Skip to main content

How Costly Were Retail Returns in 2021?

As expected, the season of returns is upon us.

Following strong holiday sales, merchants are now tasked with figuring out how to navigate the excess goods being reintroduced into an already disrupted supply chain.

Retailers expect more than $761 billion in merchandise sold across 2021 to be returned by consumers, according to a report from the National Retail Federation (NRF) and returns management software Appriss Retail. This accounts for an average of 16.6 percent of total U.S. retail sales, which soared to $4.583 trillion in 2021.

The 2021 total rate of returns is up from 10.6 percent during 2020, but online returns in 2021 are in line with recent years at an average of 20.8 percent. According to NRF, online sales accounted for $1.05 trillion of total U.S. retail sales last year. Approximately $218 billion of online purchases were returned, with $23.2 billion (10.6 percent) deemed fraudulent.

Holiday returns rates were even higher, totaling $158 billion, or 17.8 percent of total sales during the season. Earlier this month, NRF reported that retail sales during November and December reached $887 billion on 14.1 percent growth, exceeding its initial forecasts of up to 11.5 percent growth.

According to the survey of 57 retailers, for every $1 billion in sales in 2021, the average retailer incurred $166 million in merchandise returns.

The categories with the highest return rates were similar to 2020 metrics: auto parts (19.4 percent), apparel (12.2 percent) and home improvement and housewares (tied at 11.5 percent). Department stores came in just behind at 11.4 percent of product returned.

The most common types of payment used during the original purchase that led to a return were credit cards (22.78 percent), cash (12.69 percent) and debit cards (7.04 percent). Appriss Retail reviews data directly from anonymous e-commerce and point-of-sale transaction logs—so all returns, exchanges, online returns, employee sale returns and other refund scenarios are considered to build a blended return rate.

Related Stories

Overall, 45.24 percent of retailers surveyed said they have seen more returns from pre-pandemic levels, with 26.19 percent saying returns have increased more than 5 percent. In kind, 41.46 percent of retailers said they would hire “somewhat more” staff this past holiday season to handle returns, with 14.63 percent saying they would hire “significantly more” employees.

Yet despite nearly half of retailers seeing more returns, it doesn’t appear many are getting that creative with how they will handle this influx. Nearly 83 percent of retailers said they have no plans to use third-party “no box,” “no label” providers to process their returns. Another 12.2 percent said they don’t currently offer those solutions, but planned to roll them out during the 2021 holiday season.

“Retailers must rethink returns as a key part of their business strategy,” said Steve Prebble, CEO of Appriss Retail. “Retail is dealing with an influx of returned items. Now is the time to stop thinking of returns as a cost of doing business and begin to view them as a time to truly engage with your consumers.”

And retailers are still on the fence about charging for mailed/shipped returns. The same amount of retailers (39.53 percent) both said they currently charge, or have no plans to charge shoppers for these returns. As many as 18.6 percent still hadn’t yet decided what their holiday plans were.

“As total retail sales continue to accelerate from sustained consumer demand during the pandemic, it is no surprise that the overall rate of returns has also been impacted,” said Mark Mathews, NRF’s vice president of research development and industry analysis in a statement. “While retailers have indicated that they are seeing an increase in items returned to stores and online, the upside is that it also provides them with additional opportunities to connect further with customers and provide a positive experience.”

As the returns rate increases, retailers must ensure that consumers are comfortable with the process—a study from March 2021 by fulfillment technology provider Doddle indicated that 75 percent of shoppers feel retailers should be doing more to improve their returns experiences. Thirty-one percent of shoppers said they wanted label-free returns, while 28 percent preferred policies that allowed them to return more than a month after purchase.

The rising demand of buy online, pick up in-store (BOPIS) and buy online, return in-store (BORIS) capabilities should also mean more opportunities to sell a new product at the point of return, thus retaining more money after the return takes place.

A recent NRF Big Show session also highlighted some of the strategies fashion’s fit tech players are using to mitigate returns. For example, popular intimates brand ThirdLove revamped its Fit Finder into a more robust, upgraded Fitting Room in 2021 to build on the brand’s data capabilities to provide better fitting bras. But while the technology included 100 million data points to give consumers a better idea of what product is the right fit for them, it also eliminated a lot of headaches on the back end after the purchase was made.

“As we gain more and more data over time, we’re able to understand and get more precise with those recommendations for her,” according to Colleen Conkling, vice president, brand marketing and communications, ThirdLove. “Our return rates are lower and our conversion rates went higher.”

And Hemster, represented by CEO Allison Lee in the NRF session, operates a business model that more in-store apparel retailers should take notes from if they want to minimize returns. Whereas retailers don’t traditionally combine the fitting experience with the point of sale, Hemster’s tailors integrate both experiences so that fitting room shoppers can immediately have a store associate use the platform to tailor the garment and ship it to the consumer.

“Brands actually should pay for you to enjoy the perfect fit as a consumers’ right,” Lee said during the session. “We structure this win-win strategy between Hemster brands and their consumers and make sure that instead of the shopper returning something, we ask them if they would like to get something tailored for free. That’s what how we can lower the returns very effectively for the brands.”

Fraudulent returns weigh heavier than ever

Alongside the returns problem itself, retailers had to deal with $78.4 billion in fraudulent returns, or 10.3 percent of total returns. This is an increase from the 8.8 percent of returns in 2019.

The impacts of the fraud spread wide, and can have negative impacts beyond a retailer’s bottom line. There are significant retail revenue losses caused by return fraud—sales that should not be refunded—therefore, U.S. states are losing $5.16 billion in sales tax revenues. It is estimated another $1.64 billion of sales tax revenues are lost at the local level in the U.S. due to return fraud.

At an average retail salary of $35,800 per year, per the U.S. Bureau of Labor Statistics (BLS), return fraud is costing American retail workers the equivalent of 2.18 million jobs.

Wardrobing, which is the return of used, non-defective merchandise, remains the top example of returns fraud, with 68.4 percent of retailers surveyed saying they’ve experienced it in the past year. The return of shoplifted/stolen merchandise marks the second-highest instance, at 56.1 percent.

Another 35 percent said that employee have either committed return fraud themselves and/or colluded with external sources to commit the act, while the same percentage of retailers said they have had merchandise returned that was purchased on a fraudulent or stolen tender.

Twenty-eight percent of retailers say they have experienced returns using fake e-receipts, while another 19.3 percent took in returns made by organized retail crime (ORC) groups.