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Here Come the Returns—And These Are the Logistics Issues and Costs That Will Come With Them

Here come the returns—and the costs associated with them.

Retailers have long dealt with the headache of holiday returns, and as e-commerce has grown, so have the logistical ills of customers wanting to get their gifts or purchases back to merchants for remuneration.

Optoro, an e-commerce software company, forecasts that between Dec. 26 and Jan. 31, 45 percent of Americans will try to return at least one gift.

This year, that gift is more likely than ever to have been purchased online, with several surveys noting that 2017 is the first year that a majority of Americans planned to do their holiday shopping through e-commerce.

UPS is forecasting 1.4 million returns on Jan. 3, dubbed National Returns Day, up 8 percent from the prior year, which would be a fifth consecutive annual record.

“While the day after Christmas used to be reserved for long return lines at department stores, the growth of e-commerce has changed when and how consumers return gifts,” UPS chief commercial officer Alan Gershenhorn, said. “A customer-friendly returns program is now an essential part of any successful e-commerce program and UPS continues to expand its suite of innovative solutions to help shippers. This season, UPS added Returns Manager, a free platform that allows e-commerce merchants to customize return shipments according to their e-tailer policy.”

The returns delivered in 2017 are part of the 750 million packages UPS is projected to deliver between Thanksgiving and New Year’s Eve, an increase of nearly 40 million over last year.

[Read more about returns: Fueled by E-Commerce Expansion, UPS Expects Record National Returns Day]

A major problem for retailers isn’t just the amount of returns–many of which are unable to be restocked and are sold to liquidators or discarded altogether, adding to the environmental crisis of textiles waste–but return fraud.

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The National Retail Federation said merchants expect 11 percent of purchases to be returned this year, and that 11 percent of those returns are likely to be fraudulent. The return rate for items purchased online but returned to a store is the same, but with a lower fraud rate of 9 percent. Of items returned without a receipt, 17 percent are believed to be fraudulent. During the holiday season, 13 percent of purchases are expected to be returned, with 11 percent believed to be fraudulent.

Of retailers that have experienced return fraud, the most common method is the return of stolen merchandise, followed by employee return fraud and returns of merchandise purchased on fraudulent or stolen tender.

Returns cost retailers $260 billion in 2015, according to the NRF. Retailers can ease the expense if they can convince customers to return web-purchased items to stores in person. On average, returns to stores cost companies half as much as returns to distribution centers, and allow retailers to get the items back on shelves faster, according to research from AlixPartners, a consulting firm.

In November, Walmart raised some of its prices online to encourage in-store foot traffic and cut down on shipping costs.

“This is principally a reason why many retailers aren’t making any money,” Mark A. Cohen, director of retail studies at Columbia Business School and a former chief executive of Sears Canada, told the New York Times.

Cohen noted that e-commerce start-ups have the extra challenge of needing to build loyalty, adding, “These are new businesses that are just learning what they’re in for.”

Many retailers that were focused on creating the right technology and logistics to handle online sales ignored some of the problems that were created by e-commerce growth, Tobin Moore, chief executive officer of Optoro, told CNN.

As people get more comfortable buying clothes online and returning the ones that don’t fit, the volume of returns shoots up, creating additional transportation problems, according to Moore.

“It’s good that consumers are taking more risks and buying goods, but it’s not the easiest problem for retailers to solve,” Moore says.

According to the 2017 UPS Pulse of the Online Shopper study, 75 percent of consumers have shipped returns back to the retailer, an increase of seven percentage points from 2016. Also, 79 percent of those surveyed said free shipping on returns is important when selecting an online retailer, and 44 percent said the top issue encountered when returning an item online is paying for return shipping.

Customers have come to expect free shipping for online purchases and many companies absorb the costs as the price of doing business.

Cheaper solutions may be staring retailers in the face.

Startup Happy Returns helps digitally native apparel retailers process their returns by providing customers physical locations where they can drop off items they want to send back.

Kohl’s is trying out a twist on the idea of using physical locations for returns. It lets Amazon customers return purchases at its stores — and Kohl’s gets a boost in foot traffic.

UPS works with Optoro to provide a reverse logistics solution that combines UPS’s operational and logistics expertise with Optoro’s software platform that maximizes recovery value.

UPS’s Gershenhorn said, “A simple and speedy experience should be part of the retailer’s toolkit to help increase customer loyalty while managing the cost of processing these returns. UPS offers a portfolio of technology-driven returns services that help retailers deliver a premium experience.”

Services include UPS Returns Manager, a portal offering shippers control and visibility over their returns. The service allows shippers of all sizes to create and manage returns policies and designate the return destination.

UPS Returns Plus allows the merchant to send a driver to deliver a return label and pick up the return package from any address, while UPS Returns Exchange is when a driver simultaneously picks up the return item in exchange for the replacement item delivery.