Retailers Search for Fixes for the Post-Holiday Return Season

With the holiday sale season in full gear, fashion retailers are already steeling themselves against the nightmare of the returns to come.

This year, online orders have already reached dizzying new heights. Consumers recorded $7.4 billion in online sales on Black Friday, a 19.6% year-over-year increase, according to Adobe Digital Insights. But thanks to the combination of retailers’ aggressive discounting and consumer worries about sustainability and recession, this may be a year of epic buyer’s remorse. Returns may be just as record-setting as Black Friday sales. UPS said it expects to process 1.6 million returns per day in the week before Christmas, and nearly 2 million on January 2, a 26% increase from last year.

Returns are not a new story, but the crosscurrents are especially strong this year. It takes just seconds for a consumer to make an impulse purchase: a click through on social media, a shout out to Alexa. (Even before Black Friday’s kick off, online sales were already humming, driven by pre-Black Friday discounting.) This year, the regret-and-return cycle will churn faster too. In the last nine months, a handful of major chains—including Walgreens, CVS, Nordstrom, Kohl’s and Michael’s—have begun serving as collection spots for online returns. That’s more than 20,000 new spots this year alone where consumers can drop boxes, making it just about as easy to return an item than to shove it in the closet.

For apparel retailers, many of which have not had a strong 2019, the situation is especially fraught. Apparel and footwear are the most-commonly returned categories and both decrease in value the longer they sit around. That burgundy, bell-sleeved sweater is spot-on now, but, come January, it will have all the appeal of a sad desk lunch.

“People are thinking return even before buying,” said Amit Sharma, CEO of Narvar, a customer experience platform that offers returns for 200 retailers, including Sephora and Levi’s. Take, for instance, bracketing, when consumers order multiple sizes to make sure they get one that fits. With about half of U.S. customers engaging in bracketing, according to Narvar, the returns built into the sales cycle are already staggering. (Though it could be worse: in Germany, 72% of consumers bracket clothing orders.)

The holidays (and Black Friday deals) often zap consumers’ ability to say no to deals. “Impulse buying due to FOMO [fear of missing out] definitely leads to high return rates and can ultimately end up being very expensive orders for a retailer,” said Tony Rindsberg, head of marketing for Los Angeles-based Thankful, which sells an automated system for customer service.

A lose-lose proposition

Though retail executives have traditionally focused more on on driving sales than managing returns, that is changing. “There are a lot of conversations going on about gross margins net of shipping and return,” said Sharma. Still, he added, there is also “a lot of peer pressure to continue to offer free returns.” In a 2018 report, B2B marketing agency Walker Sands found that 54% of shoppers cited free returns as an incentive to shop, up from 43% in 2017.

It’s a catch-22. Online shopping conversion rates are low—about 1% to 2% of visitors actually purchase something, according to Sharma, so retailers need to entice browsers to buy. Yet, apparel retailers nearly always lose money on goods that come back. Even when they charge a restocking fee or return shipping, they don’t fully recoup the costs of inspecting and refurbishing products, and lost time, said Kate Klemmer Terry, chief revenue officer of Devens, Mass.-based Quiet Logistics, an e-commerce fulfillment service which counts Away, Bonobos, and Outdoor Voices as clients. For instance, when a men’s dress shirt is unfolded and tried on, it can cost up to $3 per shirt to restore the pins, cardboard collar, and plastic doodads to make it salable, Terry said. She estimates Quiet Logistics will process between a half-million to a million returns between now and year end.

Retailers are quietly experimenting with ways to rein it all in.

“We’re seeing retailers starting to backpeddle and promote free returns less often, perhaps to get it out of the customer’s head,” said Kayla Marci, analyst for London-based retail data firm Edited, who found that “free returns” promotions are down by 4% year-to-date. Marci also found retailers retrenching on categories that are notoriously hard-to-fit: footwear assortments were down 18% and bottoms 14%.

She also found some evidence that retailers were promoting easy-fit categories, such as t-shirts and oversized knits, more heavily during the holiday lead up this year.

Retailers are also tightening return policies. Lululemon’s “Black Friday” pieces were marked as “final sale.” The retailer, which does not discount often, seemed to be using the weekend to do some housecleaning on styles that had less favorable reviews.

Cutting back on the human touch

Retailers are also looking to curb return costs by trimming customer service labor. This year, there’s a decent chance your return inquiry will be met by a polite reply from a chatbot.

Some retailers see support queries about issues like return policies and merchandise credits surge as much as 15-fold in the weeks following Black Friday, said Thankful’s Rindsberg. It overwhelms a brand’s capacity to respond, yet the customer expects regular updates—that the return has been received and that the credit is being processed. (It behooves retailers, too. The faster the cash goes back on the card, the more likely a new order will be placed, Sharma said.)

Rindsberg said that retailers name their chatbots to create the illusion of an all-human support team. But, he added, in post transaction surveys, customer who had an issue resolved fast and accurately were not bothered that there was no human touch.

Requiring authorization for returns

Another change in works? Some retailers are moving away from preprinted return labels and asking customers to log on, answer a few questions, and get a return merchandise authorization (RMA). Sharma predicted that 90% of returns will ultimately be handled by RMA in future.

It’s potentially risky, since an RMA gives the consumer work—logging in and then printing, cutting, and taping their own shipping label. But, when shoppers just slap on the prepaid label, stores have no idea what part of the order has been rejected. Will they need to resell the $50 dress shirt or the $500 beaded shoes?

“The move is toward not having preprinted labels,” said Terry. “Brands want to gather more information about why you are returning and they want to better control the return destination.”