Resource Center/Article04/05/2024

Navigating the 2024 Retail Returns Landscape: Challenges and Trends

Returns continue to challenge the retail industry as ecommerce sales rise. Get the insights you need to navigate the 2024 retail returns landscape and meet the latest customer expectations.

If there’s one thing that unites the retail industry, it’s the common pain of managing returns. As ecommerce sales increase, so do returns. Total returns for retail reached $743B in merchandise for 2023 and show no signs of slowing down. Customers want the same things from the returns process as they do from the online buying experience: convenience and simplicity. But giving the customers what they want adds up; the average cost to process a return is $33.  
Passing the cost onto the customer isn’t the easy answer either as 87% of customers say that free returns are a key purchasing factor. The challenges of returns go beyond cost; there are also operational burdens, reverse logistics, and fraud to consider. What’s a retailer to do? How do you navigate the ever-changing returns landscape in a way that meets customer expectations and protects profit margins?  
The Current Retail Returns Landscape 
First, let’s get a bird’s eye view of the current retail returns landscape. According to the latest research, the year-over-year volume from 2022 to 2023 for returns remains the same. What’s changing? The cost and complexity of managing returns are only increasing. 
The 2023 return rate in the retail industry for 2023 was 14.5% as reported by the National Retail Federation. That’s $743B in merchandise returns. And online purchases are driving the majority of returns with a return rate of 17.6% (10.02% for brick-and-mortar). It should come as no surprise that clothing has the highest return rate of any online shopping purchase category as size and fit are the main drivers of returns.  
Returns aren’t always what they seem either. Return fraud and abuse are becoming more prevalent, representing an estimated 16.5% of all returns. 
What Customers Expect from the Retail Returns Process 
Online shoppers across shopping categories have something in common: they want an easy, seamless returns experience. In fact, 80% of these buyers say they’d be less likely to shop from a retailer again after a poor returns experience.  
What does an easy returns experience look like? Ultimately, it’s about the following expectations: 
  • Convenience: Customers expect convenience throughout the shopping experience, including returns. They want hassle-free, easy-to-understand return processes that require minimal effort on their part. 
  • Free Returns: The expectation of free returns has become increasingly prevalent, largely influenced by e-commerce giants like Amazon. Customers often expect retailers to offer free return shipping or free returns to physical stores. Research indicates that free return pickups are one of the factors online buyers appreciate most when considering shopping from a retailer for the first time.  
  • Instant Exchanges: A customer may prefer to exchange an item for a different color or size. Instant exchanges allow customers to get what they want and drive them back to the retailer to make additional purchases.  
  • Lenient Return Policies: Customers appreciate lenient return policies with extended return windows, allowing them ample time to decide whether to keep a purchased item. 
  • Consistency: Customers expect a consistent returns experience across all channels, whether they purchased items online or in-store. They want simplicity in the returns process, regardless of how they made their purchase. 
Outside of convenience and simplicity, there’s one more thing customers want from the returns and shipping processes: sustainability. Customers are increasingly concerned about the environmental impact of returns, particularly the carbon footprint associated with shipping items multiple times. This is particularly true for Gen Z and Millennials, with 44% and 42% of these consumers (respectively) in this generation saying they would be very inclined to shop with a retailer offering more sustainable return and shipping methods.  
There’s also a growing awareness of the resources consumed in processing returned items. The process of returning items involves transportation, often across long distances, which contributes to greenhouse gas emissions and environmental degradation. Shoppers are aware of the negative consequences of excessive shipping, including air pollution, fuel consumption, and packaging waste. Retailers are facing greater pressure to adopt sustainable practices in their returns processes to minimize environmental harm. 
The Challenges for Retailers 
These high, ever-evolving customer expectations are closely intertwined with the challenges faced by medium and large retailers. Meeting or exceeding these expectations involves overcoming brand, operational, and financial hurdles.  
First, retailers are all too aware that how they handle returns can and will significantly impact their brand reputation. Positive experiences such as easy, fast returns are associated with increased brand loyalty with 97% of consumers saying they’re likely to buy again from a retailer after a positive returns experience. Return experiences perceived as overly complicated can lead to brand distrust and customer churn. In fact, 89% of shoppers are less likely to buy from a retailer after a poor returns experience.  
Some of the greatest challenges with returns are surrounded by operational complexity including inventory management, logistics and restocking, and customer service: 
  • Inventory management: Overall, returns disrupt inventory management processes. This disruption can cause discrepancies in stock levels and throw off sales forecasts. Limited visibility in returns platforms may also make it difficult to effectively contemplate returns in inventory decisions. 
  • Logistics and restocking: Processing returned items involves logistical challenges such as transportation, sorting, and restocking. Not effectively managing these processes can incur additional costs and lead to inventory inaccuracies.  
  • Customer service: Managing returns places an additional burden on customer service teams; a negative returns experience can lead to poor reviews and unhappy feedback on social media.  
The financial implications of retail returns can’t be understated, specifically in the areas of revenue loss, processing costs, margin pressure, and lack of visibility.  
  • Revenue: Retail returns directly impact revenue as they result in refunded transactions, leading to a decrease in overall sales figures. 
  • Cost of Processing: Processing returns incurs costs related to restocking, refurbishing, or disposing of returned items. The cost of processing returns can eat into profit margins, especially if items cannot be resold at full price or require additional handling. Additionally, there are administrative costs associated with handling returns and issuing refunds. 
  • Margin Pressure: Free returns and lenient return policies can put pressure on profit margins, especially for medium and large retailers with high return volumes. Balancing customer expectations with financial sustainability is a constant challenge. 
  • Lack of Visibility: Retailers often lack visibility as which SKUs are eroding profits due to free returns or general outbound shipping charges.  
The Looming Impact of Fraudulent Retail Returns 
Fraud looms large in the returns landscape with return fraud costing retailers $101.91B in 2023 (up 20% year-over-year). As the magnitude of returns grows, so do the instances of fraudulent returns. Consumers may return empty boxes, worn, stolen, or non-original items. Others may falsely claim an item never arrived or is defective. This practice undermines the integrity of the returns process and erodes trust between retailers and customers. 
Overly lenient returns policies can drive fraudulent returns, posing significant financial and operational risks for retailers. Some retailers are revising their returns policies in light of this challenge, establishing return fees for online orders. Some retailers waive a return fee for items returned to a store or for customers who are reward program members. Others are nixing extended return windows for the holiday season.  
And Then There’s Peak Season 
Speaking of returns during the holiday season, we can’t talk about the returns landscape without talking about peak season. Retailers experience a surge in returns during peak season which adds pressure on operational resources and logistics. Managing the influx of returns efficiently is crucial to maintaining customer satisfaction and operational efficiency.  
Part of the challenge lies in that easy return processes serve as both a sales driver and cost center for retailers. Here’s what we mean: 
  • Sales Driver: Easy returns policies serve as a sales driver by reducing customer hesitation and increasing purchase confidence. According to research gathered by Pollen, online buyers cite free at-home return pickups as the factor that would make them feel most at ease and not abandon their cart at the time of purchase. Customers are more likely to buy from retailers offering hassle-free returns, knowing they can easily return or exchange items if they are dissatisfied. This, in turn, can lead to increased sales and higher customer satisfaction levels. 
  • Cost Center: Despite their benefits in driving sales, easy returns policies also represent a significant cost center for retailers. Processing returns incurs costs related to transportation, restocking, refurbishing, and administrative overhead. Additionally, offering free return shipping or extended return windows can further add to the financial burden on retailers, especially during peak seasons when return volumes are highest. 
There's also pressure on the reverse supply chain to consider during peak season. Managing this supply chain for returned items requires careful coordination and efficient logistics. Retailers must handle transportation, sorting, refurbishing, and restocking while trying to minimize incurred costs and optimize inventory management.  
Potential Solutions to the Biggest Returns Challenges 
It’s important to note that there isn’t a one-size-fits-all solution to the challenges of retail returns. “Reverse logistics for returns has been a challenge for many years and has significantly magnified with ecommerce growth. Shippers must focus on understanding the specific drivers of their returns and develop processes and policies to motivate desired consumer behavior,” shares Ron Taylor, Senior Manager of Advisory Services at Green Mountain.  
Motivating consumer behavior requires constant analysis, real-time data analytics, robust forecasting methods, and strategic partnerships. Below we share the most relevant solutions to pressing challenges.  
Easing the Financial Burden 
There are a few different ways to navigate the financial burdens created by returns. First, address the biggest drivers for returns: poor fit and not meeting product description. Thorough, transparent product descriptions with try-on photos and videos as well as sizing charts and measurements for applicable items go a long way to mitigating these issues. Avoid photoshopped or filtered images that may alter the appearance of items, which also leads to returns. 
Next, incentivizing exchanges rather than returns. In fact, 90% of consumers can be persuaded to do an exchange instead of a refund. Some methods to improve your return-to-exchange ratio include providing a faster product replacement or offering a discount, cash back, or gift card. This is particularly effective for potential returns over size or fit issues. You can also offer instant exchanges with platforms like Pollen, which is often more attractive to consumers and mitigates the expense of returns processing.  
Consider leveraging the following tactics to drive down returns: 
  • Mitigate in-transit damage through sturdy packaging 
  • Communicate regular updates on the order including a real-time estimated delivery date if possible 
  • Refresh product descriptions and include FAQs based on customer feedback 
  • Allow for customer reviews with images and video 
Moreover, it’s important to proactively identify return trends. “Connecting shipper order data with carrier shipment data is the key to understanding return trends including high return SKUs, SKU profitability, and identifying potential fraud scenarios,” explains Taylor. “Green Mountain can support this level of visibility as a first step to identifying opportunities and recommendations for managing shipper returns.”  
The Sustainability Issue 
To address the sustainability issue, lean on in-store drop-offs or consolidated return options to reduce carbon emissions. Incentivize consumers to use these return methods through box-less returns, discounts, or waived return fees. It’s helpful to be transparent about the focus on sustainability in your returns policy and in the content provided to shoppers when they initiate a return.  
Other methods include initiatives such as consolidating returns to reduce the number of shipments, optimizing transportation routes to minimize emissions, and investing in eco-friendly packaging materials. By adopting sustainable returns solutions, retailers can align with customer expectations and demonstrate their commitment to environmental stewardship. 
Mitigating the Fraud Factor 
Fraudulent returns are a tricky challenge to overcome as retailers must be careful not to alienate honest customers while detecting fraudulent activity and serial offenders. This is where digital systems and data analysis can help to identify trends and patterns.  
Having a digital system in place for notification of problematic SKUs generating returns should be intertwined with a system to track the history of returned items and identify suspicious trends or anomalies. Some examples include frequently returning big-ticket items and multiple returns from the same mailing address with different customer names.  
This system should be implemented alongside fraud detection measures such as thorough inspections of returned items to verify their condition, authenticity, and eligibility for a refund or exchange. Retailers can also lean on historical data and predictive models to determine fraud risks and flag potentially fraudulent activity. This flagging system may be paired with notifications that allow the appropriate parties to review or cancel the order.  
Managing Peak Season Pressure 
When it comes to peak season, preparation is key to preventing excessive financial and operational burdens caused by a high volume of returns. The techniques for mitigating and minimizing returns apply here and can be layered with the following tactics for best results: 
  • Quality Control: Rigorous quality control measures can help avoid defective or damaged items which will result in returns. Implement quality checks at each stage of the supply chain as soon as possible to identify issues proactively.  
  • Inventory Management: Forecasting demand and adjusting inventory levels in response can be used to avoid overstocking items with higher return rates.  
  • Post-Purchase Support: Provide post-purchase support to assist customers with any issues they encounter after receiving their orders. This support is helpful for preventing returns and building loyalty from customers.  
  • Data Analytics: Leverage data analytics to identify patterns and trends in returns. By understanding the reasons behind returns, retailers can take proactive measures to address common issues, such as improving product descriptions or offering better sizing guides. 
On the subject of data, it’s critical to have both a market view and an organizational-level perspective to respond to emerging opportunities for savings during peak season. With the hectic pace and intense pressures of peak season, it’s worthwhile to have a partner by your side who can show you what’s possible and guide you on how to achieve it.  
At Green Mountain, we recently helped a luxury goods retailer avoid $2.6M in peak season surcharges while maintaining a positive relationship with their primary carrier. Here’s how we did it.  
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