As the holiday season sees a surge in e-commerce sales, retailers are reevaluating their strategies to manage returns effectively, a critical aspect of inventory management and supply chains. Despite economic uncertainties and tight budgets, U.S. consumers have shown strong support for retailers in 2023, with November retail sales up nearly 6% compared to the previous year, boosted by Black Friday and Cyber Monday promotions.
However, this seasonal uptick in sales also leads to an increase in returns, a long-standing challenge for retailers during the holiday season. Last year, the National Retail Federation reported a return rate of 16.5%, equivalent to about $816 billion worth of merchandise. During the holidays, this rate was projected to be nearly 18%, or close to $171 billion. This year, the situation may worsen. In September, returns logistics platform goTRG found that half of retailers were grappling with returns as a “severe problem,” particularly during the holiday season, a stark contrast to the 2% who shared this concern the previous year. Based on data from the NRF and its own research, returns platform Optoro estimates that between Thanksgiving and the end of January, approximately $173 billion worth of goods will be returned. Shortly after Cyber Monday, nearly a quarter of shoppers had already returned or planned to return at least one purchase, according to data management firm Syndigo.
Optoro CEO Amena Ali highlighted that the “returns peak is upon us,” with a robust return season expected this year, driven in part by the continuous growth of e-commerce.
Returns are not just about lost sales but also involve complications, losses, and expenses. Returned merchandise often cannot be resold at full price, if at all. To handle returns during the holidays, nearly 44% of retailers surveyed by the NRF last year indicated they would hire more staff. In many cases, the costs associated with managing returns exceed the value of the items themselves. As a result, approximately 59% of retailers have allowed customers to keep some items, and around 27% have set this policy for items priced at $20 or less, according to goTRG.
Retailers are responding to the rise in return rates and the impact on their operations. Easy return policies and the growth of online shopping have contributed to higher return rates. About a third of retailers offer a seven-day return window, 27% offer 14 days, 28% offer 30 days, and 7% offer up to 90 days, according to goTRG’s survey. More than 40% plan to shorten these return windows for the holiday season.
In the past year, nearly half of retailers have introduced return fees, following the footsteps of Amazon and Zara. Some have toughened their return policies, such as Bath & Body Works, which limits customers to $250 in non-receipted returns or exchanges within a 90-day period and requires a government-issued ID to track returns and exchanges. Approximately a quarter of retailers now only allow exchanges for store credit, according to goTRG.
However, experts caution against implementing strict return policies. While fraud and abuse must be addressed, a well-managed returns system can help with inventory management and enhance the customer experience. Cracking down on returns, especially with fees, has discouraged some shoppers who used to make frequent returns, according to Trustpilot. Over a third of consumers admitted to being “serial returners,” but 47% of those who stopped cited return fees as the reason.
Retailers need to consider the impact of their return policies, especially in times when budgets are tight. Transparency is crucial, with 77% of Americans stating that a retailer’s returns policy influences their perception of the retailer’s trustworthiness, according to Trustpilot. Offering free return shipping is a significant factor for shoppers, with 44% emphasizing its importance.
Retailers also need to find a balance between allowing online order returns in stores to offer convenience and managing potential challenges like long lines and stressed staff. Nearly half of retailers have sought ways to encourage buy online, return in-store options.
Furthermore, retailers should recognize that their most frequent returners are often their best customers, as it is more costly to acquire new customers than to retain existing ones.
In navigating the challenges of the holiday returns season, retailers are adapting their strategies to ensure customer satisfaction while managing the complexities of returns efficiently.