Rising Retail Returns Outpace Growth of Online Sales

After weeks of speculation and reporting on what the post-holiday period known as “returns season” might look like, we now have a number: $761 billion.

To borrow from the parlance of NASA, “Houston, we have a problem.”

Read more: Why Retailers Should Pay Consumers to Keep Their Holiday Returns

See also: Retailers Test Discounting, No-Return Policies to Keep Goods With Consumers

While that figure published in a Tuesday (Jan. 25) National Retail Federation (NRF) press release is an annual tally, it is nonetheless startling in its size and remarkable in its growth.

Let’s consider that number for a moment. The value of all those returned sweaters, unwanted gadgets and poorly-fitting pants is not only larger than the entire GDP of Switzerland, this pile of unwanted goods is also growing about five times faster than the 11% increase in online sales PYMNTS research projected for retail’s end of the year busy season.

According to the NRF’s survey of 57 retailers conducted between mid-October and mid-November, the total rate of returns jumped 6 percentage points in 2021, to 16.6% from 10.6% the year before. The retail industry’s leading trade group also reported that the 20.8% rate of online returns held steady, although the dollar value of those sales and returns continued to grow.

“Retailers must rethink returns as a key part of their business strategy,” said Steve Prebble, CEO of Appriss Retail, a California-based firm focused on data analytics and sales optimization. “Retail is dealing with an influx of returned items. Now is the 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.”

Forward Thinking on Reverse Logistics

While sight-unseen online purchases have historically and predictably run higher than their in-store equivalents, the new findings paint a fresh picture of a problem that has truly become too big and costly to ignore as eCommerce sales account for a larger and larger slice of the overall retail sales pie.

For example, according to the trade group’s data, online sales returns not only amounted to $218 billion of the total $1 trillion returns problem, digital sales also carried a much higher cost to process as well as a significantly large percentage (10.6%) that were the result of many different types of fraud. This included “wardrobing” — or wearing an item once and returning it — as well as the unreceipted return of stolen merchandise and employee theft or collusion.

In dollar terms, the NRF said for every $1 billion in sales, the average retailer incurs $166 million in merchandise returns and loses $10.30 on every $100 in returned goods received, which is up about 17% from 2019 levels.

The Silver Lining

To be sure, retailers and the growing reverse logistics industry are aware of the problem and working to find a way to slow it down, whether through the use of better pre-sale digital sizing tools, limitations on free shipping/free return policies that encourage redundant buying, as well as improved reverse logistical planning systems that prepare in advance for returns the moment an item is sold.

“I don’t think the distribution centers in general are even close to being prepared for the returns that they are seeing and are going to continue to see,” Keith Phillips, CEO of Voxware, a New Jersey-based provider of warehouse automation and supply chain analytics, told PYMNTS in an interview earlier this month.

Read more: Retailers Still ‘Aren’t Even Close’ To Being Prepared for Peak Return Season

While few would argue that assertion, there is a long-standing fear in the industry of doing anything that might disturb the digital momentum that consumers increasingly have come to prefer when they shop for everything from apples to outfits.

However, the NRF sees the return problem as something that co-exists alongside a selling opportunity, noting that — if handled well — returns can actually improve the customer experience and serve as a way to “sell to a known customer,” pointing out that for many retailers, “the best shoppers often make the most returns.”