The Supply Side: Retail returns increase despite higher fees, other deterrents

There is no such thing as free retail returns for online orders. The retailer or online seller often absorbs the costs. For example, Amazon Prime members get free returns with no package or label needed when returned to a partner like a UPS store or a Kohl’s retail counter.

In the recent holiday season, U.S. online sales totaled $221.1 billion, according to Adobe Analytics. And between 20% and 30% of items will be returned to the retailer, according to Shopify.

According to data from supply chain management company Blue Yonder, easy return policies from Amazon and others for online orders have backfired as consumers admittedly purchased more items via e-commerce, knowing they could quickly return them if they changed their minds.

Blue Yonder recently surveyed retailers about e-commerce returns and found that 89% had instituted higher restocking and shipping fees and shortened return windows in the past year, but that did not deter consumers. Blue Yonder reports that despite tighter restrictions, 59% of retailers experienced an increase in the rate of returns over that same period, which cut into margins. The survey reports that 63% of retailers need help managing returns as customers increasingly shop online.

The report also found that retail product categories that traditionally have not experienced high return rates for in-store purchases now see increased online return rates. The sporting goods and outdoor equipment category had return rates up 76% year over year. Online cosmetics return rates rose 73%, while toys purchased online saw a 68% jump in return rates last year, according to Blue Yonder.

“These findings indicate that while retailers have tightened their policies, consumer returns are still increasing,” said Shannon Wu-Lebron, vice president of strategy at Blue Yonder. “This proves that putting the onus on consumers is not necessarily the solution to control returns. Instead, retailers should look at technology to help them find better ways to manage the returns and reverse logistics process to reduce costs, improve inventory resell rates, and protect customer loyalty.”

Blue Yonder reports that 80% of surveyed retailers prioritize improvements around the returns process as a high or very high priority. Just 16% of retailers rank improving returns processes as a medium priority. The report indicates that 42% reduced the time window during which consumers can make a return, and 36% made some items non-refundable, such as sales items.

Blue Yonder found that 30% implemented flexible return shipping charges, restocking fees, or shipping fees, which varied by the reason for the return. One in five increased their existing return shipping fees, 23% implemented a restocking fee for the first time, and 17% increased their restocking fees.

The survey also found that 63% of retailer respondents said the return fees can vary depending on the reason for the return. The least likely category to charge consumers for returns included music and film, where 29% of retailers said they never charged restocking or other return fees.

Retailers made changes to return policies to help control increasing costs and recoup a portion of the expenses via customer fees. The reverse journey of a returned order incurs many costs related to shipping and transportation, processing, restocking and customer service. As return rates increase, these costs impact the company’s profitability since retailers need to earn revenue, Blue Yonder reports.

Retailers were surveyed on the cost of returns as a percentage of the product’s original value. On average, the product categories reporting percentages higher than 21% of product values included apparel and fashion, books, cosmetics, music, sports and outdoor equipment, and crafts.

In the past two years, Amazon and other retailers have not required customers to return items to receive their refund when the cost exceeds the item value at purchase. However, the retailers keep track of refund occurrences by customers and will restrict the refund if abuse or fraud is suspected.

Despite retailers’ focus on controlling returns costs, the survey found that many retailers still rely on unsophisticated returns processes, resulting in poor customer experience and inefficiencies. Almost a third of retailers said they require consumers to contact customer support to obtain an authorization code or shipping label as the first step of their online return process. This requirement is a manual process for the retailer that can increase costs and frustration for the customer.

Blue Yonder found that was the case for 35% or more of consumer electronics, books, tools and craft purchases. One alternative method, used by 18% of retailers, is to include a returns shipping label in outbound parcels. While this offers a convenient customer experience, retailers with product categories such as home and appliances (22%) and apparel and fashion (18%) said they have little visibility or control over which items are returned and when, and will have to manually copy paper-based data about the reason for return into their systems to process the transaction and generate the credit.

Blue Yonder found that only 47% of retailer respondents used a digital solution for returns of online orders. One-quarter said they use a digital solution built in-house. And 12% said they redirect customers to a parcel carrier’s site to obtain a label, and 11% use a third-party digital solution. The majority (63%) said they offer drop-off in locations provided by a parcel carrier, such as the post office or UPS stores. Also, 40% offer partner locations for parcel drop-offs, such as Amazon, which partners with Kohl’s and its Whole Foods stores.

Retailers like Walmart, Old Navy and JCPenney offer return drop-offs in their stores, and 23% offer collection from the consumer’s home. Walmart also makes that service available for its Walmart Plus members.

To please consumers, 73% of retailers said they always provide consumers with tracking updates when making returns, and 58% process refunds automatically.

Amazon often credits consumer returns within minutes of the drop-off. Other retailers like Walmart, Sam’s Club and Costco credit the payment form immediately when the item is returned to stores or clubs. If the items are shipped back, the credit is made once the return is processed, generally within five days.

Blue Yonder found that 74% of consumers admitted to making impulse purchases when they could return the items in-store. Yet, less than half (44%) of retailers always offer consumers marketing or promotional offers as part of the returns process, and another 16% sometimes offer marketing or promotional offers.

“Offering consumers incentives to go into the store to make their returns, such as a coupon code or discount, can be a win/win approach for retailers and consumers. It also allows the retailer to put the item back into stock quicker, which was one of the metrics retailers were looking at to measure the success of their returns policy, with 30% using time out-of-stock as a measure,” Wu-Lebron noted in the Blue Yonder study.

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 Firebend.