In many households, the following scenario is something of a Christmas morning ritual: Pry the gift wrap off your present from Grandma. Feign some “oohs” and “aahs” over the shaggy sweater with the loud pattern. And then subtly paw around the box in hope that there’s a gift receipt so you can return it for something you really want.
It’s this consumer mindset that makes late December and January the busiest time of year for merchandise returns. And while retailers have long had to grapple with the logistical hurdles of accepting and processing a glut of unwanted items, retail and supply chain experts say that the rise of e-commerce has greatly intensified the challenges. Online purchases tend to have a significantly higher return rate than in-store ones, leaving retailers to figure out how to adjust their inventory and labor strategies.
About 23 percent of all returns take place during the holiday season, according to Optoro, a company that helps retailers improve their “reverse supply chain.” Tobin Moore, Optoro’s chief executive, estimates that’s nearly $60 billion worth of goods.
While many retailers see a 5 to 10 percent return rate on in-store purchases, Moore said the return rate for online purchases is higher–typically 10 to 15 percent. For apparel brands, experts say the online return rate can be much higher, in many cases closer to 20 or 30 percent.
A deluge of returns can be expensive for retailers, and not just because they’ve lost the initial sale. They’re often footing the bill for return shipping. To re-sell the item, they might have to put it on the sale rack at a reduced price or take it into the secondary market–an outlet store, perhaps, or a discount retailer such as T.J. Maxx. And they’re also incurring labor costs for unpacking, processing and restocking the goods.
But despite the costs, retailers have come to view flexible, easy-to-understand return policies as table stakes for competing online.
“When we first started in e-commerce, the thinking was, ‘We’ll make it as hard as possible [to return] because then the sales will stick,'” said Maria Haggerty, chief executive of Dotcom Distribution, an e-commerce logistics company. “As e-commerce has evolved, the retailers have realized that customer acquisition is such a huge cost, that if you get one sale from them, you don’t want to lose them” with a frustrating return policy.
That’s why some retailers are working now to streamline their processes, providing shoppers with pre-paid return labels for online purchases and trying to reduce the number of steps it takes to complete the return. Overstock.com, for example, recently trimmed its return process from 12 steps to three.
Even as retailers focus on making the process more convenient for shoppers, a perhaps more important goal is to prevent them from having to make returns in the first place.
Overstock’s president, Stormy Simon, said the online discount retailer is focused on improving its product photography and descriptions so consumers know more up front about what they’re getting.
“The more savvy that consumers become with researching their items, the better off it is for all of us,” Simon said.
Many shopping Web sites, including Nordstrom, Boden and Land’s End, are now offering “fit predictor” tools that help shoppers figure out their size. While these offerings are geared at bringing customers a new convenience, analysts say they are also likely aimed at stemming the tide of returns by reducing the number of customers who buy the same item in several different sizes with the plan of keeping only one.
Customer reviews, too, are part of retailers’ strategies to cut back on returns. Analysts say that innovative retailers are parsing this feedback to help with future merchandising plans: Perhaps it can tell them if a certain style of pants is running large or a fabric is pilling in the wash.
“Even if you get [returns] down, you want to know how to get them lower,” Simon said. “The good news is I’m not alone. The whole world is trying to figure that out.”