Record-Breaking Holiday Means A Record-Breaking Deluge Of Returns For Retailers

Early results are in and holiday retail sales increased 8.5% year-over-year from November 1 through December 24, according to Mastercard Spending Pulse. That is on the low end but still in line with the National Retail Federation’s (NRF) original prediction of an 8.5% to 10.5% percent holiday increase, though it has since gone even higher to 11.5%.

Tallying consumer retail spending excluding automobiles and across all payment types including cash and check, Mastercard reports sales rose 8.1% in-store and 11% in e-commerce.

But the bigger news is that e-commerce sales advanced 61.4% over pre-pandemic 2019. This year e-commerce accounted for over 20% of consumers’ holiday spending, up from 15% in 2019.

Drilling down by retail category, Mastercard found that apparel stores advanced the most with sales up nearly 50% over previous year. Jewelry stores saw a nearly one-third increase in sales and even department stores got a 21% kick.

“Consumers splurged throughout the season, with apparel and department stores experiencing strong growth as shoppers sought to put their best-dressed foot forward,” commented Steve Sadove, Mastercard senior advisor and former CEO and chairman of Saks.

But before retailers can enjoy the windfall from consumers’ exuberant holiday spending, they are going to have to deal with the inevitable aftermath: returns. Last year, the NRF estimated 13.3% of merchandise sold during the holiday season was returned – some $101 billion worth.


If returns continue on at last year’s pace and retailers reach NRF’s originally projected $843.3 to $859 billion sales projection, then retailers can expect to receive some $112 to $114 billion in goods back this year, including some $43 to $45 billion from e-commerce sales.

However, in a survey among retailers, Inmar Intelligence found 61% expect this year’s return rates to be even higher than last year.

And like everything else, those returns are going to cost retailers more. A CBRE-Optoro report on returns logistics found the cost of returns will increase 7% this year when factoring in all the processing, transportation, discounting and liquidation losses.

Nightmare after Christmas

Some retailers are going to be harder hit than others since returns are not spread evenly across retail. For example, e-commerce purchases are returned at a rate more than double that of purchases made in-store. Returns may rise as high as 40% for some retailers, suggested David Sobie, CEO of Happy Returns.

Happy Returns provides some 2,600 drop-off locations where shoppers can return online purchases directly without the hassle of printing labels, packaging and shipping. And better yet, Happy Returns gives an immediate refund or makes an exchange. Happy Returns was recently acquired by PayPal PYPL as its returns logistics arm, thus completing the circle for the 31 million businesses it provides payment services for.

Online fashion purchases are particularly vulnerable to returns. Bracketing, where customers buy multiple sizes to find the right fit, is a common practice, with a Navar study finding 58% of shoppers make this a habit. And even if they don’t bracket their purchases, fit, size or color are the number one drivers of e-commerce returns, accounting for some 42% of them.  

As mentioned, there is reason to believe that retailers will see an even higher rate of returns this year than last. First, consumers continue to go online for their holiday shopping with more than half (52%) of the shoppers surveyed by Navar saying they expected to shop online more and in-store less this year.

Second, shopper supply chain anxiety may have driven them to make second or third-choice purchases early, only to find the desired item later in the season, thus generating more returns. Or disappointed second-and-third choice gift recipients may decide to return unwanted items.

Needless to say, all this returned merchandise will give a boost to service companies that help retailers liquidate excess inventory, like B-Stock Solutions, a B2B marketplace that enables retailers and brands to list, buy and sell excess and returned merchandise.

“Last year we saw double-digit increase across the board with retailers looking to optimize their inventory,” says Marcus Shen, B-Stock’s chief operating officer.

“Having a generous and flexible returns policy has become part of the marketing strategy. A well run returns policy helps convert lookers to buyers. So that causes return rates to be higher overall, which is obviously good for our business,” he adds.

Many happy returns

While returns can be a nightmare for retailers, they are a necessary cost of doing business. And handling them judiciously and effectively from the customers’ point of view is getting even more important as more sales are conducted online.

“Consumers decide where to purchase online depending on the flexibility and ease of the returns process,” says Sucharita Kodali, vice president and principal analyst at Forrester FORR . “It’s not something retailers really like but it’s now a cost of doing business especially since such a big part of sales for so many categories, apparel in particular, are online.”

Calling returns the next retail competitive service differentiator, Forrester found that over one-third of U.S. online consumers say the fear of a complicated returns process has discouraged them from buying online.

“A tedious returns process taints the entire shopping experience, so in 2022 returns will become the hot point of differentiation in retail. Returns policies influence how consumers choose a retailer,” Kodali explains.

“Ease of returns means more places to return, fast refunds, returning to a store and having someone else box and mail the package back for you,” she adds.

Of course the best way to handle returns is to avoid them in the first place. That means better photography, more product details and posting customer reviews. In fashion, the stakes are even higher and require accurate sizing charts and featuring a diversity of models in different shapes and sizes.

Kodali concludes, “Clever retailers will follow Wayfair’s W ‘merchandising as a service offering’ to better present products and avoid returns in the first place.”

The Tycoon Herald