After a strong holiday shopping season, with overall US retail sales up a strong 4.9% and online sales up 18.1%, accoding to Masrercard, retailers are bracing for a flood of returns—and not just at the customer service counter.
The National Retail Federation estimates that 30% of items bought on-line end up being returned, versus 9% of items bought in stores, though of course those numbers vary by type of merchandise. Apparel items, for example, have high return rates, with some on-line shoppers even buying multiple sizes of an item, keeping the one that fits and returning the others.
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UPS recently said it was on track to return a record number of packages this holiday, having handled more than 1 million returns to retailers daily in December. That pace is expected to continue into early January, UPS said, and would likely peak at 1.4 million on Jan. 3, which would be a fifth consecutive annual record, up 8% from this year.
As a recent article in the Wall Street Journal notes, this year traditional and on-line retailers have expanded the number of locations and routes consumers can use to return merchandise, from in-store kiosks and lockers to the mall concierge, grocery stores, parcel shipping locations and at-home pickup.
For example, Amazon has expanded options for in-person returns with its growing network of 2,000 locker locations, including 400 at its Whole Foods stores, where customers can drop off items to be returned. Amazon has also worked out a deal with Kohl's department stores in some markets, which are accepting returns of Amazon goods bought on-line. The number of Kohl's stores that will process Amazon returns will grow in 2018, the companies announced last year.
Walmart now offers what it calls Mobile Express Returns kiosks, where it says customers can complete a return for an on-line purchase in less than five minutes and receive a refund within a day or so. What is interesting here is that this process is much faster for on-line purchases than for items bought in-store.
Why? Because the Walmart system has all the data relative to the on-line purchases that it does not for items going through a store point-of-sale system.
Both on-line and traditional retailers are caught between a rock and a hard place, as customers demand smooth and easy returns process, while the volumes and costs associated with returns soar with the grown of ecommerce.
Whether received at a store, a traditional DC, or a facility set-up – perhaps using a third party operator – specifically for returns, retailers must decide how returned merchandise should be handled. This can get very complex, as retailers and often their vendors have specific rules about returns dispositions, and of course the goods have to be inspected for damage, salability and other attributes.
The Wall Street Journal article says it is far less expensive generally for retailers to process returns in store, even for items purchases on-line, versus processing those returns in a distribution center. Items returned to the store cost a retailer roughly $3 to process and are available for resale within a day, according to the consultants at AlixPartners. By comparison, items shipped back to a distribution center or third-party logistics provider cost $6 or more to process and take at least four days before they're available for resale.
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 In this scenario, many retailers also are seeing advantage for by implementing technology – such as what are called Distributed Order Management (DOM) systems – that can know what SKUs have been returned to what stores, even if the store doesn't normally carry that item. If the store supports fulfillment from that location, an on-line order can often be sourced from a store rather than a traditional distribution center, in a model sometimes referred to as “saving the return,” versus disposing the returned item or sell it at a steep discount.
In-store returns also benefit retailers because customers often make additional purchases after bringing back unwanted gifts.
But in total, the cost of returns to on-line merchants is very high. In fact, Mark Cohen, director of retail studies at Columbia Business School and a former chief executive of Sears Canada, recently told the New York Times that "This is principally a reason why many retailers aren't making any money."
Dealing with this reality, in October, Amazon paid a reported $50 to $70 million to acquire Body Labs, a start-up specializing in technology that allows shoppers to create 3-D avatars for trying on clothes online – hopefully reducing the number of returned items as a result.
Just as with fee shipping, generous returns policies are fueling the continued rapid growth of ecommerce – but providing real challenges to the bottom line.
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