15 December 2022
Ecommerce return rate set to fall to 16.5% in 2022, says NRF
Here's a look at what drives returns, and how retailers are responding.
Photo by Bastian Riccardi on Unsplash
Here's a look at what drives returns, and how retailers are responding.
The retail return rate for 2022 is expected to remain flat from the prior year, while the online return fell, according to a new projection from the National Retail Federation.
Consumers are expected to return $816 billion worth of retail merchandise purchased in 2022. That means the return rate will be 16.5% for 2022, which is about even with the rate of 16.6% in 2021.
Returns skyrocketed as ecommerce accelerated during the pandemic, vaulting the return rate from 10.6% in 2020 to 16.6% in 2021. The leveling off comes as retail sales have continued to grow steadily upward throughout the last three years. While news of a slowdown in growth will likely be welcomed on the logistics front, returns continue to occupy a unique place in the retail landscape.
“Even with 29 continuous months of retail sales growth, consumers have remained steady with the overall rate of merchandise returned to retailers this year,” said Mark Mathews, NRF’s vice president of research development and industry analysis, in a statement. “While oftentimes returns represent a lost sale for a retail establishment, returns can also provide recourse through positive customer engagement and, potentially, another purchase.”
Online return rates in particular have been watched closely. Ecommerce’s shift to focus all of the elements of the shopping experience on the customer has made generous policies like free returns common, even as they helped to fuel a logistics crisis that further flooded already-clogged supply chains over the last year.
In 2022, the online return rate will be on par with the overall return rate at 16.5%, NRF forecasts. That’s well below the online rate of 20.8% in 2021. As is the case with the overall rate, this comes as ecommerce sales have also continued to grow this year. This is the first time the overall retail and online figures have been even since NRF started measuring returns in 2019.
In all, NRF expects $212 billion worth of merchandise purchased through ecommerce to be returned in 2022. About 10.7% of those returns will be deemed fraudulent.
While there is a leveling off in growth of the return rate, the numbers indicate that the pandemic's boost in returns may be sticky. There are a number of practices that foment online returns. Here’s a quick look at several of the common:
Home Try-On: Dating back to the customer-facing innovation of pioneers like Zappos and Warby Parker, home try-on has become a feature of many ecommerce shopping experiences. It’s a perk for customers, but can result in more returns of items that don’t fit. Augmented reality has been deployed a tool for virtual try-on to help cut down on returns.
Bracketing: When a customer buys multiple sizes or colors of an item, then sends back whatever they don’t like.
Try-On Hauls: When people buy numerous different items from fast fashion retailers like Shein, then create content on platforms like TIkTok featuring themselves trying on the items, with the tag “Keep or return.” While similar to home try-on, in this case it is a social trend that is driving the growth of the practice, and not necessarily shopping itself.
Wardrobing: When used and non-defective merchandise is returned after a customer wore it for a specific purpose. This is cited as a fraudulent practice that half of retailers NRF surveyed have experienced.
Price Adjusting: OK, we made the name up. Still, there’s a real behavior at its heart: Customers return an item they bought in one place after seeing a better deal somewhere else. During Cyber Week, Salesforce observed that return rates doubled on Black Friday, likely because customers returned an item they bought earlier in the holiday season after finding a deeper discount on the shopping holiday.
Shoplifting: This is the most obvious example of fraud. NRF found that 41.4% of retailers saw the return of shoplifted or stolen merchandise. Meanwhile, 20% of retailers attributed return fraud to organized crime.
When it comes to returns, retailers face competing forces.
At this point, free returns are expected by customers, and many brands and retailers see them as a necessary element of a shopping experience that doesn’t allow someone to try on an item before buying it. As NRF points out, returns are also a customer-facing function. If done well, it’s another area where people can delight customers, and build loyalty.
However, there are also serious drawbacks that only become more magnified as returns grow. High return rates can deliver a blow to profitability. Plus, the merchandise sent back through reverse logistics systems stresses supply chains, and much of it ends up becoming waste that mars the environment.
How does a retail executive balance those forces? It appears to remain an open question. Just take a look at the policy changes currently being piloted:
There are policies that disincentivize returns, such as Zara, J. Crew and H&M’s moves to test charging for returns.
There are others that are putting forth returns as a perk, like Walmart’s “no concerns” returns test this holiday season that provides free return dropoff, and makes home pickup a feature for Walmart+ members.
There are also continued efforts to make the returns process easier on the delivery process. FedEx recently announced that it will introduce “no box, no label” returns in 2023. Meanwhile, PayPal-owned Happy Returns is seeking to grow in-person return options with its Return Bars, and Amazon is setting up dropoff points at Staples.
Keeping items in circulation provides a second life for goods, and cuts down on returns. It's a big reason why many brands and retailers launched their own resale channels as return rates rose over the last two years.
Whatever the results of these tests, it’s a reminder that it’s a time to think differently about returns. Perhaps blanket policies are no longer the answer.
“Retailers must look for ways to individualize the returns process through data-driven insights,” said Steve Prebble, CEO of Appriss Retail, which worked with NRF on the survey. “This will minimize the risk of accepting fraudulent returns while enhancing the customer experience for loyal shoppers.”
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.”