The more things change, especially in retail, the more they remain the same. Case in point: free returns. And the returns are killing retailers who otherwise have a lot to be happy about this holiday season.
Retail sales are estimated to be up around 3.4% this season, according to an early report from Mastercard. Online sales saw a much bigger jump of 18.8% compared to 2018, leading one to wonder just how big a bite these will take out of seasonal sales and earnings when retailers report in February.
Returns are a big problem for retailers, particularly for apparel purchases and UPS expects these to be up 26% on its busiest day of the year (Jan. 2) with 1.9 million returned packages to be processed in one day.
A lot of this is fueled by the promise of free shipping and returns, something that has become table stakes today. Return volume has climbed along with online sales – “This process is a change from years past, when consumers would rush to physical retailers the day after Christmas and stand in long lines to make returns,” UPS said in a statement.
But the problems of returns and their associated costs are hardly new for retailers.
Back in the early 2000s, an executive with a large national retailer addressed a conference on the subject or returns by recounting how this company implemented a radical return policy: Everything can be returned, any time for any reason. It was revolutionary in this time before e-commerce when Nordstrom stood out one of the few as holders of this policy.
The results were an immediate hit. “It was like the first time you try cocaine,” was the hilarious and highly inappropriate analogy from the executive. It felt great. Customers loved it. The stores were energized. Everyone was high on the new policy. Sales and traffic went up, but returns and all the related costs also increased, by a lot. It wasn’t long before executives realized they had to make modifications, implement some rules: shorter return windows, rules about being in the original packaging, even restocking fees in some cases. Consumers were not happy.
“It was a lot like cocaine withdrawal,” was the analogy, and an apt one at that.
Retailers today are dealing with a new iteration of the same problem, one made worse by the ease of e-commerce with its free shipping and returns. Some $369 billion in merchandise was returned in 2018, according to a study, some 10% of all retail sales although that number is much higher depending on the product category. In apparel, return rates are twice that of other holiday gifts and 85% of consumers say they plan to return apparel gifts this season, according to survey by ShipStation, shoes came in a distant second at 28%.
Expect 2020 to the year that retailers try to take back some control. Some are already making it harder for consumers to return goods by not including prepaid shipping labels or forcing them into stores to make the return in person. It’s another advantage that physical retailers have in their battle with Amazon. A lot has been made of how brick and mortar locations are helping to reduce costs by serving as online fulfillment centers, but the benefit in reducing the impact of returns will be come a more common topic on earnings calls going forward.
Easy and free returns are part of Amazon’s customer promise and its fulfillment system is a weapon that will continue to be wielded against competitors. Add this network of stores and lockers where returns can be placed, and it’s clear that Amazon plans to keep this as a competitive advantage.
But for the rest of retail, consumers will likely see liberal policies restricted likely in small ways. Best to sneak some policy changes in slowly and unobtrusively, because as inappropriate as the drug analogy may have been all those years ago, free returns really is like a drug and trying to change consumer behavior and wean people off this perk can have painful and costly consequences.
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December 27, 2019 at 04:52AM
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How Soaring Returns Could Ruin Retail - Forbes
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