Supply chain fears, inflation and strong online sales drove holiday returns
During the holiday season, about $120 billion in goods are expected to be returned to retailers, a 7% jump from 2020, due to supply chain issues, inflation and strong sales in line.
Returns during a typical holiday season represent approximately 13.3% of total sales, with returns from online sales being three to five times higher than returns from in-store sales, according to information provided to the E-Commerce Times by Optoro. , a technology company with a focus on clearing returned, overstock and damaged merchandise.
According to the National Retail Federation, online sales topped more than $222 billion during the holiday. Optoro and real estate firm CBRE estimated in their annual report on the subject that $66.7 billion should result in returns.
Online products have a higher rate of return than those purchased in physical stores because consumers cannot touch or smell the merchandise before buying it, said Sucharita Kodali, an analyst at Forrester Research.
“They don’t know what they’re getting,” she told the E-Commerce Times.
Although retailers are not happy with the rise in return rates, in the current environment, they are a reflection of success. “When you have the kind of growth that we’ve seen in the online channel, that’s how you get a high overall rate of return,” said Peter Madden, retail practice manager for AlixPartners, a global, multi-industry consulting firm. the time of e-commerce.
“If sales are higher, returns will be higher,” added David Swartz, an equity analyst at Morningstar, an investment research firm in Chicago.
Swartz told the E-Commerce Times that since the pandemic hit, there has been a surge in online sales.
“They’ve gone up year on year anyway, but they’ve jumped even faster in the last two years,” he said. “Shops were closed or they have shorter hours or people just didn’t want to go out to the shops.”
While returns from online sales have always been higher than in-store sales, they are getting even higher because online sellers are eliminating friction in the process. “So many online businesses — everyone from Amazon down — have made returns cheaper and easier than before,” Swartz explained.
“For example,” he continued, “you can return any Amazon product to a Kohl’s store. Nordstrom has a process that allows you to return anything purchased on Nordstrom.com to a Nordstrom Rack store.
“There have been times in the past when online businesses made returns difficult,” he added. “It’s no longer competitive because they have to deal with Amazon. If Amazon really makes returns easy and you don’t, you’re going to lose customers.
Streamlining returns can be especially beneficial for online apparel shoppers. “In clothing, an online shopper cannot try on the clothes or see them before buying,” Swartz explained. “Sometimes when they bring the clothes home, they find that they don’t fit, or the color is wrong or the style is wrong. In a store, they would have already known.
With easy returns, a buyer doesn’t have to hesitate to order multiple copies of the same item. “A woman can buy two exactly the same dresses but in different sizes. She’ll try both when she gets them, and then she’ll send them to the one that doesn’t fit,” Swartz noted.
He added that supply chain concerns also influenced returns. “There have been concerns about out-of-stock products,” he explained.
“People may have bought products earlier because they were afraid they couldn’t get something later,” he continued. “Then they found out they could get it later and returned the previous product.”
Supply chain fears can also lead to unwanted gifts. “Because there aren’t as many products, you may be making a suboptimal purchase – you’re buying something because it’s the only product there rather than an ideal purchase,” explained Madden.
“If it’s a gift and it’s not accepted, it will increase the return rate,” he said.
Liberal return windows
Inflation also affected returns. “The cost of returns was higher because the cost of shipping was higher,” Swartz noted.
“There have been a lot of online sales over the last few months and a lot of online returns, so shipping demand has been very high,” he explained.
Pricing can also affect the comparative value of returns. “If you have a product that’s priced 5-10% higher than last year, that translates to a higher return value,” Madden said.
He added that another factor contributing to an increase in returns is a more liberal window for returning items. “A lot of retailers are going beyond the typical 30 days and going to 60, 90, and even over 90 days,” he explained.
“They did this to address supply chain issues and customers buying holiday gifts sooner,” he continued.
“Because of these extended return periods,” he added, “holiday return numbers could be even worse as they could still appear in March.”
Ways to reduce returns
There are a number of things retailers can and do do to reduce returns.
“Users need to see products that are not only relevant to their queries, but also see all the products they are interested in right off the bat, so they don’t later find something more appealing to them and return everything they bought earlier,” observed Eli Finkelshteyn, CEO and founder of Constructor, an AI research and discovery company in San Francisco.
This can be done by collecting browsing information about a visitor to a retailer’s website. “It’s similar to how Netflix decides which movies are going to interest you or how Spotify decides which songs and radio stations are going to interest you the most,” Finkelshteyn told the E-Commerce Times.
“You avoid returns by ensuring a user sees everything a site has that might interest them before making a purchase so that they don’t find it later and return an item to make a purchase. different,” he explained.
Swartz added that retailers also have 3D tools that allow people to virtually try on clothes and place virtual furniture in a consumer’s home so they know what it will look like before buying it.
However, solutions to reduce yields do not need to be complex to be effective. “If a retailer can get the sizing right in the original transaction, if they can hit the right shipping window when a customer needs it for that special occasion, those are the kinds of things that limit returns. and are much easier on operations than trying to optimize the backend for return logistics, processing, restocking and repricing of returned items,” Madden said.