As we turn our eyes to 2022, online shopping has become more popular than ever before. In fact, worldwide e-commerce has more than doubled in the last five years, rising to US$4.8 trillion in 2021.
Experts predict this figure will hit $6.3 trillion in 2024. On its face, this sounds like exciting news for online retailers—and on the whole, it is.
Still, this promising trend isn’t without a downside: returns. As e-commerce grows, it’s only natural that e-commerce returns do as well. Unfortunately, this trend can cost retailers quite a bit.
In this article we’ll discuss what’s driving return rates up, how e-commerce returns threaten retailers’ bottom lines, and what retailers can do to survive this trend.
What retailers face
In 2020, consumers returned $428 billion worth of merchandise, a bit over 10 percent of total retail sales. Most experts estimate that e-commerce return rates are much higher—somewhere in the 15 to 30 percent range, meaning that online retailers are being hit especially hard.
Over the last several years major retailers have acted on this issue. In 2018, Amazon reportedly began issuing warnings and bans for customers they deemed excessive returners. In that same year, L.L. Bean famously put an end to their generous lifetime return program. They blamed those who abused the policy and returned heavily used decades-old items for full credit.
Although this problem differs from today’s buy-five-return-four practices, it demonstrates that retailers are highly aware of how product returns affect profits.
For better or worse, retailers don’t seem to have much of a choice in the matter — consumers have made expectations clear.
Why e-commerce returns are soaring
Any serious player in the e-commerce space knows it—shoppers demand convenient returns processes, long return windows, few questions asked, and full cash refunds. And they surely do notice when a store falls short of their standards. One study reported that 72 percent of shoppers say return policies directly affect ultimate buying decisions.
So what factors continue to fuel this return-everything mindset?
Pandemic complicates buying
For the last two years, in-store experiences have been somewhat limited by a global pandemic. Many brick-and-mortar stores reduced operating hours, cut back on staffing, limited foot traffic, and imposed distancing rules. Similarly, shoppers themselves have been nervous about exposure to crowds, often deciding on their own to avoid in-person shopping.
Naturally, when you can’t compare or try on items in person before buying them, there are a number of problems that can occur. One example is that the item may not fit or suit your particular needs. For many, the simple task of buying a pair of pants involves bracketing—ordering several pairs online and returning all but your favorite. This is common with apparel, but can also occur for tools, appliances, furniture and more.
Hard times for consumers
Many people have lost jobs and income as a result of the pandemic and have discovered ways to alter their shopping habits—including a newfound appreciation for second hand gifts. Simply put, consumers may not have the disposable income they once did. With rising costs leaving less room for luxuries in household budgets, shoppers might not care to absorb the cost of an item that doesn’t fit their needs exactly. In such cases returning an item is the easy solution.
Supply chain delays
With so many items backordered and delayed, people are liable to receive their purchases after their need for them has expired. Perhaps an item of clothing you bought for a special occasion showed up after the event had passed. Or perhaps a holiday gift didn’t arrive in time for your celebration and you bought something else in the meantime. In such scenarios, the buyer will opt for a return—and this issue is predicted to persist for some time yet.
The true cost of returns
As retailers know, a store isn’t made whole just because it has received its goods back. A returned item must goes through many complex steps, all of which can involve significant costs to the business:
- Receiving and transport, requiring cross-country trucking, processing facilities, and scanning and sorting equipment
- Inspecting and repackaging, requiring employees to spend time unpacking items and ensuring they are fit for circulation
- Inventory management, relying on electronic platforms to track stock for accounting and forecasting purposes
- Reshelving and rebinning with painstaking accuracy so that items can be found and shipped again
These processes can vary per-store based on business model, items sold, automation level, and more. But if a company plans to remarket its returns, these steps need to occur in one way or another. It’s not uncommon for retailers to actually lose money in this process.
How to deal with returns in retail
While the very largest retailers shoulder the cost of excessive returns — sometimes refunding with no return required — countless smaller operations can’t. With much smaller margins and less tech capital, such businesses can’t afford to cut their losses or buy into expensive return processes.
Business leaders now search for solutions to discourage high product returns and more easily process what they receive back. Here are some alternative options they consider.
Tighten e-commerce return policies?
As mentioned, big-name brands have experimented with tightening return policies in past years. This ranges from simply shortening return windows to eliminating prepaid return shipping to blacklisting shoppers as Amazon has done.
But at this point, it’s clear that generous return policies are simply table stakes for all but low-volume boutique retailers. There is enough competition to provide buyers other choices if they perceive your policies as unfavorable. And considering in-person shopping isn’t yet back to pre-pandemic levels, this option is a bold and potentially dangerous course for businesses.
Leverage new technologies
Emergent technologies like artificial intelligence (AI) and machine learning (ML) are also gaining traction with retailers suffering from excessive product returns. These tools can make better suggestions to consumers, making it more likely they order what they mean to the first time. AI and ML have the potential to optimize transportation logistics for retailers and consumers, ultimately reducing the time and money spent processing returns.
Another new technology that shows great promise is augmented reality. With AR-enabled shopping apps, customers can project a piece of furniture or appliance into their home with just their phone’s camera. Love it or hate it, you’ll have a much better idea of how it will look when it arrives.
Sound gimmicky? Perhaps not — numerous companies have AR tech to thank for driving e-commerce returns down by as much as 40 percent.
These solutions do, however, have barriers to entry. They are no doubt expensive, requiring large up-front investments before a retailer can realize the value. Further, a business certainly won’t be able to implement them overnight. Long term, AR and ML might serve you, but they won’t bring immediate relief if you’re just looking to stay in the black this season.
Look to the Secondary Market
Come the end of the holiday season, retailers will be positively inundated with e-commerce returns. As a mainstream retailer or conventional online store, your core business is stocking and selling the hot new products, and anything else distracts from that mission. An outlet for this problem that too few consider is the secondary market.
Around the world there are countless small businesses that thrive on buying returned, unsold, and lightly used merchandise and reselling it to their own customers. These entrepreneuring folks are ready to take on the burden of inspecting and remarketing your opened and aging wares, making a tidy profit while helping you save time and recover losses.
For many, a powerful B2B online marketplace is the best solution to returns.