How to be prepared for holiday returns

The holiday season is a double-edged sword for e-commerce retailers. While it brings a surge in sales, it also leads to a significant increase in product returns. According to the National Retail Federation (NRF), total returns for the retail industry amounted to $743 billion in merchandise in 2023, representing 14.5% of total retail sales. Online purchases see an even higher return rate of 17.6%, amounting to $247 billion in returned merchandise. With these staggering numbers, it's crucial for retailers to proactively manage holiday returns to protect their bottom line and maintain happy customers.

Here are seven strategies to help retailers prepare for the challenges of holiday returns in 2024.

1. Understand the true cost of returns

Returns aren't just about lost sales; they also involve significant handling costs, reverse logistics, and potential losses due to fraud. The NRF reports that 13.7% of total returns in 2023 were affected by abuse and fraud, leading to $101 billion in losses. For ecommerce retailers, the costs associated with shipping, restocking, and processing returns can quickly add up.

Breaking Down Return Costs:

• Shipping and Handling: Includes the cost of shipping the item back to your warehouse and the labor involved in processing the return.
• Restocking: Costs associated with inspecting, repackaging, and restocking items.
• Inventory Management: Potential markdowns if returned items are out of season or no longer in demand.
• Fraud and Abuse: Losses from fraudulent returns, such as returning stolen merchandise or items purchased with fraudulent payment methods.

Recognizing the financial impact of returns is the first step toward implementing effective return management strategies. By thoroughly understanding and analyzing these costs, you can identify where the most significant financial impacts occur. For instance, if a large portion of returns are due to damaged goods during shipping, investing in better packaging can reduce these incidents. If fraud is a significant issue, implementing stricter return verification processes might be necessary.

Actionable Insight:

• Analyze Return Reasons: Categorize returns (e.g., defective, not as described, wrong size) to identify patterns.
• Identify High-Cost Areas: Determine which stages of the return process are most costly.
• Targeted Solutions: Focus on areas with the highest costs for optimization efforts.

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2. Implement clear and transparent return policies

A well-defined return policy sets clear expectations for customers, reduces customer service inquiries, and can deter fraudulent returns. Ensure your return policy is easily accessible on your website, preferably with a dedicated page linked in the footer, during the checkout process, and in order confirmation emails. Clearly outline conditions such as timeframes, product condition requirements, and whether return shipping costs are the customer's responsibility. Use straightforward language to avoid customer confusion.

3. Leverage technology to reduce return rates

Investing in technology can help customers make informed purchasing decisions, thereby reducing return rates. This includes anything from using high-quality images and detailed product descriptions, to leveraging more advanced interactive experiences such as Augmented Reality. Marketplaces like Amazon, Walmart, and Google have successfully implemented AR tools to enhance the online shopping experience, but similar technologies can be applied to other sales channels through third party apps.

Technologies to Consider:

• Augmented Reality (AR): Allows customers to virtually try products (e.g., furniture in their home, glasses on their face).
• Virtual Fitting Rooms: Enable customers to input measurements and see how clothing fits.
• AI-Powered Recommendations: Suggest sizes or products based on customer data and preferences.
• Interactive Product Visuals: High-quality images, 360-degree views, and videos.

4. Automate the returns process

Automation can streamline return handling, reduce errors, and free up staff to focus on other critical tasks. Implementing a returns management system (RMS) can simplify the process by handling tasks such as generating return labels, processing refunds, and updating inventory. This can be managed in most Enterprise Resource Planning (ERP) or Warehouse Management System (WMS) applications by integrating with a shipping solution, such as ShipWise, allowing you to print prepaid return labels to include in packages. These labels are only paid for when used, making the process cost-effective.

Automation ultimately provides better visibility into the returns process, enabling you to track returns in real-time, update inventory promptly, and analyze return patterns more effectively.

5. Analyze return data to identify trends

Data analysis is key to understanding why returns happen and how to prevent them. Use return data to identify patterns, such as frequently returned items or common reasons for returns. This information can inform decisions on product quality improvements, better sizing guides, or changes in suppliers. Tracking customer return history can also help identify serial returners, allowing you to adjust marketing strategies or flag potential fraud.

Data points to track

• Return Reasons: Identify the most common reasons for returns.
• Product Categories: Determine which items have higher return rates.
• Customer Segments: Recognize if certain customer groups are returning more items.
• Timing: Analyze if returns spike during specific periods or after certain promotions

6. Adjust return policies for the holiday season

Consider modifying your return policies during the holiday season to balance customer satisfaction with operational efficiency. Always be sure to communicate any adjustments clearly to avoid alienating customers. And remember that holiday shopping often involves gift purchases, so flexibility can enhance customer loyalty. However, it's essential to manage the financial impact on your business.

Potential adjustments

• Shortening Return Windows: Tightening the return timeframe can reduce uncertainty and help with inventory forecasting.
• Introducing Restocking Fees: Implementing a restocking fee on certain items can discourage unnecessary returns.
• Excluding Heavily Discounted Items: Make final sale items non-returnable to protect profit margins.

7. Offer incentives for exchanges or store credit

Encouraging customers to opt for exchanges or store credit instead of refunds can help retain revenue. Offering benefits like free return shipping for exchanges or bonus store credit can motivate customers to make additional purchases. This approach not only reduces the financial impact of returns but also maintains customer loyalty.

Conclusion

Holiday returns are an inevitable part of e-commerce, but with strategic planning and the right tools, retailers can mitigate their impact. By understanding the costs, leveraging technology, analyzing data, and adjusting policies thoughtfully, you can turn the challenge of holiday returns into an opportunity for improving your business operations and customer relationships. Taking proactive steps now will help ensure that the post-holiday season is as successful and profitable as the holidays themselves.

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Sources

• National Retail Federation (NRF): 2023 Consumer Returns in the Retail Industry
• eMarketer Insights: Holiday Sales Data

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FAQs

Q: What is the average return rate during the holidays?

A: The total return rate for the retail industry in 2023 was 14.5%, with online purchases seeing a higher return rate of 17.6%.

Q: How can technology help reduce returns?

A: Technologies like AR try-on tools and improved product visualization help customers make better purchasing decisions, reducing the likelihood of returns due to unmet expectations.

Q: Should retailers charge for return shipping?

A: Some retailers are implementing return shipping fees to offset the costs associated with returns. However, it's essential to balance cost recovery with customer satisfaction to avoid deterring future purchases.

Q: How can ShipWise assist in the returns process?

A: ShipWise simplifies returns management by allowing you to generate and include prepaid return labels with original shipments. You only pay for labels when they're actually used. Our platform integrates with your existing systems (ERP, WMS, OMS) to automate label creation, track returns, and update inventory in real-time.

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