Retailers inundated with returns require a three-part solution.

Ask anyone in retail, and they’ll tell you that returns are a huge issue. It can be a headache for both retailers and shoppers. Nobody wants the hassle of returning items or waiting for refunds. A retailer’s return policy or a customer’s negative return experience can impact where they shop next.

Returns are an unavoidable part of the buying and selling process, but they create friction between retailers and shoppers. The goal should be to reduce friction at every interaction point between retailers and consumers: before, during, and after the sale.

Sender Shamiss, founder and CEO of ReturnPro (formerly known as goTRG), believes that the solution to returns needs to address pre-purchase, post-purchase, and the handling of goods after the return. In a consumer-based society where returns are inevitable, it’s the responsibility of the retail industry to tackle the returns problem.

To effectively address the returns issue, it’s crucial to understand its scope. As Peter Drucker famously said, “You can’t manage what you don’t measure.” However, there are discrepancies in the estimates of returns.

Bigger Than A Bread Box

In December, the National Retail Federation (NRF) predicted that returns would amount to $890 billion in 2024. On the other hand, Appriss Retail and Deloitte estimated returns at $685 billion. NRF projected a return rate of 16.9% of retail sales in a market that unexpectedly grew to $5.28 trillion. Appriss/Deloitte put the returns share at 13.2%.

The over $200 billion difference in estimates is significant, exceeding the annual revenue of furniture and home furnishings stores or department stores.

Different Methodologies, Different Results

The methodologies used to derive these estimates play a crucial role. NRF, in partnership with Happy Returns, surveyed 249 e-commerce and finance professionals from large U.S. retailers with over $500 million in revenue. On the other hand, Appriss/Deloitte surveyed 150 North American retail executives and validated the results with actual transaction data.

According to Pedro Ramos, chief revenue officer at Appriss Retail, they aimed to provide more granular information to help retailers make informed decisions. Their analysis revealed a higher online return rate compared to in-store returns.

Appriss/Deloitte found that online returns accounted for 25% of returns overall, totaling $362 billion, while in-store returns were at 9%. Online return rates were found to be 21% higher than overall return rates. NRF did not provide a breakdown by channel but highlighted the higher online return rates.

Returns Fraud Growing

NRF did not quantify the value of fraudulent returns, but 93% of retailers reported retail fraud as a significant issue. Appriss/Deloitte estimated fraudulent returns at $103 billion in 2024, equivalent to 15% of total returns.

Various types of fraudulent returns, including wardrobing, gift card fraud, return of stolen merchandise, false claims of missed deliveries, and employee return fraud, pose challenges that require different remediation efforts.

Consumers And Retailers At Cross Purposes

Despite the differing return values, both NRF and Appriss/Deloitte agree that returns are a significant challenge for retailers and consumers. Customers seek easy, hassle-free returns, with many avoiding retailers with restrictive return policies.

Positive return experiences can lead to additional purchases, as highlighted by Appriss’ survey. However, negative return experiences, including poor customer service, long refund waits, fees, and confusing policies, can deter customers.

Retailers are tightening return policies, requiring proof of purchase and limiting return windows to mitigate returns. However, overly restrictive policies can impact sales negatively.

Fixing The Problem

Addressing the retail returns challenge requires a three-part approach, covering pre-purchase, returns process, and post-processing of returned items. Prevention is key in reducing returns, followed by ensuring a seamless returns process and effectively managing returned merchandise.

Pre-Purchase Fixes

Identifying and addressing fraudulent returns is crucial in pre-purchase fixes. Retailers are leveraging AI and data to combat return abuse. Efforts like refusing returns from suspected abusers are being implemented by major retailers like Amazon, Target, Zara, and Abercrombie & Fitch.

Operational fixes, such as providing detailed product information and addressing common reasons for returns like damaged items or discrepancies from the online description, can also help reduce returns.

During The Return

Despite online orders generating the majority of returns, a significant portion is handled in-store through buy-online-return-in-store (BORIS). Consumers prefer the convenience of returning items in person. Companies like Happy Returns offer seamless return processes, including drop-off locations and immediate refunds.

Efficient handling of returns, both online and in-store, is essential to meet customer expectations and streamline the returns process.

After The Return

Deciding what to do with returned merchandise post-return is crucial for retailers. Items in good condition may be resold or refurbished, while others may end up in landfills. Reverse logistics firms play a vital role in processing returned items efficiently.

ensuring environmentally friendly disposal practices is becoming increasingly important as consumers are more aware of the impact of returns on waste and emissions.

No Easy Fix

Addressing the returns challenge requires a holistic approach to prevent returns, streamline the returns process, and effectively manage returned merchandise. Each step plays a crucial role in reducing returns and maximizing profitability for retailers.