Retailers this holiday season could find themselves with an $82.1 billion dollar problem, one that can erase as much 50 percent of their sales margin.
With the National Retail Federation’s projection of e-commerce sales rising by 7 percent this holiday period to $273.7 billion, a 15 percent to 30 percent average online return rate translates to a potential value of $82.1 billion at the high end of the range, according to a study from CBRE in partnership with returns technology partner Optoro.
Data from Optoro, based on its “reverse logistics” study, indicates that the cost of returns in the U.S. has risen by 50 percent, or $149 billion, since 2018. That translates to an average cost to return of 27 percent of the purchase price, in addition to a hit on the sales margin that could run as high as 50 percent. The tech firm also found that returned inventory creates 9.5 billion pounds of landfill waste each year, or the equivalent of 10,500 fully loaded Boeing 747s.
An Optoro spokeswoman said 35 percent of shoppers on the hunt for apparel and accessories embrace the concept of “bracketing,” or buying an item in a variety of colors or sizes and then returning the unwanted options. “Forty-eight percent of those who admit to bracketing embrace this behavior a few times a year. Twenty-eight percent only bracket ahead of major life events, like a wedding or job interviews,” the spokeswoman said. She added that the apparel return rate is higher than the average e-commerce return rate at 24 percent versus 17 percent.
The study indicates that using third-party logistics firms such as Happy Returns—which was acquired by UPS from PayPal in October—or Optoro’s Express Returns are able to provide assistance that turns a return into a revenue opportunity. Optoro can offer consumers convenient locations where returns can be accomplished using a QR code without having to print and affix a return label. Retailers know that ease of returns influence where consumers shop. The Optoro data indicates that 64 percent of respondents favor retailers who have the best return policies, while 44 percent said that free shipping of returns was of “particularly high importance.”
“Reverse logistics have a huge impact on retailers’ bottom lines, and the most effective retailers have built their supply chains to effectively handle the reverse flow of merchandise,” Joe Dunlap, the managing director for CBRE’s Supply Chain Advisory, said. “Smart return policies, enlisting help in third party merchandise handlers and making the returns process easy for customers all help retailers increase their rate of recovery on returns.”
“Smart retailers have realized that returns are a revenue opportunity,” Optoro’s CEO Amena Ali said. “The right technology and strategy can not only cut costs and limit waste but deliver an experience that can win customers in the long run. It’s not just about prevention anymore, it’s about capitalizing on the prime return opportunity.”
According to the study, 87 percent of retailers revised their return strategy in 2023 to include more drop-off locations, charging for returns, allowing customers to keep certain returns, policing fraud and providing an online returns portal. One growing trend—but off-putting to consumers—is the 44 percent of respondents who said they increased their return and restocking fees.
Some companies are searching for ways to reduce escalating returns costs. Last month, shipping firm Pitney Bowles inked a partnership with ReverseLogix to consolidate the returns process and cut returns shipping costs. And this past October saw ride-hailing firm Uber launch a returns service in which its drivers can collect up to five prepaid sealed packages at a time for drop-off at a local post office or at UPS and FedEx stores for a small fee.
