Merchandise returns are estimated to hit $890 billion for 2024, which is about 16.9% of sales. “Returns play an important role within the retail ecosystem and offer an additional touchpoint for retailers to provide a positive interaction with their customers,” said Katherine Cullen, vice president of Industry and Consumer Insights at the National Retail Federation (NRF). “Retailers recognize the value of returns and their integration with brand loyalty, and many are prioritizing their returns capacity to ensure a seamless customer experience.”
Returns Have Doubled Since 2019
Overall returns over the past five years have grown significantly. In 2019, the return rate was 8.1% of total retail sales, but as the COVID pandemic closed non-essential retailers starting in early 2020, the U.S. experienced a major shift to online shopping. Return percentages increased from 10.6% in 2020 to 16.5% in 2021. The holiday return rate is even higher, estimated to be 20.4%, according to the NRF and Happy Returns report.
Retailers are trying to balance the high customer satisfaction associated with easy and free returns against the added costs of handling the returns. Some retailers have started charging for returns and many have restocking fees as part of the returns process. Needless to say, such fees have not been well received by customers. Retailers that are focused on generating deeper loyalty with existing customers understand that return policies have to be in alignment with the customer’s expectations.
Bracketing: The New Returns Challenge
Retailers and brands are addressing return abuse and fraudulent returns by using sophisticated data algorithms and software to help mitigate return fraud early in the process. However, a prominent customer behavior that is gaining momentum in online purchasing is bracketing, where customers buy multiple quantities of the same product in different sizes and return the ones that don’t fit. This presents a challenge for retailers because the customers are not trying to defraud or abuse policy but are merely trying to find the right size and fit of products.
“Bracketing is on the rise, especially among Millennials and Gen Z, and as their buying power grows, it’s amplifying the challenges retailers face during peak seasons,” said David Sobie, CEO and co-founder of Happy Returns. The solution to help with the impact of bracketing is to be able to restock the returned sizes quickly back into a retailer’s inventory.
Happy Returns focuses on consolidating individual returns into bulk shipments that are pre-verified and refunded, which streamlines warehouse operations and allows for efficient management of both new orders and returns. “The impact has been significant, 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 most,” said Sobie.
Returns Revolution Drives Loyalty
Retailers understand that a seamless returns experience is essential for building customer loyalty, as data consistently shows that a poor returns process drives shoppers away, explains Sobie. “By offering convenient options like box-free and label-free returns with immediate refunds, merchants significantly enhance the customer experience while also reducing operational challenges and costs,” said Sobie. In past surveys, Happy Returns has found that shoppers consistently prefer box-free and label-free returns over any other return method.
“As consumer 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 especially critical as we head into the upcoming holiday shopping season, as retailers will face more pressure than ever before to optimize return processes,” stated Melissa Tatoris, vice president of Retail at Zeta Global.
Many retailers and brands are using AI to help with product selection and finding appropriate sizing. Conversational chatbots can help direct customers to sizing and styling options that are more suited to customer needs. “AI-powered solutions will also play a pivotal role in lowering returns by enabling more accurate product descriptions, personalized recommendations, and efficient reverse logistics,” said Tatoris. Brands are investing in enhanced search features, virtual try-ons and stylists that help to ensure customers are selecting the appropriate sizes.
Free Shipping And Free Returns
Retailers who avoid charging extra shipping and return fees gain a competitive edge, with 51% of consumers indicating they’re more likely 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. Having multiple return options significantly influences holiday shopping behavior, with 82% of respondents indicating they are more likely to make online purchases when various return methods are available.
Many consumers are looking for free return policies and are making purchasing decisions based on the return policy , with 62% of consumers likely to buy with free returns, while only 46% of merchants offer them. The barriers preventing more retailers from offering free returns come down to cost and logistics.
“Free returns are highly valued, but they can pose logistical and cost challenges, particularly for smaller retailers. Implementing a free return policy can impact profitability if not managed carefully, especially in a competitive market,” said Jason Brenner, senior vice president of Digital Portfolio at FedEx. Many retailers have strategized by offering free returns for their loyalty members or basing free return availability on customer purchase amount.
Retail Returns Strategy: Balancing Service and Profitability
As retailers navigate the evolving landscape of returns management in 2024, the focus remains on balancing customer satisfaction with operational efficiency. The emergence of innovative solutions, such as Happy Returns box-free and label-free returns, along with modernized infrastructure and automated processes, demonstrates the industry’s commitment to meeting consumer expectations.
The Navar and Reshop survey featured 1,190 shoppers from across the United States who shop online at least once a month and return an online purchase occasionally.
The NRF partnered with Happy Returns, a UPS company, to conduct two surveys. The first survey gathered responses from 2,007 consumers who had returned at least one online purchase within the past year. The second survey engaged 249 ecommerce and finance professionals from large U.S. retailers.
The FedEx White Paper research was provided by Morning Consult, which conducted two surveys. A consumer survey was done between May 23-28, 2024, among a sample of 2,103 U.S. consumers, and a merchant survey was done between May 31-June 11, 2024, among a sample of 510 U.S. merchants.
Read the full article here