.     Yet, the same old shopping technologies persist. Likely because retailers are not technologists, although common sense could have prevailed years ago over the retail tech decision-makers. So here retailers sit today, 24 years since Amazon invented digital shopping, with online shopping conversion still stuck at 3% and returns rates stuck at 30%-50%.  In 2018, returns… Read more »
David Zietsma
Guest

Paula raises an interesting question. Is the rate of returns (as a percent of sales) increasing or are returns just going up in lock step with the growth of online sales? Probably a bit of both with the way some retailers have made free returns a feature, but Paula’s example highlights that returns have always been a necessary part of DTC sales. They aren’t going to go away, but let’s not forget that they are still a hassle for most consumers, even if free, and the vast majority of returns are likely legitimate “wrong product for me” scenarios.

Our collective energy should be put into reducing the need for returns (consistent sizing and fit guides, honest product descriptions with use-case guidance) and taking the environmental impact and cost out (packaging reduction, more efficient 3rd party returns agents and resellers).

Gene Detroyer
BrainTrust

If retailers are producing a net positive bottom line, does it matter have many returns they get? If you look at the P&Ls, the cost of returns is already worked into their net margins.

Oliver Guy
BrainTrust

Return rates will keep climbing as it becomes easier and easier to buy and return things. We have seen some interesting perspectives in this arena with some retailers saying they will not sell to given customers. Last year I advocated an independent “credit rating” type approach to returns where data from across multiple retailers is aggregated by customer to determine how to deal with consumers who abuse returns. The data exists to do this but it is spread across multiple retailers. At some stage I imagine we are likely to see cost of returns cited as a reason for missing financial results – when this happens we know it is going to be taken more seriously.

Bob Amster
BrainTrust

Return rates probably are out of control and that is because return policies are too liberal, period.

Mark Ryski
BrainTrust

I do expect that return rates will continue to increase as online sales continue to grow. And while the cost of returns will remain an Achilles heel of online retailing, it is also a permanent part of online selling – people will buy online, as long as they know they can easily return goods. Unfortunately, the significant, wasteful costs associated with online shipping aren’t going anywhere but up. There are no simple answers to mitigating the inherent costs of returns, however, the retailers that appear to be doing the best job of managing returns costs are those that have effective BOPIS programs.

Dave Bruno
BrainTrust

Sadly, returns represent yet another black eye to the environmental courtesy of e-commerce. The shipping, the packaging, the waste…the list of environmental impacts of returns goes on and on. While generous return policies are clearly good for business, we simply must encourage people to return items in ways that minimize the damage. Encouraging returns to the store is a great start, as is offering returns to third-party locations (e.g. Amazon returns at Kohl’s), where they can at least be consolidated and handled locally before being shipped. Upgrading local discretion at third-party return centers would help as well. We have to begin making smarter decisions about how the bottom line impacts the planet, and returns handling seems like a great place to start.

David Naumann
BrainTrust
David Naumann
Retail Industry Analyst
6 months 11 days ago

Retailers have contributed to the problem of high return rates by making it easier or more economical for consumers to return items. When a few retailers offer free shipping on returns, others tend to follow. This exasperates the high returns problem.

Ideally, retailers should be doing things to reduce or discourage returns like better online product information, sizing tools, and discounts for items exchanged instead of refunded.

Dick Seesel
BrainTrust

The costs of high return rates are the flipside of the costs of “free” shipping. Customer expectations have gotten higher and higher — driven partly by Amazon — and stores’ efforts to tighten up their return policies are going to meet with resistance. It doesn’t help matters when retailers encourage purchases of multiple colors and sizes as a consumer incentive, knowing that most of these products are going to be returned.

Zel Bianco
BrainTrust

Yes, return rates are out of control and will get worse unless the industry makes it a little more painful for the consumer which many will shy away from doing. There will always be a market for goods that are returned and then resold at a fraction of the original cost, but those add up to bad business when you consider the amount of money lost. Perhaps the consumer needs to be reminded of the fact that 5 billion pounds of returns end up as waste in landfills each and every year. Like the reminders in hotel bathrooms to reuse your towels, maybe it will prompt consumers to think about this in unselfish terms.

Michael Terpkosh
BrainTrust

Easy return policies are a necessary evil for online retailing. I agree with Bob Phibbs that there needs to be a true measure of sales (sales minus returns). The cost of returns will reduce online retail profitability and this cost may drive some online retailers out of the business in 2020. I only seeing returns, and the cost of returns, continuing to go up unless new return policies are put into place. Retailers are making online consumerism easy, maybe too easy, and this creates the buy-disappointment-return vicious cycle.

Jeff Weidauer
BrainTrust

Increasing return rates are an unintended consequence of more liberal return policies. Online shopping now requires no thought from the shopper – I can just click on everything, and return what I don’t want, never mind the monetary and environmental costs. Free returns will be the “double coupon” albatross for e-commerce going forward, and changing back will take years.

Shawn Harris
BrainTrust

Return rates will continue to rise as e-commerce takes a greater share of retail channels. We need a multi-pronged approach: from improvements in material science such that ultimate disposal does not cause further environmental harm, to next generation reverse logistics grounded in intelligent automation. The one thing I would caution is not to penalize the shopper, as this will become a competitor’s potential advantage.

Mohamed Amer
BrainTrust

Returns are a natural consequence of retailing. They are exaggerated during the holiday cycle and now more so with the steady rise of online sales. At some point, retailers will use historical data to feed artificially intelligent algorithms to better anticipate returns as well as help create new models and smart category-specific processes for handling returns more efficiently.

Cathy Hotka
BrainTrust

Combine free shipping and returns with wildly unpredictable sizes (even for men) and you’ve got a returns issue. The industry has to make some decisions about either standardizing sizes, or coming up with better descriptions beyond customer reviews.

George Anderson
Staff

I agree completely. Apparel and footwear brands would be able to reduce returns significantly if they simply agreed to standardized sizing. More accurate photographic depictions of clothing displayed online wouldn’t hurt either.

Tony Orlando
BrainTrust
As I read the comments, everyone agrees, and it is out of control with no solutions anywhere to be found. Our consumers are beyond spoiled, and there are a lot of folks who are scamming the return policies knowing if they scream loud enough, they will get their money back no matter how much damage they did to the product, or worse, used it for a weekend i.e. cameras, small appliances, clothing and shoes, and on and on. If this trend continues, profits will continue to slide, especially for the much smaller online folks who are forced to be like Amazon or Walmart just to stay in the game. As Main Street businesses continue to struggle in many rural areas the same thing is happening online as well, and a shake out of niche suppliers online will have to decide if it is worth the effort to continue on. The big boys are watching closely to snap up their customers when they get out of this difficult platform of online selling. It’s not easy in… Read more »
Gene Detroyer
BrainTrust

True story:

My family has a very special event coming up. My wife wants a very special dress. She went online and shopped and found two sites where she liked the designs. One had an easy return process. She ordered six dresses, knowing she would keep only one.

The other had a complex return process. She ordered NONE.

Which retailer do you want to be? Which customer will be more satisfied?

Jeff Sward
BrainTrust

I want to be the profitable retailer.

Gene Detroyer
BrainTrust

Exactly. It is a matter of the bottom line. It doesn’t matter what the cost of returns are, it only matters what the net contribution to profit is after returns. Any retailer that doesn’t factor this into their P&L and margins is foolish. I assure you that the retailer where she kept one dress made more bottom line than the retailer where she didn’t order any.

Jeff Sward
BrainTrust

I’ll have to respectfully disagree. My guess is that the shipping, handling and reprocessing costs on the 5 returned dresses more than ate up any profit on the one dress that was kept. Retailers don’t build business models to accommodate 83% return rates (5 out of 6). But at the same time, they make it perfectly easy for that to happen. Makes no sense, but seems anything goes in the name of customer acquisition and retention.

Ricardo Belmar
BrainTrust

Convenience is king for consumers and as a result return policies have evolved to make the entire process as easy as possible with no perceived repercussions. Yes, return rates will continue to increase as long as online ordering continues to rise. However, I believe that smart retailers are working these costs into their overall costs more and more accurately. Otherwise, they’ll run the risk of losing so much money on the returns that profitability will be severely impacted and that has obvious consequences for anyone other than Amazon. That said, I agree with other comments that for the apparel and footwear industries this problem is exaggerated by inconsistent sizing. Consumers don’t know what to order since they can’t count on sizing to make sense to them across brands. If the industry addresses this then return rates would go down.

Peter Charness
BrainTrust

They are what they are, and there are no signs of them going lower. A return rate is virtually built into some business models, particularly in apparel where “ship three to five choices to home to hopefully keep one or two” is a model.

Perhaps the only realistic approach is to make the costs of returns more transparent, and reward those customers who are low returners for being more profitable to the retailer. A financial incentive to keep returns lower might encourage better research pre-purchase, which might reduce some of this incredible waste.

Jeff Sward
BrainTrust

“Free returns.” By far the biggest oxymoron in the retail business. Financially and environmentally disastrous, and yet promoted with reckless abandon.

Kenneth Leung
BrainTrust

I do wonder how the sustainability trend collides with the returns trend. There is no argument that returns are wasteful and damaging to the environment, especially for online purchased items even when they are returned in-store. Yet the same consumer is looking for sustainably-produced goods and carbon footprint impact information. In the end instant gratification wins out against environmentalism I think for many consumers.

Doug Garnett
BrainTrust

There’s an old direct response selling rule: the more you have to give away (discounts, free shipping, etc), the more likely a product will be returned, a subscription cancelled, etc.

No one should be surprised that there’s a returns problem. Online retailers are working so hard to find revenue (ignoring whether it’s profitable or not) that there is bound to be a massive returns problem.

We are training consumers to plan to return products. Why should we be surprised when they do what we’ve trained them to do?

Ah, how I yearn for the “good old days” when we focused on selling good products to people in well merchandised stores without chasing the shiny baubles which capture headlines so well. Of course that world can’t exist any more. But we should note that serious return problems generally only happened when the product failed to meet expectations.

But no, we shouldn’t be training customers to over-order and return.

Neil Schwartz
Guest

The interesting question is — should we care about a high rate of returns? As long as the net-net effect of growing e-commerce sales stay positive, then I say let it be what it is. In the end it’s all a “numbers” game and if that is what it takes to makes the numbers then so be it. My only caveat would be, what are the unintended consequences of returns like overhead and inventory shifts?

Kai Clarke
BrainTrust

This is a poor perspective on the online business model. The extrapolated rate of returns (which this article cites) is not a valid business profitability tool, and has not been for the simple reason that it is included in the COGS of the retailer, manufacturer, etc. Focusing on this only distorts the rest of the equation that any balance sheet reflects, and any good investor or businessman references in their decision making. It is absurd to even believe that a 26 percent increase from UPS (who by the way does not handle returns as a separate portion of its freight management system), for one day, means that all business has a 26 percent increase of their return rate. Even worse, this does not account for the return allowances that all suppliers must pay as part of their business with Amazon (and other retailers), which many times goes unused.

Ralph Jacobson
BrainTrust

The easier retailers make it for shoppers to shop for and return products, the more stuff shoppers will buy, without a concern if the product is the right one because of easy return policies. Should retailers backpedal on return policies? No, they really shouldn’t. However, there is no reason why they cannot insert more “are you sure you want this product?” messages during the purchase process to eliminate at least a few more returns … especially on apparel and footwear products.

Shelley E. Kohan
BrainTrust

AI and other enabling technologies should help with the reduction of return rates in the future. These may include virtual stylists, applications designed to use body scans to best size products for customers, or chatbots that help with selecting the right size for products. The enabling technologies that use machine learning to help style select can also minimize returns by using data to pinpoint which styles are best for customers. Returns will always be a cost of doing business and will not be eliminated but companies can continue to work to reduce the number of returns with today’s and future technologies.

Scott Norris
Guest

Which as other commenters have said, is a sizing-consistency and product information standardization problem, and that drives all the way down to how the clothing industry does business — overseas production/sweatshops, “fast fashion” with all its wastefulness, body-image mentality and marketing misogyny, etc. Get it all to a clean baseline and you’ll probably go a long way to solving the demand-forecasting and production-allocation problems as well!

Richard J. George, Ph.D.
BrainTrust

Rates will continue to rise as consumers expect easy returns. In addition, most have figured out the proper selection of a reason for a free online return, namely, “product did not match online description.”

Increased returns will need to be incorporated into product pricing and the cost of doing business. Going back to more stringent policies or customer restrictions is not a viable solution.

NAVJIT BHASIN
Guest
6 months 11 days ago

Returns have risen out of control for retailers, causing a significant hit to the bottom line and customer experience. Because solving the returns challenge requires collaboration across all functional areas of the enterprise, much of what has been done to minimize the return problem has been more akin to putting a band-aid on a broken limb.

Returns are a problem that need to be solved by understanding the root cause, and the answer requires a tremendous amount of ever-changing data (including Voice of Customer) from multiple sources plus the ability to quickly analyze and distill the results into actionable intelligence.

Retailers cannot eliminate returns, but AI makes it possible for retailers to meaningfully reduce them.

Craig Sundstrom
Guest

I’m confused: it sounds like the increase in (the number of) returns is exactly the same as the increase in sales; so more sales > more returns … well “DUH!” (as opposed to, an increase in the RATE of items being returned).

That having been said, free returns — free everything, for that matter — is definitely the Achilles Heel of online selling. It’s hard to imagine this black hole in financial analysis being permitted to continue forever, as online becomes an ever bigger portion of sales.

Liz Crawford
BrainTrust

When the home is the fitting room, and the kitchen counter is the display rack, it’s no wonder returns are high. How many dresses does a consumer bring into a fitting room before deciding on one — or none? Gene, your story is spot on.

Perhaps StitchFix has it right: build returns into the business model. Ultimately, I believe retailers will need to do just that, even if they don’t employ a subscription model.

wpDiscuz
Braintrust
"At some stage I imagine we are likely to see cost of returns cited as a reason for missing financial results. When this happens we know it is going to be taken more seriously."
"AI and other enabling technologies should help with the reduction of return rates in the future."
"I know there are ways to mitigate the problem some, but I simply don’t think ultimately it’s going to nudge the return numbers much. It’s endemic to DTC."

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