The Post-Holiday Return Cycle is Setting Records

Approximately 30% of all online purchases are returned, with some retailers offering a refund without a return. UPS alone is processing over 60 million return parcels for a 10% increase Year over Year (YoY), which was previously a record. Per Optoro, a return processing company, returning a US$50 purchase may cost an average of US$33, which is an increase of nearly 60% from last year. In 2020 alone, US consumers returned about US$428 billion in goods, which is over 10% of total retail. More than 50% of returns are related to size or color reasons.

There are multiple implications for spiraling returns, impacted by a continuing pandemic. One is the cost of returns to the retailer potentially resulting in a lack of profit, as up to 66% of the sales price is consumed by returns fees and the initial cost to deliver has risen exponentially across modes over the last two years. Storage capacity is also severely limited. Additionally, now chronic labor shortages across the supply chain make the process even more stressed. Supply chain shortages across a plethora of goods will continue for the foreseeable future, with many retailers looking for maximum velocity to resell where possible, despite added costs to peak demand and pricing. Next, some portions of these costs are passed onto the consumer in higher costs of goods. A variety of environmental factors are also in play, from carbon emissions in additional transport to waste from packaging to discarded products and additional resources to repurpose and repackage items for sale.

Consumer perception and experience with returns matters when individuals choose which online retailers to shop and offer their repeat business. A Digital Commerce360/Bizrate Insights holiday survey of online shoppers found that 39% of respondents viewed free shipping for returns as a factor for choosing an online retailer and 27% noted flexibility of a retailers return policies impacted selection, with convenience as a primary focus.

Related to this is a growing diversity of return options, from Amazon drop-off sites at Whole Foods and other retailers like Kohls, as well as a growing curbside return option from retailers including Target, Dicks’ Sporting Goods, and Nordstrom. Companies like FedEx and UPS (including sites at CVS, Michael’s, and more) continue to offer brick and mortar returns for many retailers. Newer services like Narvar and Happy Returns (PayPal) have emerged as well. This remains an opportunity for a greater frictionless experience with consumers, as 43% of US consumers polled stated that a convenient drop-off/requirement of holiday returns was their most significant barrier.

The first step is to reduce the incidents of returns. Artificial Intelligence (AI) continues to evolve and is a key tool for engagement of digital native Gen Z as well as millennials to provide more personalization to tailor the online shopping experience by building specific behavioral profiles to predict preferences with a large amount of certainty. Companies like MySize leverage algorithms to help consumers through an app with a sensor to develop accurate readings and has partnered with multiple companies from Levi’s to Nautica and more in the US and Europe.

Sustainability can be improved and impact a percentage of costs through package-less returns, which also provide less hassle for the consumer and allow for shipping aggregated items for return and exchange, requiring less capacity in transport and storage. Another option is reusable packages that that can reduce the amount of cardboard and plastic which has been adopted by companies like Draper James and Rothy’s. Per Happy Returns, more than 60% of shoppers exclusively purchase from retailers with sustainable business practices.

Operations can benefit from a comprehensive order management solution for cross channel returns to reduce shipping costs. Intelligent routing to locations can provide benefits as up to 50% of merchandise is able to be returned to shelves, which can further address some supply chain shortages. Shortening the cycle time of returns reduces costs and customer frustrations through enhanced automation and streamlined operations. American Eagle’s investments allowed them to shorten their return cycle from fourteen days to six days over the last year, reducing costs by 50%.

The returns process continues to adapt in options and technologies. Investments that retailers make encourage greater customer loyalty, lower costs, and shorter cycle time. Emerging technologies such as AI can help reduce the return rate as well. No singular technology or process will address costs and frustrations, but a unified, flexible, and evolving toolbox of technologies and operations will go a long way to improve the current state.