Record breaking vacation means record breaking flood of returns for retailers

Mastercard Spending Pulse says it’s starting to show its holiday retail sales up 8.5% year-over-year from November 1 to December 24. That’s on the low end, but still in line with the National Retail Federation‘s (NRF) original forecast of 8.5-10.5% more vacation growth, although it has since climbed to 11.5%.

Taking into account consumer non-car retail spending and all forms of payment, including cash and checks, Mastercard reports that in-store sales increased 8.1% and e-commerce increased 11%.

The bigger news, however, is that ecommerce sales are up 61.4% from pre-pandemic 2019. This year, e-commerce accounted for over 20% of consumer vacation spending, up from 15% in 2019.

When breaking down by retail category, Mastercard found that clothing stores grew the most, with sales up almost 50% over the previous year. Jewelry stores saw sales increase by almost a third and even department stores grew by 21%.

“Consumers gave big bucks throughout the season, with clothing and department stores growing strongly as shoppers tried to put their best-dressed foot forward,” commented Steve Sadove, senior advisor to Mastercard and former CEO and chairman from Saks.

But before retailers can enjoy the godsend of consumer exuberant vacation spending, they must grapple with the inevitable aftermath: returns. Last year, the NRF estimated that 13.3% of goods sold during the holiday season were returned – valued at about $ 101 billion.

If returns continue at the pace of last year and retailers hit NRF’s original sales forecast of $ 843.3 billion to $ 859 billion, retailers can expect goods to range from $ 112 billion to $ 114 billion this year, including roughly $ 112 billion $ 43 billion to $ 45 billion from ecommerce sales.

However, in a survey of retailers, Inmar Intelligence found that 61% believe that return rates will be even higher this year than last year.

And like everything else, these returns will cost retailers more. A CBRE Optoro report on returns logistics found that the cost of returns will increase 7% this year when all processing, transportation, discounting and liquidation losses are factored in.

Nightmare after Christmas

Some retailers will be more affected than others as returns are not evenly distributed among retailers. For example, e-commerce purchases are returned at a rate more than twice that of in-store purchases. Returns can increase as much as 40% at some retailers, suggested David Sobie, CEO of Happy Returns.

Happy Returns offers around 2,600 drop-off points where shoppers can return online purchases directly without having to print, package, and ship labels. Better yet, Happy Returns will issue an instant refund or exchange. Happy Returns was recently acquired by PayPal

PYPL
as a returns logistics arm and thus closes the circle of the 31 million companies for which it provides payment services.

Online fashion purchases are particularly prone to returns. Brackets, where customers purchase multiple sizes to find the right fit, are a common practice. A Navar study found that 58% of shoppers make this a habit. And even if they don’t put their purchases in parentheses, fit, size or color are the main reasons for e-commerce returns at around 42%.

As already mentioned, there is reason to assume that retailers will record an even higher return rate this year than last year. First, consumers continue to go online for their Christmas shopping, with more than half (52%) of shoppers surveyed by Navar saying they expected to do more online and less in-store this year.

Second, fear of shoppers in the supply chain may have led them to make second or third choice purchases earlier only to find the item they want later in the season, driving more returns. Or disappointed second and third choice gift recipients may decide to return unwanted items.

Needless to say, all of these returned goods will give a boost to service companies that help retailers liquidate excess inventory, such as B-Stock Solutions, a B2B marketplace that allows retailers and brands to list excess and returned goods, to buy and sell.

“Over the past year we’ve seen double-digit growth across the board as retailers looked to optimize inventory,” said Marcus Shen, B-Stock’s chief operating officer.

“A generous and flexible return policy has become part of the marketing strategy. A well-managed return policy will help turn eye-catchers into buyers. This leads to higher overall response rates, which is of course good for our business, ”he adds.

Many happy returns

While returns can be a nightmare for retailers, they are a necessary cost of doing business. And from the customer’s point of view, careful and effective handling of them becomes all the more important the more sales are made online.

“Consumers choose where to shop online based on the flexibility and simplicity of the return process,” said Sucharita Kodali, vice president and principal analyst at Forrester

FORR
. “It’s not something retailers really like, but it’s a cost to business now, especially since so much of the sales for so many categories, especially apparel, are online.”

Forrester identified returns as the next differentiator from competitive retail services, finding that over a third of US online consumers say fear of a complicated returns process has deterred them from buying online.

“A lengthy returns process spoils the entire shopping experience, so returns in 2022 will become the hot point of differentiation in retail. The return policy affects how consumers choose a retailer, ”explains Kodali.

“Easily returns means more return options, quick refunds, going back to a store, and someone else packing and shipping the package,” she adds.

Of course, the best way to deal with returns is to avoid them in the first place. That means better photography, more product details and posting customer reviews. In fashion, the stakes are even higher, requiring accurate size charts and a variety of models of various shapes and sizes.

Kodali concludes, “Smart retailers will follow Wayfair’s

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‘Merchandising-as-a-Service offer’ to better present products and avoid returns from the outset. “