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US consumers are handing back huge volumes of unwanted purchases, souring a record-setting holiday season for retailers and deepening a financial, environmental and customer service dilemma for brands.
Retail returns surged 78 per cent to $ 761bn between 2020 and 2021, according to a National Retail Federation survey released on Tuesday. Last year 16.6 per cent of all retail sales were sent back compared to 10.6 per cent a year earlier, the survey found.
For the peak holiday season in November and December, retailers expect returns to have jumped by more than half from $ 101bn to $ 158bn, the NRF reported. That growth far outstrips the estimated 14.5 per cent rise in retailers’ holiday sales last year.
Returns have increased during the pandemic in part because Americans have bought so much more online. By Adobe’s estimates, US ecommerce revenues rose by 43.5 per cent between the 2019 and 2021 holiday seasons.
The NRF survey estimated that more than a fifth of last year’s online sales – worth $ 218bn – will be returned, with more than $ 23bn of those returns deemed fraudulent.
“That’s particularly problematic for an industry where profit margins are slim,” said Mark Mathews, an NRF industry analyst. The growth in returns was “a little bit anomalous”, he said, “but we live in anomalous times”.
Goods bought online, where images may look little like the product does when it arrives, are far more likely to be returned than those bought in brick-and-mortar stores where consumers can handle products or ask for help in finding the right item.
Changes in shoppers’ online habits such as “bracketing”, or ordering multiple items of different sizes or styles to try on at home, have also led to more returns.
The surge in consumers sending orders back – usually for free – is imposing growing costs on retailers. It is also putting strain on the “reverse logistics” companies to which most large chains outsource the complex business of handling returns.
Sender Shamiss, chief executive of goTRG, a logistics group, said that sorting through this year’s load would take 15 per cent longer than usual, because the “massive” volumes have been compounded by the same labor shortages hurting retailers.
Optoro, an online returns processor, estimated that it would cost 66 per cent of the average item’s selling price to process its return this year, up from 59 per cent a year ago.
As convenience becomes crucial to competing for customers’ loyalty, however, more retailers were offering more generous return policies, said Bill Angrick, chief executive of Liquidity Services, a reverse supply chain solutions business.
Some brands are extending their returns window from 30 days to three months, ostensibly to accommodate consumers who did their shopping early. By January 5, 9 per cent of Americans had already made at least one post-holiday return, a Morning Consult poll found, but another 9 per cent still intended to return items.
With less risk of missing the window for sending unwanted gifts back, consumers may flood the returns channel with even more packages this year.
What happens to those items is also changing. The high costs of processing returns to be sold again means that many end up in landfills, an environmental toll brands find hard to defend. Optoro estimated last year that returned inventory created 5.8bn lbs of landfill waste in 2020.
The environmental and cost considerations mean that more stores are concluding that some items are not worth taking back. “Frankly, it’s such an expensive proposition that a lot of customers are telling customers ‘just keep it’,” said Hamid Moghadam, chief executive of warehouse landlord Prologis, who estimates that 10-15 per cent of the space in a typical ecommerce warehouse is devoted to handling returns.
That can give retailers an opportunity to build brand loyalty by letting consumers keep products or asking them to make a donation instead of shipping them back, said Joel Bines, co-head of AlixPartners’ retail consulting practice.
Steve Prebble, chief executive of Appriss Retail, which conducted the survey with the NRF, said that it was 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”.
According to Shamiss at goTRG, only 5 per cent of returns make it back to the shelves immediately, because of the difficult sorting process and factors such as stores’ ever-changing seasonal assortments.
Most are sent to facilities like his, which check that products are fit to be resold, clean them and repackage them for resale. The process eats into retailers’ margins, but has allowed many resellers to build thriving businesses by selling these items under heavy markdowns.
It has also created a growth market for logistics companies. GXO, a supply chain management company, reported last November that its quarterly reverse logistics revenues had risen 21 per cent in a year. UPS predicted that it would handle more than 60m returns between November 14 and January 22, up from 55m last year.
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