The holiday season promises many unhappy returns for retailers
In many ways, retailers are in a no-win situation this holiday season.
More consumers than ever are buying online, which typically means reduced profit margins. The overwhelming majority of those receiving gifts plan to return at least some of them, further cutting into retailer profits. Finally, many consumers returning gifts will be unhappy with the process, which could lead to consumer alienation. Talk about being up against it.
In an Oracle report published in September, 77 percent of consumers said they anticipated returning some of the gifts they would receive. Twenty percent of those plan to return at least half of the gifts they receive.
The growing volume of returns is nothing new to retail, particularly online, in categories such as apparel and footwear.
“They have given a retailer their money, but they haven’t given them the promise of keeping it,” Kit Yarrow, a consumer psychologist, told CNBC. “There’s a whole different mentality around ownership.”
“Consumers are making it clear that returning and exchanging gifts is okay,” she added.
Overall, according to National Retail Federation statistics, 11 percent of purchases are returned. Eight percent of those are fraudulent. According to research conducted by Appriss, retailers lost $6.5 billion due to return fraud during last year’s holiday season.
Retailers with stores have a cost advantage when it comes to returns. Handling returns in stores costs about half of what it does for products going back to a distribution center, according to AlixPartners.
In the past, some retailers using data analysis have opted to ban returns from some customers who they see as having abused the process.
- Vast Majority of Consumers Already Plan to Return Holiday Gifts – Oracle
- Naughty or nice: 3 things to know about fraud during the holiday season – National Retail Federation
- Many happy returns for retailers – AlixPartners
- What makes consumers grumble most about returning online orders? – RetailWire
- Will return bans burn retailers that impose them? – RetailWire
DISCUSSION QUESTIONS: What current practices should retailers implement to reduce product returns? Do you see any technological or process innovations coming down the road to help retailers minimize the financial risks associated with returns?