Last updated: Online returns: Holiday returns take huge bite out of e-commerce profits

Online returns: Holiday returns take huge bite out of e-commerce profits


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With the holidays behind us, consumers are busy returning all those unwanted gifts. But holiday and online returns, like most things these days, aren’t what they used to be.

Soaring e-commerce sales combined with continued supply chain issues are complicating online returns for retailers and consumers alike.

While online retailers enjoyed robust sales over the holidays, they’re now faced with increased returns amid rising logistics costs. Consumers, meanwhile, are finding that it’s not always easy to return something they bought online during the holidays, with varied return policies and overwhelmed shipping systems.

Online holiday returns on the rise

Online holiday retail sales in 2021 jumped 11% compared to 2020, according to the Mastercard SpendingPulse report released in late December. E-commerce made up almost 21% of total retail sales, up from 10% in 2020 and 14% in 2019, Mastercard said.

CBRE estimates that $66.7 billion worth of online holiday purchases will be returned and pushed back into the strained supply chain. That’s up 13% from last year, and nearly 46% above the previous five-year average.

The return rate for e-commerce sales can be as high as 30% compared to 10% for brick-and-mortar sales, according to reverse logistics company Optoro. A report from the National Retail Federation a year ago showed that online returns more than doubled in 2020 from 2019.

Factoring in transportation, processing and other losses, holiday returns will cost retailers two-thirds the price of the original item, Optoro estimates. The returns process is a complicated affair involving assessments, transportation, distribution centers, and factories.

The surge in returns mean mounting challenges for retailers, which have been grappling with labor shortages and higher logistics costs due to pandemic-induced supply chain issues.

A survey by the Reverse Logistics Association showed that more than half of those polled expected the cost of returns to rise in the fourth quarter of 2021, citing rising transportation and warehousing costs and capacity constraints.

E-commerce fail: Why online shoppers return items

All the online returns aren’t all that surprising, given how many things can go wrong when you buy online. When you can’t see or touch an item, it’s easy to order something that doesn’t live up to your expectations.

A recent Voxware survey provides insight into why online orders are returned:
  1. Wrong item: 41% of survey respondents said they returned a product because the retailer sent the wrong size, color or wrong item altogether.
  2. Late delivery: 26% of consumers polled said they returned items because they arrived later than promised.
  3. Wrong again: More than half of respondents said they returned an incorrect order, but received the wrong item the second time around.
  4. Return by mail: 56% said they prefer to return products using a pre-paid postage label.

How a retailer handles returns heavily impacts whether a buyer will return, Voxware also found. Nearly all of the consumers polled said they agree that the way a retailer manages returns influences whether they’ll made another purchase from that retailer.

Clearly aware of the connection between a positive return experience and customer loyalty, many retailers are extending their return policies. Still, it’s not hard to find consumers taking to social media to complain about a poor returns process.

Other consumers have run into problems with overwhelmed shippers when they tried returning items they bought online over the holidays, a Houston TV station reported. Some retailers have been using third-party shippers instead of FedEx and UPS, especially for large items, according to the report.

Solving the returns problem

While better logistics and returns management are essential for streamlining returns, online retailers can take steps to reduce returns:

  • Making sure online product descriptions are up-to-date and accurate
  • Include high-quality product visuals and 3D modeling
  • Use augmented reality to allow virtual try-ons or tests before purchase

“The solution starts with consumer-use data, product/packaging design and operational data to better understand why an item was returned and how that should effectively influence the retailer’s product offerings,” CBRE said in its report.

Gaining visibility into inventory, fulfillment, service, supply chain and logistics through customer data also can help online retailers better manage returns.

Solving the returns problem is becoming more and more urgent, not only to stem business losses and prevent customer frustration. The environmental costs of returns is huge. According to Optoro, returns produced 5.8 billion pounds of waste and 16 million metric tons of CO2 emissions.

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