Why Shifting Return Policies Can Create Shopping Surges

Shopping surges over the holiday season brought higher returns volumes, costing retailers significant financial burdens to process unwanted items. Compounding the issue, online shopping has soared in recent years, with return rates hovering between 20 percent to 30 percent. To offset rising costs of reverse management, many retailers are adjusting policies to incentivize in-store returns, driving record numbers of shoppers to stores. This approach could have the added benefit of creating a second shopping wave during this post-holiday season. Let’s explore.

Mounting Returns Costs

Retailers want to prioritize positive shopping experiences for their customers, which often means long return windows and free shipping. However, e-commerce returns cost retailers an average of 55 percent of a product’s retail value. This staggering sunken cost is why 73 percent of retailers now rate returns as a severe problem for their business:

• Shipping and transportation peaked at a 37 percent year-over-year increase earlier in 2022. Rising freight costs are a significant problem because most retailers lack the infrastructure and staff to route items efficiently to processing locations.
• Labor cost increases peaked at around 16 percent in 2022. The latest Employment Cost Index Summary shows that overall wages are up 2 percent YoY.
• On top of labor and shipping, retailers must also pay service and processing fees, including warehouse storage, refurbishment and repackaging.

Retailers dealt with $816 billion in returned goods in 2022. and few can afford another record year.

Rethinking Returns Policies

Feeling the pain from rising expenses, 60 percent of retailers told goTRG they made changes to their return policies in 2022, including:

• Eliminating 90-day return windows, with one-third of retailers instituting seven-day return windows.
• Charging e-commerce shoppers additional shipping and restocking fees, such as $6 for mailed returns to Anthropologie, REI, and L.L.Bean. Or making customers purchase postage, like Kohl’s, which provides no pre-paid return label and warns that online returns refunds may take up to 30 days after receiving the item.
• Issuing refunds only for products that meet condition and category requirements. Target, for example, doesn't issue full refunds for opened music, movies, video games and airbeds. Macy’s only offers free returns shipping on certain categories, excluding gourmet gifts, beauty boxes, and bulky items like lamps, mirrors, furniture and area rugs.

These policies encourage customers to return items in-store rather than mailing them back, preventing retailers from paying exorbitant freight fees. In-store shopping also allows store associates to resell eligible unopened items immediately. Finally, in-store returns increase foot traffic, leading to more purchases.

Shoppers Prefer Making Returns in Person

Fortunately, retailers’ stricter policies align with customers’ preferences to bring returns back to stores over mailing them.

• Customers hate dealing with shipping. A recent survey revealed shoppers are tired of mailing in returns, ranking in-person, box-free returns as their No. 1 preferred method.
• Customers like convenience and saving time. Driving to the nearest store means customers get a full refund faster, which is why 62 percent of shoppers are more likely to purchase online if there's an option to return items in-store.
• Customers want to speak with humans. When given the choice of how to communicate with a brand, a TCN consumer survey found most prefer a live person. Human interaction can help retailers deliver a great customer experience and inspire more purchases.

Holiday returns are inevitable. Still, getting more people in stores post-holidays can bring a second wave of shopping.

A Valassis survey illustrates the value in-store returns have:

• 77 percent of shoppers say they’re more likely to purchase other items when returning or exchanging in physical retail stores; and
• 20 percent said they spent more on new purchases than on the original unwanted item. Plus, these secondary purchases are far less likely to get returned. Compared to online shopping returns rates (20 percent to 30 percent), customers typically return in-store purchases at half the rate (9 percent).

The Bottom Line

Online shopping and returns go hand-in-hand, but retailers can minimize holiday returns costs by ensuring in-store returns are the most convenient and ideal option. Not only do in-store returns offset shipping and processing expenses, but they also increase foot traffic, allowing retailers to drive incremental sales and strengthen customer relationships. With targeted discounts and promotions and well-trained staff, retailers can transform holiday returns into a shopping wave in the first few months of 2023.

Fara Alexander is director of brand management at goTRG, a returns management solution for retailers.