Forecasts by the National Retail Federation suggest that online shoppers are returning fewer of the items they purchased in the 2022 holiday season than they did in the prior year.
That’s in keeping with what Mike Ritter, president of online retailer CPO Commerce, is seeing. CPO sells power tools from numerous manufacturers at CPOoutlets.com. Most CPO customers are familiar with the products and unlikely to make the sort of impulse purchase that can lead to a return. “But when you get in the holiday season, sometimes you get people that get gifts for people, and they got the wrong item,” Ritter said.
The most common type of holiday return at CPO is when someone wants to exchange one brand of tool for another because they “bought a DeWALT for a Ryobi guy or whatever. … nine times out of 10 times, it’s like, ‘Hey, I got the wrong one.’ And they just want to swap.”
Yet during the 2022 holiday period, the number of those brand-for-brand exchanges and other types of returns dropped “moderately.” Ritter isn’t sure what is driving the change. His company has not shortened the window for exchanges nor instituted new fees. CPO sells tools on both Amazon and eBay. And the decline in returns also happened on those marketplaces.
Online returns fall
According to the National Retail Federation, retailers can expect 17.9% of the merchandise purchased during the 2022 holiday season to be returned. That comes to nearly $171 billion in returned goods. The expected rate of holiday returns is more than a full percentage point higher than the 16.5% average return rate throughout the year.
In digital commerce, however, things look better for merchants. While online return rates are consistent with the overall return rate for the first time since the NRF began capturing online data as part of its holiday survey in 2019,that’s because online return rates dropped to 16.5% in 2022 from 20.8% in 2021.
The reason for the decline in online holiday returns is unclear. Most likely, it’s a combination of initiatives across the retail world:
- Early holiday discounts that drove sales well before the holiday period
- The growing use of sizing technology to reduce shoppers’ need to “bracket”
- Increased sophistication about product data.
Returns are an issue
Whatever is driving the decline in holiday returns, it’s good news for merchants. A full 73% of retailers rank returns as a “moderate-to-severe issue for their business,” according to a survey of 500 retailers by market researcher Pollfish on behalf of goTRG, which sells a returns solution to retailers and manufacturers.
That same survey showed that 60% of retailers are changing their returns policies to help mitigate the cost of processing ecommerce returns. The most common change: adding shipping and/or restocking fees.
Charging for returns
Online returns cost retailers an average 21% of order value, according to a survey of more than 150 digital and omnichannel brands conducted by Cipher Research on behalf of Pitney Bowes, a shipping and mailing company. In that same survey, 70% of retailers said they are actively trying to lower the cost of returns by addressing transportation and/or processing costs.
Perhaps the most obvious way to address those costs is to pass them on to shoppers. No doubt that’s why fewer than a third of Top 1000 retailers offered free return shipping in 2021.
The idea to charge for return shipping is gaining traction. Fast-fashion retailer H&M began testing a return fee in limited markets in 2022, CEO Helena Helmersson said in an earnings call in September. Anthropologie, REI and L.L. Bean all now charge a fee of roughly $6 for mailed returns, according to CNBC.
It’s not surprising that those retailers are all in the clothing business. The apparel category is among those with the highest return rates, according to NRF. Nor is it surprising that those retailers waive return fees for items brought back to a a store. Online returns take up 20% more space and labor capacity to process than in-store returns, according to a 2021 report from CBRE in partnership with Optoro, which sells returns technology and services to retailers.
Not all retailers seemed interested in making it harder for shoppers to return an item. 41% of retailers Digital Commerce 360 surveyed offered an extended return period during the 2022 holiday season.
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