Returns: The Latest Battleground in Retail

Retail giants invest in solving the problem of returns.

The latest holiday shopping season posted strong results for retailers.

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During the holidays, e-commerce growth jumped 18 percent compared to the year before.

According to MasterCard, sales between Nov. 1 and Christmas increased nearly 5 percent – the largest year-over-year gain since 2011.

What’s more, e-commerce growth jumped 18 percent compared to the year before, with Cyber Weekend alone racking up a record-breaking $6.6 billion in sales, according to Adobe Insights.

The little-known problem of returns

Unfortunately, as e-commerce continues to grow in popularity, so does the volume of returned goods. When shoppers buy goods online, they can’t touch, test or try on their purchases – naturally increasing the chance of a return.

In fact, the Narvar Consumer Report found that 40 percent of shoppers have bought multiple items online with the intention to return some of them. As a result, return policies are an important consideration for them, especially when deciding where to buy gifts.

An Optoro survey found 46 percent of shoppers have abandoned an online shopping cart because the retailer didn’t provide free shipping for returns. Yet, most shoppers don’t realize what actually happens to the merchandise once returned.

A majority (two-thirds of respondents) assume goods are simply put back on the shelf and resold for full value, but that’s not the case. In fact, that only happens about half the time.

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Returned items sell for a fraction of the original price, amounting to billions of dollars in lost revenue.

The bleak reality is returned items often sell for only a fraction of the original price (only 20-40 percent of the cost of goods sold is recovered), amounting to billions of dollars each year in lost revenue for retailers. Items are regularly liquidated for pennies on the dollar or sent to landfills.

The holidays posed a particular challenge for retailers given increased shopping (and gifting) – and the returns that followed.

Retailers were forced to manage an influx of returned goods in the weeks after the holidays, and if not handled efficiently, the post-holiday deluge presented a financial and environmental minefield that threatened many retailers already on shaky ground.

Retail giants finally zeroing in

Now more than ever, retailers seem to recognize returns as the next battleground and are making changes to simplify the process for shoppers and gain better insight into their supply chain.

Ahead of the holiday rush, Walmart introduced an express returns service through its mobile app, which allows customers to initiate a return before entering the store. Once in the store, a Walmart associate accepts the return and confirms its contents. The whole process takes just 30 seconds.

Meanwhile, Kohl’s started accepting Amazon returns at some of its U.S. stores. The retailer provides designated parking spots for Amazon returns customers and packs and ships items back to Amazon fulfillment centers for free. Whole Foods also accepts select Amazon returns.

Some retailers are enticing customers with longer return windows. Best Buy, for example, usually offers a short, 15-day window for returns to get the product back on shelves before a new model comes out.

However, members of its My Best Buy loyalty program who gain Elite status (spend $1,500 in a year) get 30 days, and Elite Plus members (spend $4,500) have 45 days to return purchases.

The hidden profit center for retailers

All these changes aren’t just preventative. The giants realize that as much as they pose a challenge, there is huge financial opportunity in capitalizing on returns.

By making it easier for consumers to return online purchases in-store, they can drive more foot traffic. In the past year, 38 percent of shoppers purchased an item online, then subsequently returned it to a physical store. And 54 percent of those who returned in-store made an additional purchase while there.

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Offering free returns can boost online purchases by a staggering 357 percent.

Flexible return policies also encourage loyalty and drive repeat purchases.

According to CNBC, offering free returns can boost online purchases by a staggering 357 percent. In the same article, Dr. Amanda Bower, professor of business administration and marketing at Washington and Lee University, says customers are willing to make bigger purchases risks when a company is flexible on returns because it allows them “to fail” – return regrettable purchases without financial repercussions.

Each year online shopping becomes more widely adopted and ingrained in our day-to-day lives, and the bottom line is returns will remain a constant challenge for retailers.

This is especially true following the holidays. However, all hope is not lost.

Through technology and innovative solutions, retailers can tackle the issue of returns head on and turn it into an opportunity to provide more satisfying customer experiences – and can begin investing in returns now for next year’s holiday sprint.

You might also like:

Holiday Returns Are Peaking, Too

Finding a Silver Lining in Online Returns

The Brewing Environmental Problem of Retail Returns

Tobin Moore is CEO and co-founder of Optoro.

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