Increase in Retail Return Costs Reaches $890 Billion: Strategies Used by Retailers in 2024
Increase in Retail Return Costs Reaches $890 Billion: Strategies Used by Retailers in 2024
E commerce returns are projected to reach an astounding $890 billion for 2024, making up around 16.9% of total sales. According to Katherine Cullen, vice president of Industry and Consumer Insights at the National Retail Federation (NRF), returns have a significant role in the retail industry and give retailers a chance to have a positive interaction with their customers. Retailers acknowledge the value returns bring in relation to brand loyalty and are prioritizing their return capabilities to ensure a smooth customer experience.
Returns have witnessed a significant surge since 2019. In 2019, the return rate was a mere 8.1% of total retail sales, but the outbreak of the COVID-19 pandemic in early 2020 led to a significant shift towards online shopping in the United States. Return percentages escalated from 10.6% in 2020 to 16.5% in 2021. The holiday return rate is reportedly even higher, estimated to be 20.4%, according to a report by the NRF and Happy Returns.
Retailers are grappling with the challenge of balancing high customer satisfaction stemming from effortless and cost-free returns against the added expenses associated with processing the returns. Some retailers have begun charging for returns and many have introduced restocking fees as part of the returns process. Needless to say, these fees haven't been met with enthusiasm from customers. Retailers that prioritize fostering deeper loyalty with existing customers recognize that return policies must align with customer expectations.
Bracketing: A New Returns Challenge
Retailers and brands are confronting return manipulation and fraudulent returns by employing advanced data algorithms and software to thwart return fraud at an early stage. However, a notable customer behavior that is gaining traction in online purchasing is bracketing, where customers buy multiple units of the same product in various sizes and return the ones that don't fit. This poses a challenge for retailers as the customers aren't attempting to defraud the policy but rather are on a quest to find the perfect size and fit for the products.
"Bracketing is becoming increasingly prevalent, particularly among Millennials and Gen Z, and as their purchasing power escalates, it's magnifying the challenges retailers face during peak seasons," said David Sobie, CEO and co-founder of Happy Returns. The strategy to mitigate the impact of bracketing is to swiftly stock the returned sizes back into a retailer's inventory.
Happy Returns emphasizes consolidating individual returns into bulk shipments that have been pre-verified and refunded, thereby streamlining warehouse operations and facilitating efficient management of both new orders and returns. "The impact has been substantial, as with recent automation upgrades at Happy Returns, we've reduced shipping times by 35%, setting a new standard for speed and simplicity in the returns process just when retailers need it the most," said Sobie.
Returns Revolution Fuels Loyalty
Retailers comprehend that a seamless returns experience is crucial for nurturing customer loyalty, as data consistently indicates that a dismal returns process drives shoppers away. "By offering convenient options such as box-free and label-free returns with immediate refunds, merchants significantly boost the customer experience while also alleviating operational challenges and costs," said Sobie. In past surveys, Happy Returns discovered that shoppers consistently favor box-free and label-free returns over any other return method.
"As customer expectations evolve, retailers must adopt a proactive approach to returns management by investing in innovative technologies and strategies to safeguard their bottom line. This is even more crucial as we approach the upcoming holiday shopping season, as retailers will face unprecedented pressure to enhance return processes," remarked Melissa Tatoris, vice president of Retail at Zeta Global.
Many retailers and brands are utilizing AI to help with product selection and fitting the appropriate size. Conversational chatbots can assist customers in identifying sizing and styling options that better suit their needs. "AI-powered solutions will also play a pivotal role in reducing returns by enabling more precise product descriptions, personalized recommendations, and efficient reverse logistics," said Tatoris. Brands are bolstering their search features, virtual try-ons, and styling services to ensure customers select the appropriate sizes.
Free Shipping and Free Returns
Retailers that eschew additional shipping and return fees gain a competitive edge, with 51% of consumers expressing they are more inclined to shop again with these merchants. During the holiday season, this jumps to 66% according to a survey conducted by Navar (a post-purchase platform) and Reshop, which specializes in refund processing. A plethora of return options significantly influences holiday shopping behavior, with 82% of respondents indicating they are more likely to make online purchases when diverse return methods are available.
Numerous consumers are seeking free return policies and are making purchasing decisions based on the return policy, with 62% of consumers likely to purchase with free returns, while only 46% of merchants offer them. Barriers hindering more retailers from offering free returns stem from cost and logistics.
"Free returns are highly valued, but they can pose logistical and financial challenges, particularly for smaller retailers. Implementing a free return policy can impact profitability if not managed judiciously, especially in a competitive market," said Jason Brenner, senior vice president of Digital Portfolio at FedEx. Many retailers have devised strategies such as offering free returns for loyalty members or basing free return availability on customer purchase amount.
The assessment by Navar and Reshop included input from 1,190 regular online shoppers distributed throughout the USA, who make at least one online purchase each month and occasionally send back an online order.
In collaboration with Happy Returns, a subsidiary of UPS, the National Retail Federation (NRF) carried out two surveys. The initial survey targeted 2,007 consumers who had returned an online purchase within the previous year. The second survey reached out to 249 specialists in ecommerce and finance from prominent US retailers.
In relation to this, Morning Consult, on behalf of FedEx, presented findings from their own research. They conducted two studies, the first of which questionnaired 2,103 US consumers between May 23-28, 2024, while the second survey polled 510 US merchants between May 31-June 11, 2024.
Following the rise in online shopping, Fedex has become a popular choice for handling holiday returns. According to the survey conducted by Morning Consult on behalf of FedEx, 51% of consumers prefer retailers that offer free return shipping during the holiday season.
In an effort to improve the return process, some retailers are collaborating with companies like Happy Returns to consolidate individual returns into bulk shipments, reducing shipping times by up to 35%. This approach, as mentioned by David Sobie, CEO of Happy Returns, has set a new standard for speed and simplicity in returns processing.