Retailers grapple with the financial impact of the returns process

With Black Friday and Cyber Monday in the rearview mirror, retailers should soon expect a flood of returns from shoppers.

As Retail Brew previously reported, companies have very different approaches to returns, and those differences are exacerbated during the holiday shopping season. Retailers don’t like returns, but why? The short answer is the cost and logistics nightmare returns can present, but there are some things retailers could consider to recoup even a fraction of what’s lost in the process.

No turning back: Total retail returns accounted for more than $761 billion in merchandise for US retailers in 2021—nearly 20% of which occurred in November and December— according to the National Retail Federation. “For every $1 billion in sales, the average retailer incurs $166 million in merchandise returns,” according to the trade association.

Returns are largely seen as a pain point in retail, for customers and retailers. According to an October 2022 report from return logistics company Happy Returns, 79% of consumers surveyed attempt to avoid mail-in returns if they can, and 40% said they would rather sit in rush hour traffic than return an item purchased online. 

• Happy Returns offers in-person returns for online purchases, which allows shoppers to bypass mailing.

“This is really, from a consumer standpoint, about speed and ease,” David Sobie, VP of Happy Returns, told Retail Brew. “Don't make me print labels, don't make the box items up, don't make me wait in line at the post office, and most importantly, don't make me wait to get my money back.”

A pretty penny: For the most part, big box retailers send their returns back to the vendor, but it’s often a complicated process that incurs heavy costs, Sender Shamiss, president and CEO at reverse logistics firm goTRG, told Retail Brew.

• The path merchandise typically takes once a customer returns a product is: consolidation center → return center → vendor.
• And sometimes vendors cannot handle products themselves because they may not have a facility in the US or it may come from an overseas manufacturer, Shamiss added.

“The typical recovery for these big box and general merchandise items is about 15 cents on a dollar,” he said. “Take a $100 retail item, you’re recovering $15 on it. You’re recovering $15, and it’s costing you $15 to handle it. Why are you doing it in the first place? You’re better off taking the financial trashing.”

These costs may be why brands like H&M, Zara, Abercrombie & Fitch, and J. Crew now charge for returns. This year marks 10 years of FedEx raising rates by nearly 5% annually, making returns an expensive proposition across the board.

• DHL Express shipping recently announced that starting Jan. 1, 2023, rates will increase by an average of 7.9% for US account holders.
• Shamiss also mentioned that among online shoppers, “bracketing”—the practice of buying multiple items at once with the intention of keeping one and returning the rest—is an issue. It’s most common in apparel, he added.

“Being able to stick multiple items in the box before you ship them allows you to lower the cost per unit of shipping those items,” Sobie said.

So what can retailers do? For starters, Shamiss recommends his clients have a returns contract management system integrated into the company’s point of sale system, making it easier to track returns along their journey back to the retailer or vendor.

• Secondly, Shamiss advises retailers to have a warehouse management system so products can be handled in one central area without transporting it back and forth.
• Lastly, retailers need a  mechanism to push products back into retail, which is vital since roughly 30% of electronics can go back in stock immediately, per CNBC.

“The way the perfect return system should work is you should be able to follow that item in its entire financial journey and be able to reconcile from the point of return all the way to the point of resale or recycling,” Shamiss said.

The big picture: Shamiss and Sobie agreed that consumers overwhelmingly want the option to BORIS (buy online, return in-store). Shamiss pointed to Walmart, a goTRG client, offering free in-person and mailed returns within 14 days of a purchase, as a leader in the returns space.

“Companies like Walmart are making a very significant effort to change their processes,” Shamiss said. “I think they’re making a very strong, significant effort to put cutting-edge software in place and supply chain services to be able to mitigate the financial and environmental impact of returns.”