Let’s start with the obvious: over the past decade, online shopping exploded. In 2010, ecommerce made up only 4.2% of all retail sales in the U.S. In 2019, ecommerce accounted for north of 16% of retail sales, and Cyber Monday hit a record of $9.4 billion. Ecommerce nearly quadrupled, and completely changed shopping as we know it.
But, a lesser-known reality: ecommerce unleashed back-end chaos for retailers. Since consumers buy items sight unseen, they can’t try on clothes or know how an item really looks and feels. As a result, ecommerce can have three times the return rate of brick-and-mortar retail. And so, as ecommerce climbed, the volume of retail returns reached new heights.
The 2019 holiday season was no exception. About a quarter of all annual returns happen during the period between Thanksgiving and the end of January. We estimate over $100 billion in goods were returned, a 6% increase from the 2018 season. UPS estimates a record high of 1.9 million returns on the peak returns day of the year—a 26% spike from last year’s top day.
The problem is substantial. This year more than ever before, we saw retailers investing in solving and mitigating the threat of returns on their fourth-quarter results. This past holiday season returns reached a tipping point—from both a change in retailer mindset and an emphasis on not only the financial but also the environmental threat posed by returned goods.
Retail embraced returns as a competitive advantage
Ten years ago, returns were retail’s hidden problem. Few people knew that less than 50% of returned items went back to shelves, or that billions of pounds of landfill waste resulted from returned goods. What’s more, returns weren’t an area of competition for retailers—no one was winning consumers based on a return policy.
Over the past ten years, and in 2019 especially, we saw a shift from retailers looking to prevent and discourage returns to embrace them as a way to win customer loyalty. In the age of ecommerce, frictionless returns have become a cost of doing business. Consumers expect hassle-free returns, and this year retailers responded with more options than ever.
According to our research, over a quarter of consumers claimed free returns motivated their purchasing decisions over this holiday season. In an industry power move, Amazon expanded its free return policy to thousands of items—raising the bar for other retailers to follow suit. At the same time, this year Target expanded its return window from 90 days to one year for many items, competing directly with Costco Wholesale’s liberal return policy.
Beyond policy changes, retailers invested in returns convenience for consumers, namely by offering physical locations for ecommerce returns. Kohl’s expanded its successful pilot program and began accepting Amazon returns across all its stores. Additionally, UPS and FedEx expanded their network of physical drop-off locations within their own stores as well as within other retailers like Dollar General and Walgreens.
The environmental dark side of returns
Across the retail and fashion industry, sustainability commanded conversation in 2019. Returns were no exception. Retailers—like Burberry which burned over $34.6 million of unsold items—faced considerable consumer backlash for how they trashed returns, deadstock, and unsold inventory in the past. This year, headlines focused on the waste created by returns, and retailers responded with eco-friendly options.
More brands like Rothy’s and Toad&Co offered recyclable and returnable packaging. Additionally, the expansion of returns drop-off locations from UPS and options in physical retail stores cut down on packaging and the carbon footprint of return shipping via mail.
What’s more, 2019 also saw an uptick in returns and open-box resale—alongside a booming market featuring The RealReal, Poshmark, and ThredUP. Big retailers like Wayfair and Overstock and emerging companies like BLINQ sell returned and excess inventory online at steep discounts to consumers, diverting perfectly good items from landfills. Nike partnered with company Resku to give returned and open-box shoes a second life. And Nordstrom just announced a resale program that will source inventory from returns that result from its generous policy.
Predictions for the next decade
Retailers have embraced returns as part of the customer experience and found new ways to make returns more eco-friendly. Still, many solutions to-date focus on the symptoms of returns— environmental waste and financial impact. As we look ahead to the next ten years, a huge opportunity remains for new solutions that prevent returns from the point of purchase.
Augmented reality is quickly becoming more sophisticated. Retailers like Houzz and IKEA use it to help consumers make better home decor decisions by visualizing the products in their homes. On the apparel side, companies like TrueFit and Fit Analytics are using data analytics to help online shoppers find the right size on the first purchase. In the next decade, expect these technologies to scale, and more solutions to help consumers make better-informed decisions. Retailers know they can’t stop returns with strict policies without threatening loyalty. Now, they’ll turn their attention to solving the root cause of why consumers return, while embracing all remaining returns as customer loyalty opportunities.
What’s more, in pursuit of better solutions, look for even more collaboration and partnerships in the retail space. Amazon and Kohl’s, UPS and many retailers like CVS and Staples, and Nike and Resku proved that collaborations bring together the right resources and expertise to solve the problem of returns. As retail continues to go through an upheaval, partnerships will become crucial to driving industry-wide change.
Optoro is a returns technology company.