Is this just another article on returns?
Happy New Year Friends,
The retail holiday season is over and this time of year, the impact of returns on retail and their supply chains circulate through news outlets. While many of you may not have been following my articles for long, anyone writing about retail trends and news is sure to touch on this topic. But I promise, this is not just another article on returns. I want to take a look at how we got here, our current position, and what we can do to move forward. So buckle up, here we go….
Contrary to popular (read published) belief, returns are not just a holiday problem. Yes they rear their ugly head because it impacts a larger majority after the holidays, but retailers and supply chains battle with this issue year round. I get the holiday exchange/return problem….The norm has always been to return or exchange that unwanted gift ASAP. This adds to the nostalgia of the holidays and you still get that “holiday gift” feeling. Everyone likes instant gratification, but post-pandemic, returning between Christmas and New Years isn’t required.
In actuality, you have a lot more time than you think. Below is a summary of some popular retailer returns policies.
Amazon: the standard return period is 30 days, even for Amazon Warehouse items. If kept beyond 30 days, recipients can still get up to 80% of the total price as an Amazon gift card.
Walmart: 90-day return window, but an extended holiday policy for items bought between Oct. 1 and Dec. 31 extends the deadline to Jan. 31, 2024.
Target: 90-day return period, extending to 120 days with their RedCard, and a full year for Target brand items or registry gifts.
Best Buy : 15 days for returns, or 60 days for My Best Buy Plus/Total members, with specific rules for gift returns.
Macy's: 30-day return policy, but items bought from Oct. 3 onward may have a 90-day return window.
So here it is..the statistic everyone can quote by heart: According to the National Retail Federation, in 2023, Retailers took back $743B in returns. Thats a rate of 14.5%, with $101B lost to fraud. To compare to 2022 numbers, retailers saw 17.9% of the merchandise purchased during the 2022 holiday season being returned, equating to a whopping $171 billion. Here’s a statistics I like a bit more: online sales saw a higher return rate in 2023 at 17.6% compared to 10.02% for pure brick-and-mortar returns. To me this shows that qualifying a purchase leads to a better returns experience, but i’ll touch on that more in a bit.
So how did we get into the return conundrum?
According to Statista, online sales make up about 15.6% of all retail consumer sales. That number is up roughly 1% from 2022. So how does such a small portion of total retail sales, make up for such a large portion of the return volume?
In recent years, the retail industry focused on making returns as hassle-free as possible with many offering “free” returns. This, however, triggered costly consumer behavior, for instance, buying the same garment in multiple sizes and keeping only the one that fits. As the shift towards fast-fashion increased, often brand loyalty, historical sizing and fit data left with it, promoting an environment of buy many-keep one. Retail encouraged this post-pandemic, often citing “The Amazon Effect” as the culprit, but the truth of the matter is that customer buying behavior shifted towards convenience and those that kept up were rewarded. According to a goTRG study, 59% of retailers said they offer "keep it" services for returns that aren't worth collecting. Of those retailers, 27% deemed items priced up to $20 as eligible for their keep-it policy.
Return logistics is a large business and a service that is required for third-party logistics providers to stay relevant- The latest report from CBRE, global leader in commercial real estate services and investments, reveals that third-party logistics providers have become the primary leasers of U.S. industrial space, securing nearly 31% of all leases for spaces larger than 100,000 square feet in the first three quarters of the year. Over the past four years, these providers, many offering reverse logistics services, have consistently leased over 100 million square feet of bulk warehouse space annually, indicating a significant growth in their presence in the industrial real estate market.
Everywhere you look, retailers and carriers are offering drop-off location to aid in the returns process. To name a few:
FedEX - ~40K drop box locations
UPS - over 60K drop off locations, over 70K with the addition of Happy returns
USPS - over 130K blue box locations
You’re seeing retailers such as Kohl’s, Staples and The UPS Store partner with e-commerce giants like Amazon to process and accept returns.
You’re seeing pick-up and return kiosks at places like Whole Foods and gas stations. The Interactive Kiosk Market is projected to grow at a Compound Annual Growth Rate of 6.33% from 2023 to 2030, according to a report by Verified Market Research.
Everywhere you turn, money is being spent and industries being created to service….RETURNS.
So what is being done to prevent them?
Some retailers are now modifying their “free returns” policy. Amazon, for example, has implemented a $1 fee for returns in certain markets. Retailers are also placing stricter requirements on what is eligible for returns, and only accepting items in original packaging and unused condition. But is that putting a dent in the overall rate of return? The data suggests no.
Retailers are turning to the use of AI to create more of an in-store experience through their e-commerce channels. Through AI and Machine Learning, retailers are getting closer to mimicking the fit and try-on process. Companies like True Fit are decoding size and fit with AI to get “shoppers what they love, boost conversion, reduce returns and grow profitably.” Their website quotes their partnership with over 20K brands worldwide, servicing 82M shoppers and references reduction of returns due to sizing in same instances by 20%.
Augmented reality is being used to promote virtual try-on and “see it in your environment” for things like watches, sunglasses, and furniture.
Retailers are also using AI to generate product descriptions, analyze consumer feedback and reviews, and make predictions based on historical buying patterns. AI is analyzing buying trends from similar and like items to give consumers a deeper understanding of other customer’s experiences and how they may impact their own. I think one key component to this is the further adoption of mobile apps, reward and loyalty programs. As retailers promote the use of a customer account when purchasing, this data can be better served to help consumers make well-informed purchases in the future.
On the supply chain side, pairing AI with imaging and machine vision technology, learning models can be trained to detect damaged and counterfeit items before leaving he fulfillment facility.
Will these technologies move the needle? Only time will tell, but for me the key is to creating the best in-store experience through a virtual driven world, and I believe the opportunity to make an impact is exciting as we head into 2024.