Retailers toasting a triumphant 2017 holiday shopping season may want to pop one less bottle of champagne.
National mail carrier UPS said this week that it expects a record 1.4 million pieces of returned mail to be shipped to retailers — up 8 percent from a year ago and marking a fifth consecutive annual record — on Wednesday, Jan. 3, its National Returns Day. And that is in addition to the 1 million return packages each day that UPS projected it would process on the leadup to the Christmas holiday.
While most established retailers would have accounted for some returns during the holiday season — and throughout the year, for that matter — the rate of retail returns seems to be rising in tandem with booming e-commerce growth, creating another challenge for already-pressured retailers that have been increasingly moving resources to digital in hopes of meeting shifting consumer demands.
Farla Efros, president of Chicago-based HRC Advisory, suggests that the very nature of online ordering could be to blame.
Watch on FN
“Because people are not touching or feeling [product], they are buying it based on a picture or a model and taking a chance — that has a risk, and consumers are buying many more items just to find one,” Efros said. “[Also] because some retailers force you to spend a certain amount to get free shipping, you are likely to add to the basket and return later.”
Jeff Van Sinderen, an analyst with Los Angeles-based B. Riley & Co. LLC, put it bluntly: “More e-commerce generally means more returns.”
Efros further warned that buying and returning merchandise can be a fairly risk-free undertaking for consumers but can have major consequences for retailers — some of which see returns as high as 46 percent — and their supply chain.
“Because of free shipping, free returns and unlimited return time and flexibility, the consumer can hold on to something for longer,” Efros explained. “That costs more and creates issues in the supply chain and the gross margin of the item in question.”
(Generally, shipped items that are held on to by consumers for a long time before ultimately being returned by mail — another several-day-long process — end up being of little value for retailers hoping to resell them.)
Still, according to Van Sinderen, for traditional brick-and-mortar retailers, there could be hidden benefits stemming from online returns if they can convince customers to make their returns in-store.
“Although there is a broader, ongoing shift toward returning by mail, retailers can offer various incentives, [such as] discounts on incremental purchases, to entice the consumer to make a trip to the store,” Van Sinderen said. “It’s a challenge for retailers, but if they’re sharp, incentives can position customers to make exchanges and/or incremental purchases when subject goods are returned to a store, which can be significant [sales] driver.”
But the return game could be represent an uphill climb for retailers for some time. According to UPS, 75 percent of consumers have shipped returns back to retailers this holiday season — and shoes and apparel are among the frequently returned merchandise.
This not-so-great news follows a bevy of reports that the 2017 holiday season represented a modest rebound for struggling retailers amid tepid trends — particularly on the brick-and-mortar side. Mastercard’s SpendingPulse report last week revealed retail sales from Nov. 1 to Christmas Eve increased 4.9 percent versus last year — the highest growth rate since 2011. At the same time, online sales increased more than 18 percent.
On the positive side, the returns UPS expects to deliver for the holidays are part of the 750 million packages UPS was projected to deliver between Thanksgiving and New Year Eve, an increase of 50 million over the previous year.
