Holiday sales bring harsh e-commerce realities to light, forcing online retailers to find a solution

Monday, Jan 18, 2021

Returns are a harsh reality for several e-commerce retailers today. Online returns have more than doubled from 2019 to 2020, leaping 70%.

Now that the holidays have passed, returns have become even more heightened – especially from online orders. Retailers expect 13.3% of merchandise sold during the holidays to be returned. From this holiday season alone, there is predicted to be a 73% jump in e-commerce return totals from the previous five-year average.

USPS was experiencing major delays during the holidays, with nearly two billion packages arriving past Christmas. This is now causing thousands of deliveries to go back, which will likely add to the record-setting return numbers from the past year.

Because of this, major retailers are now offering a new choice to customers when it comes to returns. They refund the purchase price and then let customers keep the unwanted merchandise instead of giving it back to the retailer. For lower-cost items, this makes the most financial sense. There are limited circumstances where big box retailers, such as Walmart, Amazon and Target, can resell that item.

Now that the return season is upon us, some of America’s largest retailers are processing refunds from online orders while also telling consumers to keep those items. For e-commerce, there are a lot of hidden costs, such as shipping and packaging. Processing online returns can cost anywhere from $10 to $20. Most of the time, if it’s an inexpensive item, the cost of processing that return is greater than the cost of the product itself. For retailer’s adapting this solution, this policy only applies to inexpensive items.

This has become an innovative approach, first adopted by Amazon and then other retailers started to follow in pursuit. While this solution only applies to certain items, it’s likely to be adopted by more big box retailers as return rates to continue to grow.

“Returning to a store is significantly cheaper because the retailer can save the freight, which can run 15% to 20% of the cost,” said Rick Faulk, Chief Executive Officer of Lucus Robotics, a company that uses robots to help automate returns.

Faulk also noted that online return rates run about triple those of purchases made in physical stores. With in-store returns, this will allow retailers to reduce the hidden costs associated with e-commerce, but also encourage consumers to make additional purchases.

This solution has encouraged consumers to find inventive ways to recycle or give away their unwanted products. A woman recently tried to return a $16 cat harness that was too small from online pet retailer, Chewy. The company refunded her, but then told her to keep the harness and donate it to an animal shelter – she loved the idea.

Whether its adapting new ways to ease profit erosion or integrating a company to do that for you – retailers have become forced to think innovatively to solve these issues. Happy Returns is a company that was created to help eliminate these issues, providing an in-store solution to allow consumers to bring in returns from multiple brands all at once. Although it’s a relatively new startup, we are betting on this company and its ability to reinvent returns.

Holiday sales have showed us the harsh realities (and costs) of e-commerce returns. This creates an unknown future for online ordering, especially with direct-to-consumer and dot com brands seeking opportunities in the brick-and-mortar space. Although it does not permanently solve the issues associated with e-commerce, letting consumers donate/keep their unwanted items provides a short-term solution.

Source: Merchandise Returns – CSA, New Approach to Returns – Business Insider, Amazon, Walmart Skip Returns
Photo Credit: Merchandise Returns – CSA

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