How retailers are strategizing to reduce holiday returns

By Danny Parisi | Nov 26, 2019

Retailers are bracing for the biggest shopping days of the year, and the bulk of returns that inevitably follows.

This year, retailers are taking a variety of approaches to minimize holiday returns, including manipulating what products they stock and discount for the holiday shopping rush and working with outside platforms to incentivize gift cards instead of comparatively risky product purchases. 

Returned products count as a net loss for retailers, since it costs them money in the end. They require extra work and expenditure in receiving the returns, reprocessing them and circulating them back into retail inventory. 

“Black Friday is one of the most crucial sales periods in the retail calendar and an event retailers plan for far ahead of time to ensure their offers are executed seamlessly,” said Kayla Marci, retail analyst at Edited. “Return rates are estimated to cost e-commerce businesses billions. This is an issue that is apparent all year round, but it’s particularly amplified with heavy discounting periods such as Black Friday.”

Returns are a major issue for retailers, with as much as $550 billion worth of products expected to be returned in the states next year, according to Edited. Apparel is expected to be the second-most-shopped category by Black Friday shoppers this year, according to data from RetailMeNot, which means fashion retailers will be hit particularly hard. In the U.K., returns for Black Friday apparel purchases are expected to reach $781 million, a $314 million increase since last year. 

In 2018, online shopping made up 36% of holiday sales, with that number growing from $108 billion in 2017 to $126 billion last year. Brick-and-mortar commerce has the lowest rate of returns, around 10%, while e-commerce doubles that to 20% and overall holiday shopping is at 30%. 

One of the main causes of apparel returns is sizing, according to Edited research. Since many holiday purchases are gifts for others, customers often buy the wrong size or multiple sizes with the idea that the incorrect ones will be returned. This year, Edited noted that there has been a decrease in Black Friday promotions around products with hard-to-determine sizing (18% fewer footwear products and 14% fewer bottoms than last year) and an upswing in promotions on accessories (accounting for 23% of all fashion discounts) since their lack of size-based options makes them a low risk for returns, according to Edited.

Accessories were second only to tops last year for heaviest discounts in the fashion category, and this year, accessories are stocked more heavily than any other category across fashion retail. According to Edited, last year, Nordstrom, Kohl’s, Macy’s, Francesca’s and JCPenney had the heaviest discounts on accessories and are currently stocking the most accessories.

To combat this, some retailers like Neiman Marcus, Saks Fifth Avenue and Uniqlo have begun using a platform called GiftNow, which lets customers send someone a gift while letting the recipient pick the size and color, splitting the difference between the impersonality of a gift card while avoiding the problems of trying to guess someone’s preferred size. This program, according to GiftNow, is meant to help retailers reduce the amount of returns based on incorrect sizing for purchased gifts.

Another tactic to reduce the logistical strain of returns is to push people to return in-store as much as possible. In-store returns are far cheaper than shipping returns. Each product returned in-store costs brands around $3, while it costs $6 for a company to receive a product at a distribution center and $8 if the return is handled by a third party. UPS said it expects to deliver more than a million returned packages every day through the month of December this year.

“In-store is the fastest and least expensive way to return, plus it can often lead to additional sales,” said Michelle Skupin, retail expert at RetailMeNot. “Some retailers really push people to return in-store; however, that means that e-commerce retailers without a physical presence are at a disadvantage.”

Some online players are mitigating this disadvantage through partnering with brick-and-mortar retailers for mutual benefit, like Kohl’s recent partnership with Amazon to accept Amazon returns. The hope for both is that the e-commerce platform doesn’t have to deal with the added cost of online returns and the brick-and-mortar store gets more customers in the door who may make another purchase. 

DTC brands including Everlane, Rothy’s and Revolve — some of which have their own stores — have teamed with Happy Returns, which allows customers to return products to one of 700 Happy Returns physical locations, eliminating the costs of shipping returns while not requiring brands to have a large network of their own stores.

Article was originally published here.