This holiday shopping season is bringing record-breaking online purchases, a nice gift for retailers. But there is a downside here: E-commerce companies are also grappling with the increasing cost of returns, poised to hit $82.1 billion in the United States during the holiday season, according to a report by CBRE.
The National Retail Federation predicts a 7% surge in e-commerce sales this holiday, meaning that this number will soar to $273.7 billion this season. Unfortunately, the threat of a similar surge in customer returns threatens to dim the holiday joy for retailers.
CBRE worked with Optoro, a returns technology provider, to create its report on how much customer returns might cost retailers this holiday season. Optoro estimates that the cost of returns during the holiday shopping season has increased by 50% since 2018. This holiday season, Optoro says, the cost of shopper returns will come out to $49 billion.
The process of returning a purchase now swallows an average of 27% of the sales price, potentially eroding up to 50% of the sales margin, something that poses a considerable threat to the profitability of e-commerce retailers.
Joe Dunlap, Managing Director of Supply Chain Advisory at CBRE, said that reverse logistics — the process of taking back returns — has a profound impact on retailers’ bottom lines. He notes that successful retailers have strategically tailored their supply chains to handle the reverse flow of merchandise, suggesting that smart return policies and collaborations with third-party merchandise handlers are critical to boosting recovery rates on returns.
One pivotal realization among retailers is the role that return policies play in influencing consumer shopping choices. E-commerce companies, recognizing this, have commonly waived shipping costs on returned items, with 64% of consumers indicating a preference for retailers offering the most favorable return policies, according to CBRE’s report. A total of 44% of respondents highlighted the importance of free return shipping.
In response to this shift in consumer sentiment, 87% of retailers revised their return strategies in 2023. The adjustments included introducing additional drop-off locations, charging for returns, allowing customers to retain certain returns, clamping down on fraud and providing an online returns portal. However, the report notes a potential downside, with 44% of surveyed retailers opting to increase return and restocking fees, a trend that might discourage consumers.
To navigate the landscape of reverse logistics, many retailers are turning to third-party logistics companies. These entities, managing logistics and warehousing operations on a contractual basis, are becoming increasingly vital, occupying a substantial 31% of leased space in 2023, according to CBRE. Noteworthy examples include Happy Returns and Express Returns powered by Optoro, which offer consumers locations for returning merchandise with a simple QR code, eliminating the need for printing and affixing labels.
The environmental impact of returns is not lost on the industry, with Optoro revealing that returned inventory contributes to a staggering 9.5 billion pounds of landfill waste annually. In response, retailers are forging partnerships with reverse logistics companies, leveraging artificial intelligence to enhance product descriptions and reduce return rates.
“A tide is turning in returns. Five years ago, returns were taboo in retail. Now, smart retailers have realized that returns are a revenue opportunity,” said Amena Ali, chief exectutive officer of Optoro.
Ali said that the right technology and strategy can not only cut costs and limit waste, but also deliver an experience that can win customers in the long run. The focus, she notes, has shifted from prevention to capitalizing on the prime return opportunity.
