With an increase in online sales, we’ve also seen an increase in returns. In fact, returns accounted for an average of 16.6% of total U.S. retail sales, which soared to $4.583 trillion in 2021. Comparatively, the return rate was 10.6% in 2020, according to a survey by the National Retail Federation and Appriss Retail.
At that rate, the returns added up to over $761 billion of merchandise that flowed back into stores.
Purchases Intended To Be Returned Cause Several Issues For Companies
The ease of shopping online makes it easy for customers to purchase multiple sizes or different colors of the same item to ensure that one of them will be the right fit. And without the ability to try on items such as clothing and shoes, over-purchasing with the intent to return is a simple and effective solution for consumers. But not for companies – not only does half the purchase end up back in stores a short while later, but it takes additional manpower to sell the item and then return it back to inventory. Or worse, to go through the returned items to deem which ones are defective, resell-able, or sometimes even ineligible for a return as they’ve been worn or used. The report stated that for every $100 in returned merchandise accepted, retailers lose $10.30 to return fraud. Looking at holiday returns alone, fraudulent returns amounted to $17 billion.
On top of that, over-purchasing causes loss of sales. Those items or sizes that were purchased with the intention of being returned are temporarily removed from a store’s inventory – making them unavailable for a period of time to other customers who may truly be searching for those sizes. This loss is very difficult to measure because customers simply come and go without making a purchase, and often without requesting to be put on a waitlist for notification when the size becomes available.
Costs of processing and an increase in volume of returns were cited as one of the biggest challenges retailers are facing right now.
Retailers Coming Up With Solutions
Some retailers are coming up with alternative solutions to try and curb the influx of returns – such as open-box pricing, which are marked down items that have been sold, opened by the consumer, and then returned, but are in sellable condition. It’s a win-win in some cases as the company can still make profits off the item and customers can get a deal.
In other instances, companies are refunding customers for their purchase and telling them to donate or keep the item. This eliminates the return shipping fees and cuts losses in some cases, even though a full refund is given to customers.
Opportunity To Engage With Customers
While the cost of returns impacts companies in many ways – from lost sales, to increased labor costs, and even additional markdowns – there is a way to recoup some of the loss.
“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. “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.”
In-store returns can be viewed as an opportunity to convert online shoppers. Since the return process brings customers physically into a store location, this can be the best time to go the extra mile, find out what they were looking for and maybe didn’t initially find, and build rapport to gain a loyal customer. However, this is a skill that takes careful training of store associates, as there is a fine line between offering services that a customers will appreciate and bombarding them with sales pitches when they are trying to return something and quickly get out the door. A very simple and courteous return process can also gain credibility and positive perceptions of a brand if that is all the customer needs at that time.
“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.”
