Returns are part of the retail business as consumers often change their minds after making a purchase. In 2018, the value of returned merchandise in the U.S. totaled nearly $369 billion. That did not include retailer overhead for restocking or shipping back to the vendor in some cases. A new report by Appriss Retail analyzed the impacts of returns on retailers and state economies.
The report found Arkansas retailers processed $3.73 billion in returns last year. That equates to a little more than $200 million lost in sales tax revenue when consumers request refunds for the unwanted purchases.
The report also looked at fraud-related returns and calculated the Natural State lost more $12 million in sales tax revenue from the fraudulent returns. The report found for every $100 in returns, retailers lost $5 to return fraud throughout the year. At the holidays, that amount was estimated to increase to $6.50.
Following the recent holiday, Appriss reports on average 10% of the $719 total sales will be returned. The median return is $72 per item. Fraudulent returns are typically those made without a receipt. The National Retail Federation (NRF) said 21.1% of non-receipted returns are fraudulent. A larger problem for retailers are returns ordered online and returned in store. The NRF said 28.8% of omnichannel retailers report an increase in fraudulent buy-online-return-in-store (BOPIS) returns.
The majority of fraudulent returns involve stolen merchandise (77.3%), while employee return fraud or collusion with external sources accounts for 63.6% of fraudulent returns. The report said about 32% of returns are for merchandise already used, like apparel worn one time with tags still in place.
The report closely examined return rates by category and by retail stores. Appriss found drug stores/pharmacies showed a 2.14% blended return rate, while auto parts retailers had the highest rate of returns at 22.58%. The NRF said the median return rate for retailers is 10% and Appriss said most retailers were within two or three percentage points of the median.
Appriss Retail President Krishnan Sastry said retailers who are equipped to handle returns efficiently and effectively for consumers can build loyalty.
“How a retailer responds to shoppers in the store has a lasting impact on its relationship with the consumer,” Sastry wrote in the report. “Since a return is a lost sale it may not always be viewed as the customer service moment that it can be, especially for items purchased online and returned in the store. We hope that the report opens the door to further discussions about how retailers can improve their customer experience while reducing the associated losses.”
The report found 11% of all online purchases are returned in stores. Sastry said omnichannel shopping increases the complexity of returns. Many retailers report seeing more online purchases returned to physical locations.
He said returns are challenging for the retail industry as they represent lost sales, increased labor costs for processing and restocking, they can increase markdowns and can be a breaking point between a customer and a retailer if not handled well.
Sastry also wrote that returns can represent opportunities for retailers as the point-of-sale is a “real customer service moment of truth.” He said returns are an opportunity to cross-sell or up-sell a known customer. He adds in-store returns can be a chance to convert an online buyer to also shop in brick and mortar.