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Holiday shopping gave way to returns season after Christmas, as some people opted to send back the gifts that weren’t quite right.
This year, higher returns have been a trend throughout the holiday season, in part because higher prices due to 40-year-high inflation kept people extra conscious of spending choices.
Salesforce predicted a “returns tsunami,” based on early holiday results. In data released earlier this month, the Commerce Cloud provider projected that 13% – representing $1.4 billion – of online orders will be returned over the holidays, a 57% increase over 2021. In one particularly inflationary behavior, the company found that people were returning one product after finding a better deal on another.
Once gifts are opened, the post-Christmas period is the time when the most items are sent back. There are signs that direct-to-consumer brands are processing higher return volumes this week. Loop, which makes a returns management platform used by Shopify brands such as Allbirds, Chubbies and Brooklinen, saw a 33% increase over 2021. On Monday and Tuesday (12/26-27), the platform saw a record of more than 133,000 returns.
Returns are an inevitable part of retail, as not everything will be a fit once an item is brought home. That is especially true in ecommerce, where brands offer free return policies to provide flexibility to consumers who can’t touch and feel a product before they buy it.
Yet returns have also created logistics and profitability challenges for brands, so they are seeking ways to recoup sales.
One way to do this is to encourage customers to make an exchange rather than simply sending an item back. This holiday season, Loop saw its largest drop in refund rate, which measures how many items are simply sent back. From Q1-Q3 , 71% of returns were refunded. But over the holiday period, the refund rate was 60%.
Returns can also create an upsell moment, as a customer’s interaction with a brand provides an opportunity to peruse other products. On Dec. 26, Loop saw its largest-ever day of upsells from returns, and merchants using the platform made nearly $300,000 in sales from upsells since Christmas.
Returns will happen, so brands should make it count. Treat this post-purchase interaction as another place to build a relationship with a customer.“Most returns do not happen because a customer dislikes their brand, but rather because they dislike a particular product. A return is a chance for brands to re-engage with customers and repair a broken promise, whether that be a damaged item or one that didn’t look as expected or didn’t fit, Loop SVP of Marketing Tasha Reasor told The Current. “Therefore, it’s important that brands invest in their returns experience, as this will not only save them time and money, but also drive revenue and foster brand loyalty.”
Clearance season: A new shopping holiday?
The post-holiday period is also typically a time of clearance sales for retailers. At Target, that proved to be an opportunity to create the latest new holiday shopping event.
On Monday, Dec. 26, the retailer kicked off “The Target Clearance Run.” Target promoted deals that included up to 50% off on clothing, shoes, toys, beauty and home décor.
"Our guests always look forward to post-holiday deals, whether they're looking to spend the gift cards they received as a holiday gift, restock their pantries after hosting for the holidays or prepare for a New Year's celebration. 'The Target Clearance Run' is the perfect moment to do just that," said Christina Hennington, executive vice president and chief growth officer at Target, in a statement.
Deal events are a hallmark of the 2022 holiday season. They started early with October holiday kickoff events from Amazon, Target and Walmart. The clearance event shows that peak season is also ending late, as brands and retailers seek to continue delivering deals to price-weary consumers.
Trending in Operations
With returns piling up, there's room for retailers to examine their processes, SML RFID research suggests.
As returns pile up, retailers are seeking solutions to help them manage all of the items coming back. While it’s paramount that returns continue to be treated as a customer-facing proposition, it’s possible that the answer lies at least in part in the retailer’s own operations.
Retailers have long struggled with returns, but the customer-friendly and flexible (read: free) policies of ecommerce are only making the issue more acute. The return rate spiked to 16.6% in 2021 as online shopping surged, according to the National Retail Federation. While the return rate was roughly flat in 2022, this still sustained the marked growth from pre-pandemic times.
There's new evidence that the numbers may be even higher. New results of a study from SML RFID that analyzed responses from 500 senior business leaders indicated that 30% of the items retailers sell are eventually returned.
Along with increasing use of the supply chain, this trend puts particular pressure on the bottom line. The survey found that 42% of returned items are sold at a discount, while 12% aren’t even resold.
For business leaders, it may be natural to think about solving returns as a matter of changing customer behavior. After all, shoppers initiate the returns, so introducing new ways to influence the decision to send an item back is a logical next step. That's why new ecommerce initiatives, such as charging for returns and encouraging exchanges, are designed to nudge shoppers in the right direction with carrots and sticks.
Improvement will also require making changes to the customer experience in the store. It's an area where retailers struggle, in part because of a lack of available staff. According to SML, 42% of retailers say they lack ample staff on the floor, while 30% agree that the staff they do have spend too much time on mundane tasks.
Further, internal processes are also outdated and slow. In all, 32% of retailers state they spend too much time manually processing returned items.
“When a product is returned, it goes through several stages of the reverse supply chain before it can be resold – taking weeks or even months before heading back to the shop floor from transport, cleaning, re-packaging, and re-stocking,” the report states. “The eventual resale price continues to drop as items spend more time away from the shop floor.”
In some ways, this is an old problem. Returns have been a feature of retail for a long time. With ecommerce practices that aim to make it easy for a customer to send back an item that they may not match the expectations they have, it doesn’t appear to be going anywhere, either.
So it's also worth remembering that change can come from within. Retail executives can look internally to examine how their own returns systems and workflows can become more efficient, especially in areas where they are still relying on manual processes. It’s a place where technology can play a role. Item-level RFID, which enables tracking of items throughout the supply chain, can be a particularly valuable tool, says SML. The study found that 21% of retailers said item-level RFID would help to improve their returns processes, which is above market penetration of 15%.
“By investing in Item-level RFID technology, retailers can have instant visibility and access to reverse supply chains, enabling them to streamline back-end operations and send items back to the shop floor much quicker,” said Dean Frew, CTO and SVP of RFID Solutions at SML. “It also significantly reduces time spent on manual inventory-related tasks enabling staff to aid customers and improve their experience. Investing in technology and processes that enable improved customer experience should be a top priority in an increasingly competitive landscape.”