Online sales boom may create holiday sales return challenges for retailers

by Kim Souza ([email protected]) 217 views 

Brick and mortar retailers vying to grow online sales may face more challenges related to returns this holiday season, according to an analysis from Deloitte that says return rates for online purchases could exceed 30%.

Projected e-commerce holiday sales are expected to top $64.7 billion this year and while it’s 6.7% of the total holiday spending, product return rates for online purchases are expected to top 30%. That’s more than three times the 8.89% return rates for brick and mortar purchases in 2014.

A report by packaging indicates that $19.4 billion of e-commerce sales will be returned following this holiday season, creating issues for consumers and retailers alike. The report also examined consumer and retailer attitudes regarding online purchase returns.

The most common reason consumers say they don’t shop online is the return process. Experts say a difficult return protocol is the last thing any retailer should want because 85% of customers will not do repeat business with a company if returns are complicated or inconvenient. Conversely, the report found that 95% of customers will do repeat business if there is an easy return process.

Supply chain expert Annibal Sodero, a professor at the University of Arkansas, said retailers have to factor in return logistics because it’s important for consumers.

“Take Zappos for instance, they know they will get a lot of returns which is normal for shoe and clothing companies. Zappos has a very liberal return policy (365-days to return the merchandise for any reason in its original condition). They built the return costs directly into their business model,” Sodero said.

Zappos rarely wins on price, but the service has become their calling card. They offer free shipping, and free returns, which allows consumers to buy more freely knowing they can always return the product without a hassle.

“Amazon has figured it out as well, they don’t have stores, but their supply chain is very efficient running both ways,” Sodero said. “If you buy some products from Amazon that are defective, they will not require that you send it back. They will simply send you a new product. This saves them money because anytime a product has to be handled or shipped back there is cost. It is also way more expensive to send back a single item as  opposed to a bulk order like those being return from stores.”

Wal-Mart has said several times in recent weeks that its online shoppers spend more than those who just shop in the brick and mortar stores. The retail giant is trying to attract more online sales with free pickup in-store on everything from groceries to household goods, apparel and electronics. But it will not offer free shipping for online orders valued at less than $50 this holiday season, despite competitors efforts to provide free shipping without order minimums.

While initial free shipping is important to consumers, free and seamless returns matter even more, according to the report.

Two out of three shoppers said they would buy more online if returns were free. The report said retailers that introduce free returns typically saw a 58% to 357% in sales increase during the past two years. Conversely, retailers asking shoppers to fund their own returns experienced a 74% decline in sales over the past two-year period.

Sodero said retailers that have not merged online and brick and mortar inventory systems are the most challenged with providing seamless returns. He said retailers like Wal-Mart or Walgreens that have thousands of physical locations could easily offer return to store if their systems were integrated. Macy’s has done by that providing for seamless returns to stores for orders purchased online.

The biggest reason consumers return products is because they don’t meet expectations. The report found that several online retailers have seen benefits by helping consumers understand what they are buying on the front-end of the transaction. Petco saw a 20.4% reduction in online returns when product reviews became available to the online shoppers.

Apparel retailer ASOS achieved a 50% decline in online sale returns after introducing a sizing app that compares items shoppers are viewing to those they already own. Other retailers who imbed video demonstrations of the product in use have said it helps reduce returns related to unmet expectations.

The report found that 62% of Americans will check the return policy before they make a purchase online. Sodero and other experts said retailers need to show transparency and fully disclose return policies online along with the costs, because the last thing a retailer can afford to do is alienate good customers over a lousy return experience.

Following is the top items customers want related to returns.
• 62%: A return label in the box
• 61%: Easy-to-print return labels
• 57%: Automatic refunds
• 51%: Free return shipping
• 47%: Easy-to-follow procedure