Ask anyone in retail, and they’ll tell you that returns are a huge problem. It’s the same for shoppers. Nobody wants the hassle of returning merchandise or waiting for credit to their account. And a retailer’s return policy or a customer’s negative returns experience can influence where they shop next.
Returns, an inevitable consequence of buying and selling, creates friction between the retailer and the shopper when the goal should be to take friction out of the retailer-consumer interaction at every touchpoint: before, during and after the sale.
“The solution for returns must address pre-purchase, post-purchase and the physical handling of the goods afterwards,” said Sender Shamiss, founder and CEO of ReturnPro, a reverse-logistic company formerly known as goTRG. “We live in a consumer based society, meaning we’re shoppers. There’s always going to be something to return.”
It’s the responsibility of the retail industry to fix the returns problem. To do that, understanding its scope is crucial, as the late Peter Drucker famously said, “You can’t manage what you don’t measure.” And that’s where it gets murky.
Bigger Than A Bread Box
In December, the National Retail Federation (NRF) came out with its prediction that returns would total $890 billion in 2024. Not long after Appriss Retail and Deliotte came out with its own estimate of $685 billion. NRF estimates the rate of returns at 16.9% of retail sales off what was originally projected as a $5.2 trillion market but unexpectedly turned into $5.28 trillion. Appriss/Deloitte put the returns share at 13.2%.
The over $200 billion difference is hardly a rounding error. It totals more than either furniture and home furnishings stores ($136 billion) or department stores ($131 billion) made all last year.
Different Methodologies, Different Results
Methodologies make the difference. The NRF with its partner Happy Returns used survey data gathered from 249 e-commerce and finance professionals from large U.S. retailers with $500+ million in revenue to derive its estimate.
Appriss/Deloitte turned to a survey data too, sampling responses from 150 North American retail executives. But it validated the survey results with actual transaction data, arriving at a lower estimate.
“We started in 2023 with a data-based report, not solely a surveyed-based one to produce more granular information so that retailers could make better informed decisions,” said Pedro Ramos, chief revenue officer at Appriss Retail. “And this year we took our analysis deeper to break down the transactions and origins that are driving returns.”
With retail split about 70% brick-and-mortar and 30% online, Ramos believes the NRF returns estimate is skewed toward omnichannel retailers with significantly higher return rates. Appriss/Deloitte found the online return rate was 25% overall and totaled $362 billion, compared with 9% for in-store sales.
The NRF doesn’t breakdown return rates by channel, though it does report “retailers’ online return rates were 21% higher than their overall return rates.” Note: that doesn’t mean online return rates are 21%, but only 21% higher than for purchases made in store. The NRF did not respond to a request for comment.
Returns Fraud Growing
NRF also doesn’t quantify the value of fraudulent returns, though its survey revealed that 93% retailers say that retail fraud and other exploitive behavior is a significant issue in their business.
Appriss/Deloitte put the numbers behind it, finding fraudulent returns reached $103 billion in 2024 or 15% of total returns.
The causes of fraudulent returns are many, including wardrobing (returning used merchandise), gift card fraud, return of stolen merchandise or with counterfeit receipts, false claims of missed deliveries and employee return fraud or collusion. Each may require different remediation and prevention efforts.
Consumers And Retailers At Cross Purposes
While NRF and Appriss/Deloitte come to very different returns values, both arrive at the same conclusion: returns are a mammoth-sized headache for retailers and consumers alike.
Customers want easy, quick, hassle-free returns. According to an Appriss’ survey with 1,000 consumers, some 31% of consumers stopped shopping at certain retailers because of restrictive returns policies and 55% avoid shopping with others for the same reason.
On the other hand, 70% said they made additional purchases because of positive returns experiences. Nearly 90% of consumers said they would make more purchases if they had confidence the retailers would provide “positive return experiences.”
Sadly, that’s not necessarily what they find, as 36% reported having a recent negative return experience. Chief among their complaints are poor customer service (45%), long waits for refunds (42%), shipping or restocking fees (34%), confusing return policies (26%) and restrictive time windows for returns (20%).
Indeed, the Appriss/Deloitte retailer survey indicates that 83% of retailers are tightening return policies, including requiring proof of purchase/receipts (67%) and limiting returns windows to 30 days or less (59%).
“The aim of any retailer is to reduce returns, but this must be balanced against protecting sales,” shared GlobalData’s Neil Saunders with RetailDive. “Return policies that are too onerous can cost retailers sales.”
Fixing The Problem
As ReturnPro’s Shamiss observed, fixing the retail returns challenge takes a three-pronged approach, starting before the purchase, through the customer returns process and to post-processing the returned merchandise.
As always, an ounce of prevention is worth a pound of cure.
Pre-Purchase Fixes
Getting fraudsters, bad actors and other unscrupulous abusers of returns policies out of the system is step number one. Appriss/Deloitte found that 84% of retailers have made changes to their returns policies to reduce fraud, but in many cases those efforts can increase friction with honorable customers.
AI and big data can help identify chronic abusers and keep them from continued abuse. According to multiple reports, Amazon, Target, Zara and Abercrombie & Fitch have started to refuse returns from suspected abusers.
And REI recently notified nearly 5,000 of its 24 million members, who paid $30 for a lifetime membership, that they could no longer take advantage of its generous returns policy because of abuse. Those receiving notice had an average return rate of 79%.
Not unexpectedly, a long-time REI customer took offense. She told Denver’s 9News team that REI encouraged customers to try out gear and return it freely if it didn’t work. That’s what she claimed to do, only to find out that she won’t have that privilege any longer. She also said because of a diagnosed medical foot condition, she needed to order multiple sizes of shoes to see which ones fit.
Medical conditions aside, ordering multiple sizes – called “bracketing” – is common practice for apparel and footwear customers. They can’t tell how something will fit, so they order one size up, one size down and one in the middle to get the right fit.
“This means putting as much effort into giving consumers more information and tools on things like sizing, so that they can buy accurately the first time, as it does in punishing shoppers,” GlobalData’s Saunders said.
Amazon tried to do an end run around this with its try-before-you-buy service where a customer could order up to six items, keep them for seven days to try on, then return the items not wanted. However, it is ending the service on January 31.
Saunders suggests that Amazon found the service actually increased the rate and complexity of processing returns and has discontinued the program, hoping that AI-enhancements to its buyer reviews and other features will reduced returns.
Other chief causes for online returns include damaged items, missing parts, items received too late/not on time and it didn’t match up to the photo/description on the website. These are operational fixes retailers should address proto.
During The Return
Despite online orders generating the majority of returns – accounting for 53% of the $685 billion in returns, according to Appriss/Deloitte – the percentage of online returns handled exclusively online (BORO or buy-online-return-online) is 10%, only slightly higher than the 9% return rate for in-store returns.
Online and in-store consumers alike prefer to conduct returns in person, called buy-online-return-in-store (BORIS). Some 60% of all online returns are made to stores, according to Appriss/Deloitte.
While the Appriss/Deloitte study gives the big picture, the NRF survey conducted with Happy Returns provides more details. Full disclosure: Happy Returns is a leader in the BORIS space. Happy Returns describes itself as a software and reverse logistics company. It was acquired by UPS in late 2023 from PayPal, the payment processor.
The customer’s returns process on Happy Returns starts online where the customer notifies the vendor of the return, reasons for it and selects whether they’d like to make an exchange, get a store credit or do a return.
They then get a barcode to send the item back, either printing a returns label, packing it and shipping by mail or bringing the item to a Return Bar located in more than 5,000 UPS Stores or at nearly 3,000 store partner locations. The Return Bar does the printing, packing and shipping for free.
Happy Return’s Return Bars are located in Kohl’s, Staples, Whole Foods and other locations and they accept returns from brand partners, including Amazon, Levi’s, Lands’ End, Figs, Everlane, Shein, Allbirds, Fabletics and others.
Once Happy Returns receives the item, a credit or refund is immediately made, a key reason why customers favor the BORIS option, plus it eliminates the need for packing.
After The Return
Finally, the retailer must decided what to do with all that returned merchandise. Those in original packaging and with labels may be suited to return to the shelf after examination, but a lot more may be bundled to send to liquidators or end up in landfills.
For example, The American Productivity and Quality Center (APQC) estimates that about 45% of returned merchandise is resold through various outside channels, such as outlet stores, foreign markets, or at different prices. And RetailDive reports that more than 11% of returned apparel items are sent to landfills.
This is where various reverse logistics firms come into play depending upon whether the item is suited for repair/refurbishing, resale through secondary markets and liquidators or recycling or reuse of parts.
However, too many returned products still end up in landfills, as the Netflix Buy Now: The Shopping Conspiracy reveals. The documentary takes viewers behind the scenes to show how brands get rid of unwanted, unsellable merchandise.
“Consumers are increasingly aware of the environmental impact of returns, such as waste from disposed products and emissions from reverse logistics,” Colorado State University College of Business professor Johnathan Zhang shared with RetailDive.
No Easy Fix
ReturnPro’s Shamiss, who’s devoted his career to reverse logistics since founding his company in 2008, is convinced that returns can be reduced if retailers take a three-pronged approach before the sale, during the returns process, then afterwards.
Preventing returns as much as possible is the first line of defense. “Every percentage you can shave off returns goes directly to the net margin of the business,” he said.
But even if a retailer gets returns rates down, they are inevitable so making the returns process as easy and painless as possible is the goal. The more stringent returns policies many retailers are putting into place may backfire, as GlobalData’s Saunders warned.
And afterwards, the goal should be to get as much product as possible back into productive, profit-turning inventory.
“The most important thing is to bring that return back to life and get the product back onto retailers’ shelves. We are in the life cycle business of returned merchandise. The goal is to bring each item back to life,” Shamiss concluded.
Read the full article here