The Supply Side: Costs, opportunities factors with holiday return policies

According to the National Retail Federation (NRF), holiday retail sales are likely to be 6% to 8% higher than last year. Online sales are forecast to rise 10 to 12%. Higher online sales also tend to mean increased return rates which can be costly to retailers and their suppliers.

NRF reports that retailers incur $166 million in merchandise returns for every $1 billion in sales. The return rate in 2021 was about 16.6% of total U.S. retail sales, or $761 billion in returned goods. Retailers also lose $10.30 to return fraud for every $100 in returned merchandise accepted, according to the retail trade association.

With retailers recently reporting mixed results and many forecasting lower income for 2023, market watchers say fewer businesses can afford rising return costs. Stores typically offer free returns for holiday goods, albeit with some exceptions. However, some companies are rethinking their online sales return strategy because of rising transportation and other costs.

Research and advisory firm Forrester reported that returns are costly for retailers because, in most cases, the returns must be marked down or sold to wholesale discounters. The strategies several retailers adopted for this holiday season include shortening the window for returns and no longer covering higher shipping costs with reverse logistics.

Forrester consultants said it’s a delicate balance for retailers who don’t want to alienate customers but must protect margins pressured by inflation.

“Everybody wanted to have, like, a super liberal return policy just to be competitive with e-commerce companies like Amazon and others,” said Sucharita Kodali, an analyst at Forrester. “But now about 30% of clothes and shoes bought online are returned. A huge carbon footprint is associated with it, and that’s a huge cost that companies tend to eat.”

CHARGING MORE
J.Crew has instituted a fee for online returns. J.Crew will charge a flat fee of $7.50 for online returns this holiday season. Apparel retailer Zara said customers who return products at third-party drop-off stations will be charged a $3.95 fee. Upscale teen retailer Abercrombie & Fitch said customers are charged $7 if they use the company’s reverse logistics services rather than returning an item to the store in person.

At Anthropologie, REI and LL Bean, which also once promised lifetime returns, there’s now a $6 fee for mailed returns with a prepared mailing label.

“These adjustments in return policies are not there to cover costs,” said Spencer Kieboom, CEO of Pollen Returns, a reverse logistics company. “It’s an effort to recoup a bit of the money lost.”

Aside from charging fees, retailers such as Gap, Old Navy, Banana Republic and J.Crew have shortened their return window to 30 days.

Forrester said free returns were once table stakes for e-commerce players, but tighter margins, labor constraints and higher shipping costs push more retailers to cut back on the freebies offered. Forrester said charging a return fee may be more palatable than raising prices.

Kohl’s also recently said that for online orders, the customer is responsible for shipping items back to the retailer’s fulfillment center using a parcel carrier of their choice. In-store returns at Kohl’s are designed to be “Hassle Free,” the website states.

“Our Hassle-Free policy makes it easy for you to exchange items or receive a refund for most merchandise up to 180 days after the original purchase date.”

RETURN OPPORTUNITIES
Other retailers like Walmart and Amazon have another view about reverse logistics.

“While retailers have indicated that they are seeing an increase in items returned to stores and online, the upside is that it also provides them with additional opportunities to connect further with customers and provide a positive experience,” said Mark Mathews, an NRF industry analyst.

Optoro research found that 97% of consumers will shop at a retailer again after having a positive return experience. Optoro also found that in February, 34% of the top 100 retailers surveyed said improving customer experience and reducing returns and lost sales were top priorities in 2023 and beyond. The survey also found that 44% of retailers said customers who make frequent returns also have a higher lifetime value, creating an easy return policy more palatable.

Aside from not charging for online returns, another benefit more retailers are working toward offering is faster credits. Optoro research shows 60% of the retailers surveyed said it takes between three and seven days for customers who made a return to receive their refund or credit. The longer the wait, the more time customers have to rethink their purchase and go elsewhere, Optoro warned.

Walmart and Amazon have among the most liberal return policies this holiday season because each retailer has said they see the importance of consumer convenience.

Walmart’s “Holiday Guarantee” allows anything purchased after Oct. 1 to be returned with a receipt through Jan. 31, 2023. That includes electronics and Marketplace items. The retail giant also allows in-store returns for online items, which Walmart fulfills. Debit and credit card refunds will be available in up to 10 business days or can be processed as cash, Walmart notes on its website.

Walmart also notes that most online purchases can be returned for free by mail. For the first time, certain Walmart+ members in select stores will also be able to have returns picked up from their doorstep.

Amazon recently updated its return policy, giving customers until Jan. 31 to make a return for any items shipped by Amazon.com between Oct. 11 and Dec. 25. The policy varies for specific categories of purchases or items not shipped by Amazon.

Amazon’s drop-off policy at Kohl’s, Whole Foods or UPS stores with no box or packing required is designed to be hassle-free. Amazon returns begin online, and the customer has to show the attendant at the drop-off station the return code sent to them from Amazon via email. In most cases, shoppers are credited immediately with gift cards, or they can receive refunds to credit and debit cards within two business days on average.

Target said it offers “free and easy returns on most new, unopened items” within 90 days of purchasing an item. The company also extended its return window for specific products to the end of January. There is no fee associated with returning items by mail, Target said.

Like Walmart, Target said it will allow shoppers to return items curbside without a designated time window through January 2023.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.