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Retailers Brace for Returns Tsunami

‘Tis the season for giving—and give-backs.

Consumers are expected to return nearly $171 billion in merchandise this holiday season—over one-fifth of the overall returns volume projected for 2022.

More than $816 billion worth of retail purchases will be returned by shoppers this year, according to the National Retail Federation’s (NRF) survey of 70 retailers with Appriss Retail, conducted during September and October. When it comes to holiday sales, retailers can expect to see an average of nearly 17 percent returned. Respondents reported that for every $1 billion in sales they make, they tend to incur an average of $165 million in returns.

Though shoppers are buying more, the average return rate for the year will remain flat with 2021, at just over 16 percent, NRF found. “Even with 29 continuous months of retail sales growth, consumers have remained steady with the overall rate of merchandise returned to retailers this year,” Mark Mathews, the group’s vice president of research development and industry analysis, said.

In querying 500 retail professionals across the U.S., reverse logistics platform GoTRG found that 65 percent anticipate seeing the same or higher return rates this holiday season as they did during 2021. Over 41 percent (206 retailers) said they expected to see between 10,000 and 50,000 units returned this season, while more than 27 percent (137 retailers) said they expected to receive between 50,000 and 100,000 product returns. Seventy-three percent of retailers rated returns as a moderate-to-severe problem for their business.

Taking into account the post-holiday returns period that will spill over into 2023, returns platform Optoro predicts that the retail sector will see a total of $135 billion in goods go back to warehouses and stockrooms between Thanksgiving and the end of January. That’s up from $120 billion (12.5 percent) from 2021. What’s more, returns processing costs have increased by at least 50 percent year over year, “And that’s just to return the item to stock,” analysts said. “If the item can’t be resold directly, and needs to be routed through other channels—liquidated, secondary markets, sold wholesale, etc.—that number only grows.”

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Fraudulent returns are also a growing issue—and budgetary concern—for the sector. For every $100 in returned goods retailers take back, they lose $10.40 to return fraud, according to NRF. Half of the retailers that said they experienced return fraud said that over the past year, they’ve received used, non-defective product—a process known as “wardrobing.” Over two-fifths said thieves attempted to return shoplifted goods, and 20 percent attributed the fraud to organized retail crime.

An October survey of 1,320 consumers by returns management platform ParcelLab revealed that some shoppers are indeed using returns to their advantage. “From the returns made, 44.27 percent occurred because of bracketing,” or the purchasing of the same item in different sizes or colors with the intention of returning most options, founder and chief operating officer Anton Eder said. “Moreover, when using digital platforms for making return registrations, only 60 percent of the registered returns are indeed sent back to the warehouse,” he added, “which means that 40 percent of the customers are keeping the items they originally wanted to return.” The issue is disproportionately affecting apparel sellers. The group found that of those who made a return over the past 12 months, 33 percent returned clothing, compared to 13 percent who returned footwear and 11 percent who returned home goods, décor and appliances.

“The holidays typically include a spike in retail activity, but higher return rates can also impact profitability,” said Steve Prebble, CEO of Appriss Retail. “Retailers must look for ways to individualize the returns process through data-driven insights,” he added, in order to “minimize the risk of accepting fraudulent returns.”

Notably, NRF’s survey revealed that online return rates have become consistent with the overall rate of return. Accounting for about $1.29 trillion in total U.S. retail sales this year, return rates decreased from 20.8 percent in 2021 to 16.5 percent in 2022. Of about $212 billion-worth of online purchases that are returned, 10.7 percent—$22.8 billion—will be fingered as fraudulent. Brick-and-mortar will account for $3.66 trillion in sales, and $603 billion-worth of those sales are expected to be returned. Nearly on par with web transactions, 10.3 percent are expected to be deemed fraudulent.

There’s an opportunity cost to legitimate returns, too. “On average, a customer takes around 21 days to return an item—this is calculated from the moment they receive the item until they return it back in the retailer’s store or 3PL facilities,” ParcelLab’s Eder said. “The complete order’s cycle, from order creation until a person returns an item and this arrives back to the warehouse, takes 35 days.”

Will retailers give into consumer demands?

Consumers have been conditioned to expect certain perks from retailers, like free return shipping, but enterprises are beginning to re-evaluate the practice in light of growing return rates, processing and logistics costs.

“Consumers are expecting a lot from retailers this year,” Optoro analysts said. The group surveyed 1,000 U.S. consumers in August, and found that 71 percent believe stores should offer free returns during the holidays. More than half (57 percent) said the biggest detractor from a returns experience is when a retailer charges for, or offers inconvenient, returns. Nearly three-fifths said they had declined to shop with a brand because they didn’t like their returns policy, and almost all (95 percent) of those surveyed said a poor returns experience would make them less likely to come back and shop again.

ParcelLab survey-takers cited restocking fees (36 percent), poor returns policy communication (21 percent), lengthy refund timelines of more than 14 days (18 percent) and periods of return eligibility lasting less than a month from the date of purchase (14 percent) as reasons they might shop less with an online retailer or brand. While 63 percent of consumers told the company that free shipping is what they care most about in the returns process, 47 percent said they actually prefer to return their online orders in stores, and 58 percent said their preference would be to bring back their unwanted purchases to brick-and-mortar locations if they could escape any return charges. Meanwhile, almost 40 percent of Optoro respondents said they prefer third-party drop off locations over mailing back their purchases or returning them to stores, a la Amazon Hub Locker.

Giving shoppers more flexibility through omnichannel services could present meaningful opportunities for retailers, NRF’s Mathews explained. “While oftentimes returns represent a lost sale for a retail establishment, returns can also provide recourse through positive customer engagement and, potentially, another purchase.”

Due to increased sales volume during the holidays, almost 44 percent of NRF survey respondents said they planned to hire more staff in part to deal with returns. Of that contingent, the majority (71 percent) said they intend to add staff specifically for stores, where they can help consumers process returns and ideally walk out with another bag under their arm.

Retailer responses to shopper demands surrounding returns are nuanced, GoTRG data showed. About one-third (32 percent) are capitulating to their desires to see longer return windows, and 24 percent are offering returnless refunds to eliminate the cost, carbon impact and consumer consternation associated with sending items back through the mail.

But a large number of retailers are unwilling to further undermine their margins, with 67 percent copping to charging additional shipping and restocking fees this holiday season. “In contrast with previous years, retailers are changing their returns policies to be less customer centric, and more aligned with business priorities and cost reduction,” GoTRG analysts said.