After E-Commerce Gains, Retailers Struggle with Return Logistics

First came the online traffic, then came the surge in e-commerce sales. With Americans breaking nearly all online spending records over the 2020 holiday season, many retailers went into 2021 feeling optimistic about what the future would hold. Just a few weeks later, though, new struggles are appearing on the horizon.

Consumers in the U.S. spent more than $188 billion in online shopping over the 2020 holidays, according to Adobe Analytics. That represented a 32.2% increase from 2019. But the surge in e-commerce spending, coupled with an inability to touch or try on products before purchasing online, has led to a greater than expected share of returns coming back to retailers.

According to CBRE, $70.5 billion worth of holiday purchases this year are expected to be returned, and 400 million square feet of additional warehouse space could be needed just to process those returns. E-commerce logistics providers are being brought in to provide retailers with assistance in getting ahead of high return rates and developing alternative fulfillment solutions. But for retailers already facing a deluge of products coming back into their warehouses, it could already be too late.

New approaches

Some retailers, including Amazon, Walmart, and Target, are taking a new approach and allowing customers to keep what they bought, even after issuing refunds for the purchases. The strategy of offering refunds without requiring items to be returned has been around since 2017. It was used infrequently in the past, when the cost of shipping an inexpensive or oversized item was seen as not worth the return. According to UPS, the cost to process returns can range from 20% to 65% of the cost of goods sold. During the pandemic, that no-return strategy was adopted more broadly, particularly for retailers like Target that were dealing with limited store hours during local or statewide shutdowns.

Now, with the post-holiday return surge bearing down, more retailers are expanding their policies and giving refunds to customers without asking for their items to be sent back.

At the e-commerce logistics provider PFS, Senior Vice President of Global Operations Steve Smith says there’s been a significant increase in additional units per original order being returned as a result of the standardization of at-home trial programs. For example, programs that encourage shoppers to “Try 5-Buy 1” generate more returned units.

Although there are more online retailers adding time-sensitive return parameters right now, there were plenty of retailers in 2020 that expanded their parameters and offered more liberal return policies designed to encourage consumer confidence in the online shopping process. Those liberal policies could be leading to some of the struggles that brands are facing today as they look at how to maximize their reverse logistics capabilities.

“With the increase in substantial and sustained outbound volume, the effect on the returns pipeline expanded almost immediately at the onset of the pandemic,” says Smith.

Smith anticipates that delays on deliveries during the holidays, due largely to supply-chain congestion, will likely have an even greater impact on the sheer number of refused deliveries and customers opting to return purchases in the coming weeks.

PFS clients, which include e-commerce brands and retailers like Kendra Scott, L’Oreal, and PANDORA, saw an increase in return rate of up to 15% to 23% for soft goods and 8% to 12% for hard goods.

Planning for the long term

In the coming year, Smith predicts omnichannel systems that enable in-store returns and leverage distributed order management capabilities will increase in popularity. Not only do in-store returns simplify the process for customers, but they also create greater consumer confidence as a result of the easier experience.

Given that there is a high dollar value tied up in the returns transaction process, Smith recommends that retailers account for increased returns in their 2021 forecasts and calculations, including not just refunding payments, but also transportation, returns processing labor, and back-to-stock operations.

“Any disruption in the returns process is likely to cause a level of dissatisfaction that takes away from the consumer experience and damages a brand’s reputation,” he says. “Making the returns process as simple, clean, and effective as possible will be key in 2021.”

Stephanie Miles is a senior editor at Street Fight.