Retailers expect 17.8% or $158 billion, of merchandise sold during the holiday season will be returned, according to NRF. That's prompting beleaguered retailers to search for solutions.

Emily Grayson had loads of trouble with returns.

“Returns were just the bane of our existence,” the director of operations and chief of staff at retailer Tuckernuck says. “They plagued us. But there’s no way to avoid them if you’re in this business.”

For Tuckernuck, returns were particularly complicated and time-consuming. The women’s apparel brand operates a single brick-and-mortar store in Washington, D.C., but 99% of its sales come from online. Back in 2020, all returns moved through a single facility in Maryland that Tuckernuck had a contract with for fulfillment services. Shipments to shoppers were smooth; returns were not.

“They were having such a challenge keeping up with the labor market, and returns always seemed to be de-prioritized by them or they just couldn’t staff in that area,” Grayson says. “So it was an average three to four weeks to get an item restocked and money issued back to the consumer. And that was a huge problem for us. Nothing, nothing aggravates a customer more than telling them, ‘Oh, we’re hanging on to your money for a little bit longer.’”

Grayson isn’t alone. Returns have become a major headache in ecommerce, cutting into profit and straining resources. The sheer volume of returns also puts additional pressure on an already overloaded supply chain pushing prices higher for shipping, warehousing and labor. Retailers are working hard to reduce the number of returns they receive. And they’re taking multiple approaches to doing so.


More sales means more returns

Retailers say they expect 17.8% of their holiday sales to be returned, according to a National Retail Federation and Appriss Retail survey of 57 retailers conducted in Q3 2021.

For all of 2021, NRF estimates that consumers will return $761 billion in merchandise, which accounts for 16.6% of total U.S. retail sales. For just online returns, NRF estimates that 20.8% of online sales purchased in 2021 will be return, which is in line with recent years.

According to the survey, for every $1 billion in sales, the average retailer incurs $166 million in merchandise returns. It also found that for every $100 in returned merchandise accepted, retailers lose $10.30 to return fraud. The categories with the highest return rates were similar to 2020 metrics: auto parts (19.4% return rate), apparel (12.2%) and home improvement and housewares (tied at 11.5%)

For holiday returns, retailers are likely to be telling a lot of shoppers that they have to wait for their refund this year. Returns from the 2021 holiday shopping period are expected to rise considerably, adding pressure to an already overloaded supply chain. For example, United Parcel Service Inc. (UPS) says it expects to handle more than 60 million return packages during its peak holiday-shipping season of Nov. 14 through Jan. 22, a jump of 10% from the comparable period a year ago and the highest return volume the shipping company has ever seen.


Optoro Inc., a reverse-logistics provider, forecasts that U.S consumers will return $120 billion worth of goods between Thanksgiving and the end of January 2022. That’s well above the $115 billion Optoro forecast for the holiday season last year.

Nevermind. Just keep it. 

Given numbers like that, it’s no wonder that many retailers are willing to just take a loss when a shopper is unhappy without having to deal with the cost and hassle of the return itself.

Some 75% of consumers have been offered a refund without having to ship an item back, according to reverse logistics provider Narvar Inc. Plus, 51% of holiday shoppers said they would be willing to keep items they would otherwise return if offered a 30% discount, according to a survey of 2,268 U.S. consumers by publisher

“This is definitely a good strategy to help reduce returns,” says Carrie Miller, brand evangelist and customer advocate at Helium 10, which provides tools to brands and retailers who sell on ecommerce marketplaces. “I would recommend asking for a reason that the customer is returning the product. Often customers will say they found the product cheaper somewhere else which gives you an opportunity to do a price match by refunding the difference to the customer. This kind of customer service will also build customer loyalty.”


Two-pronged and 3PL  

With returns growing and the cost to process them rising, many retailers are feeling squeezed.

“Retailers don’t have a lot of options,” said Nikki Baird, a former retail analyst at Forrester and PwC and now vice president of retail innovation at Aptos, a provider of retail management software. “What we’re seeing right now is that many retailers are not passing along those higher costs, hoping that the rise in costs is temporary.”

But hope is not a strategy. At Tuckernuck, its reverse logistics operations began to change for the better about a year ago when the retailer decided to take a two-pronged approach to fixing its returns problem.

First, the retailer purchased Optoro software to eliminate the need for Tuckernuck staff to process return requests by phone or email. Now shoppers log on, create return labels and “generate a return themselves,” Grayson says.

Emily Grayson. Holiday returns

Emily Grayson, director of operations and chief of staff at Tuckernuck

Taking that work away from employees and handing it over to a software process proved so helpful that Tuckernuck expanded its deal with Optoro and contracted with one of its third-party logistics partners.

“So now [Optoro’s] 3PL in Tennessee is actually receiving all of our returned inventory, processing it, restocking it and helping us resell it to our consumers,” Grayson says.

“We had to fix the returns problem first,” she adds. “Returns are just so important for customer loyalty and satisfaction.”


Complicating matters for retailers is that shoppers expect returns to be free. When shoppers were asked what made them choose a particular retailer to shop with in the holiday season, 25% cited “free return shipping,” according to the Digital Commerce 360 December post-holiday survey of 1,033 online shoppers.

Retailers have responded to that preference for free returns, according to research from Digital Commerce 360, which shows that nearly 46% of the apparel retailers in the Top 1000 provide free return shipping.


The cost to retailers of processing returns from the holiday season will rise 7% this year when factoring in labor, transportation and warehousing costs, according to Optoro.


Optoro says that on average it costs $33 or 66% of the price of a $50 item for retailers to process a return—up from 59% last year. The major expense of the return depends on if the retailer can resell the product and how much it has to discount it. Transportation also is a large expense.

Those expenses are likely to rise, according to the Reverse Logistics Association, which said in November that more than half of the retailers it surveyed expect the cost to return a product to increase, while 65% of respondents expect the volume of returns to increase.

Cutting cost and complexity

For Steve Dunlap, CEO of Meghan Inc., getting the cost of returns under control has been a priority. Dunlap is a former tech executive who is now the business partner of dress designer Meghan Noland. Her creations are sold through the website and through wholesale accounts with retailers and fashion boutiques.

When Dunlap joined the company, returns were cumbersome and costly.


“It was a nightmare process. The customer would email us and we would reply to them saying, ‘OK, yes, here’s your return authorization number. You have to go ship it back to us.’” Dunlap says.  “So, they’ve got to go figure out how to do that. It was awful both for the customer and for us.”

Dunlap installed an enterprise resource planning system from Cin7 to track orders and inventory from suppliers to the customer. Cin7’s systems connect with platforms like ShopifyPlus and BigCommerce and with ecommerce marketplaces run by Amazon, Etsy and others. By connecting Cin7 to multiple platforms, accounting systems, 3PLs, etc., Meghan was also able to automate the majority of the returns process. Shoppers can now go online to initiate a return. When a customer wants to return something, they go to the Meghan website, log in and get a label to print.

But not everything can be solved through technology, Dunlap says. In order to reduce returns, Dunlap says Meghan decided to make changes to its product line as the holiday season approached.

“Holiday returns this year have actually been a bit lower than last year, approximately 10% lower.  However, this is attributable to our product mix changing,” Dunlap says.  “We are selling many more accessories, which have a lower return rate than apparel.  If I look only at return rates for apparel, they are about the same as last year. We average a return rate of 13-15%, which is very healthy for an ecommerce apparel store. “


In addition, Meghan decided to pull its apparel off the Amazon marketplace because such sales generated too many returns to justify the cost.

“We tried it as an experiment throughout most of 2021 and then we pulled the plug just a month or two ago,” Dunlap says. “The return rate was really high. My guess is people just think ‘well, it’s just Amazon, you know, it’s just this big, faceless company and I’m just gonna throw my dress in the box and ship it back.’ But you know, it’s not. It’s Meghan and me. We’re a small business.”

Dunlap says returns at Meghan Inc. are inspected for damage by a small group of employees who decide if an item can be resold. If an item is deemed undamaged, it’s put back in inventory until it’s bought again and is once more shipped and tracked using Cin 7 technology.

That’s worked well enough. But as the brand has grown—revenue rose 140% year over year in 2021— so has the need for more efficiency.


Now, Dunlap is looking for a 3PL to take over the last remaining pieces of the shipping process still done manually and in-house. “It’s either that or go rent a 10,000 square foot warehouse and learn how to become warehouse people,” he says. “That’s not our aspiration.”

Reducing the volume of returns

Another way that retailers can cut the cost of returns is by making it less likely a shopper will want to return an item.

One technique Meghan uses is to ship dresses in fancy boxes that make a shopper feel she’s receiving a gift.

“We put a lot of work into the packaging and we definitely think there’s a psychological component when you open it up and it feels like Christmas Day,” Dunlap says. “It has a beautiful ribbon and it looks like a package that you get from grandma. With that sort of experience, you’re less likely to send it back.”


There is a cost incurred, Dunlap says, but it’s worth it. “The packaging cost for the orders we ship from our own website and other retail platforms is roughly 2.5 times more costly than a regular package that we’re shipping on behalf of our department store customers,” Dunlap says. “However, we also have a higher margin on ecommerce business, so as a percentage of margin, it’s fairly similar.

“And a big part of shopping with us is the experience, which is what the packaging is all about,” she adds. “The fact that it reduces returns is a positive side-effect.”

The most common solutions retailers use to manage product returns are warehouse management systems at 30% and enterprise resource planning (ERP) systems (24%), according to a survey of 50 large retailers with more than $1 billion in ecommerce sales conducted by returns provider ReverseLogix in October 2021.  Only 6% of respondents use a purpose-built, end-to-end returns management system.

“Nearly three-quarters of respondents say that more automated returns management processes will improve employee and customer experiences, while helping to lower costs,” says Gaurav Saran, CEO of ReverseLogix. “This includes automated refunds for consumers, developing and optimizing multiple return channels, and automating processes for receiving, inspecting and processing.”


1822 Denim, which sells apparel on its own website, in marketplaces and through partnerships with retailers such as Nordstrom, took a more tech-focused approach to cutting return volume.

The retailer uses vendor 3DLook, which makes apps to help shoppers with sizing and fit. The virtual try-on feature in a 3DLook app takes measurements in three dimensions, recommends a size and lets shoppers see how something looks before they buy. That reduces a shopper’s need to “bracket,” i.e., purchase several of the same items in assorted sizes to try on at home—and then return the ones that don’t fit.

There’s a psychological component to this approach too. 1822 Denim tells shoppers they can be more environmentally responsible because the sizing app, “greatly reduces the number of returns. Less returns means a healthier planet by reducing waste in landfills, and decreasing a trail of emissions that contributes to climate change.”

Returned inventory creates 5.8 billion pounds of landfill waste each year, according to research by Optoro and Environmental Capital Group, while trucking those returns back to warehouses, stores or landfills emits over 16 million metric tons of carbon dioxide each year.


3DLook charges retailers a recurring subscription fee, which varies depending on the plan and the set of features the client is using.

Get it right. Don’t get it back

41% of U.S. consumers said they returned an item because of a retailer error, such as wrong size, wrong color or wrong item altogether, according to as December 2020 survey of 500 U.S. consumers conducted by Voxware, a provider of supply chain analytics.

That’s in keeping with what David Morin, senior director of retail and client strategy at Narvar, which provides a returns and customer-loyalty platform to retailers, sees.

“One really common return reason that we see across the industry is something like ‘not as pictured’ or ‘not as expected.,’” Morin says. “We’ve worked with so many retailers who all we had to do was go look at the website, and the picture looks pink and the description was more orange, and we can work with our UX [user experience] team to make the description and the color better match.”


Similarly, “a retailer might see a particular SKU is being returned overwhelmingly ‘for size too big,’” Morin says. “And what we’ve seen is oftentimes a retailer will then update their PDP and say, ‘Hey, 60% of people who returned this say it’s because it’s too large, we recommend that you downsize by half a size.’”