An increase in online holiday sales brings with it higher product returns, and that’s especially true for apparel and accessories retailers.
Sizing charts are essential but far from perfect, and when shoppers can’t try on or feel the clothing, it leads to a higher return rate. Shoppers are expected to send back 30% of clothing and shoes bought online, which is twice the return rate of goods bought in a store, says retail research firm Customer Growth Partners. About $62 billion in goods bought between November and December will be returned, up 8% from the same period last year, with about a third of those items (more than $20 billion worth) purchased online, according to Customer Growth Partners.
MasterCard Advisors said online retail sales grew 20% year over year between Black Friday and Christmas Eve, while total retail sales excluding automobiles and gasoline rose 7.9%. Women’s apparel and furniture sales posted double-digit increases, accounting for a large chunk of holiday e-commerce growth.
One web-only retailer can attest to the post-holiday surge in returns. Phones started ringing in earnest Monday at Dungarees.net, and visits to the page where customers can print return labels jumped, says Darren Baldwin, the online-only apparel retailer’s e-commerce manager. “As much as we try to provide return information on the packing slip, people prefer to call,” he says.
Holiday sales increased slightly because Dungarees.net, No. 536 in the Internet Retailer 2015 Second 500 Guide, this season started selling on Amazon.com (No. 1 in the Top 500), but warm weather hurt projections, Baldwin says. The online retailer, which according to Top500Guide.com data had 2014 web sales of $22.9 million, sells work boots and clothes as well as parkas and thermal underwear. Many retailers that sell cold-weather apparel saw sales slump this holiday season due to the unusually mild weather.
Dungarees.net’s average return rate has declined over the past couple of years to 5% from about 7% as the retailer has tried to ensure it gets the right product to customers and that they understand the sizing, but there always are holiday gifts to be exchanged, Baldwin says. Based on clicks to print return labels, the retailer expects an influx of packages early next week, at which point staff will shift more of their attention to processing returns.
UPS says its busiest day for returns will be Jan. 6 when it ships more than 1 million packages back to retailers. By the end of the first week of January, it will have transported 5 million return parcels, which is 500,000 more than in 2015, a spokeswoman says. Top500Guide.com data shows 413 of Internet Retailer’s Top 1000 online retailers in North America use United Parcel Service Inc. as their shipping carrier.
At Dungarees.net, which uses UPS as its primary shipping carrier and recently added FedEx, customers absorb the shipping cost of a return, and a restocking fee is added if an item has to be retagged or cleaned, Baldwin says. Dungarees.net does not accept returns of worn or washed items, and products in pristine condition move quickly back into inventory.
“If a product is being returned, that means it was bought, and if it was bought, it will be bought again,” he says. “We send out product alerts for back-in-stock items and often we’ll get an immediate pull for an item.”
Online-only retailers need to make it as simple as possible for customers to return products because it increases loyalty and helps the retailer get products back in rotation, says Steve Osburn, retail and supply chain strategist at retail consulting firm Kurt Salmon.
“Returns is one of those areas where convenience has to win out over cost,” Osburn says. “Another hidden cost with returns for anybody selling online is if you can’t get products back, processed and available again, there’s potential for huge losses in margins. Think jackets: If you sell a nice leather jacket and it takes two, three weeks, even four weeks, to get it back in saleable condition, you’ve missed the selling season.”
Craig Johnson, president of Customer Growth Partners, says 80% of retailers offered free shipping on returns over the holidays, which can cost $5-$7 per item when a customer sends merchandise back.
Omnichannel retailers have the advantage of encouraging consumers to return online purchases to stores, where often they buy other items, Osburn says, and Kurt Salmon estimates that for retailers that operate physical stores as well as e-commerce sites, more than half of online returns come back via a store.
However, as e-commerce grows and accounts for a greater share of retail sales, return rates will increase and retailers should prepare for that, he says. “Shopping out returned inventory to jobbers often is the quickest way to improve the [returns] process,” Osburn says, referring to liquidators and others who buy batches of returned products and resell them. “But in the long run it would be better for retailers to own and control that portion of the supply chain.”
Bloomberg News contributed to this story.