Retailers Should Brace for a Tidal Wave of Returns
(Bloomberg Opinion) -- Americans are in the final sprint of a record year of e-commerce spending, filling their digital carts with holiday gifts and decor in a year when public health concerns are keeping them away from stores. That online haul, though, foreshadows an unfortunate aftershock for retailers: A potentially unprecedented deluge of merchandise returns.
Online purchases have long had higher rates of returns than those for goods bought in stores, for obvious reasons: When you don’t try on or test a product before buying, you’re more likely to make a regrettable purchase. With e-commerce spending expected to grow 35.8% in the U.S. this holiday season, the safe bet is that returns will surge, too. Optoro, a so-called reverse logistics company that helps retailers manage returns, estimates $115 billion of merchandise will be returned between Thanksgiving and the end of January, compared with an estimate of $100 billion last year.
This creates fresh challenges for stores whose supply chains and in-stock positions have been strained for the better part of a year by greater demand in their e-commerce channels. The ones that adapted to higher return volumes early in the pandemic and have worked to make the experience more seamless for shoppers are better positioned to weather the onslaught.
Even before the pandemic, managing returns was a feat of logistical acrobatics, given that some items can be put back on shelves, some must be refurbished, and others go to landfills. Now, though, the choreography has new twists. Consumers are returning bigger items such as furniture and appliances. Sender Shamiss, the chief executive officer of reverse logistics provider goTRG, said the size of items returned is up more than 200% since the pandemic began. That’s just one cause of a space crunch: Tobin Moore, CEO of Optoro, said his company has been working to help retailers find temporary space to house and process returns because they have had to reconfigure areas normally used for this purpose to fulfill outgoing online orders.
Meanwhile, when e-commerce becomes a larger share of a retailer’s business, there’s a chance that more inventory that could otherwise be sold is being trapped temporarily in the returns process. This is especially true with clothing, a category where shoppers frequently engage in a practice known as “bracketing,” or ordering multiple sizes and colors with the intention of keeping only one. Each day a returned Christmas sweater sits in a truck or warehouse before being restocked, the chance of a retailer selling it at full price dwindles.
Finally, before the pandemic, shoppers often preferred making e-commerce returns at brick-and-mortar stores, which are open at convenient hours and offer instant refunds. But now that they are consolidating store visits to avoid potential exposure to the coronavirus, some are most likely taking different paths, including mailing returns or bringing them to a neighborhood pickup point. Such changes could result in higher shipping costs for chains that offer free returns or deprive them of a chance to sell customers something else when they set foot in the brick-and-mortar shop.
Together, these dynamics create the potential for big headaches for retailers, including higher costs and lower sales. So it’s a good thing that many are rolling out changes to their systems for returns that can help make the operation more efficient while also helping ease some key consumer frustrations.
If you have returned an online purchase this holiday season, perhaps you’ve done so with a QR code by dropping off your goods at a UPS Store or other location, having the code scanned and walking out. (Depending on the retailer, you may or may not have had to box up the goods before dropping them off.) This format is becoming used more widely; Narvar, a company whose technology helps retailers manage returns, said in a report it has seen a 60% increase in use of QR code returns since the onset of the pandemic.
In part, the move to embrace QR code returns is about pleasing customers, who say packaging up boxes and printing labels are frustrating parts of returning online orders. But it’s not all about keeping shoppers happy. With QR code returns, retailers don’t have to pay to print return labels for every order. With box-less returns, the jeans a customer just brought back can be bundled with the scarf somebody else just dropped off, creating fewer individual boxes to unpack at a warehouse and allowing returned goods to be packed more tightly on a truck. No wonder Amazon.com Inc. gives customers this option, as does Cole Haan.
Retailers have other good reasons to ditch the printed return labels and instead direct shoppers to a more digital-centric returns process. Some chains have moved to a system in which customers must first go online and answer questions about why they’re making the return. This gives them data that is helpful in myriad ways, such as alerting them that a certain style of jeans runs big or a set of towels isn’t meeting quality expectations. But these questionnaires can also help them make returns more efficient. If a shopper tells a retailer, for example, that she’s returning a jacket because she didn’t like it, the retailer might route it somewhere different than if the jacket has a defective zipper — a detail that means it probably can’t be resold. Gap Inc. and Macy’s Inc. are among the chains now embedding such questions in the returns process, and others should rush to join them.
These returns innovations would have been needed even without the pandemic-fueled rush toward online shopping. But they look even more essential now. Urgently revamping these processes is a worthwhile investment for big-name chains, especially those in the clothing business.
I, for one, have made a bunch of failed online holiday purchases this year, including tree-shaped candles that looked green on screen but looked blue in real life; boots that made my feet look like Ronald McDonald's; and a set of pocket-sized books that I mistook for larger ones.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.
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