t’s becoming clear that the holiday season is becoming synonymous with online sales for many retailers. Predictions have been made as early as October that the US eCommerce revenue would see an increase of over 35 percent during the fourth quarter of 2020 in addition to the 11.4 percent market share of retail digital sales enjoyed during Q4 of 2019; sparked as much by the coronavirus as it has been by an increasing level of security in online shopping.
But for many sellers, it may be too early to celebrate. Online orders may have seen a record 24 percent sales volume increase during the 2020 holidays, but that volume may have also resulted in a record number of returns.
The Pitfalls of Return Rates
Return rates have been historically higher for online retailers by as much as one in every three purchases, largely as a result of a difference in shopping habits as well as lax return policies as evidenced by retail giants including Amazon and Walmart. It’s one thing to see a new product in-store where inventory management occurs in real time. It’s another thing altogether for customers to wind up with an entirely wrong order due to poor planning, resulting in an estimated return rate of up to 40 percent.
What this has resulted in has been an entirely new shift in consumer purchasing habits where more customers are taking advantage of free return policies to purchase multiple products in a line, keeping the items they prefer and sending back items which failed to live up to their expectations. The primary appeal of online shopping isn’t just variety, but convenience—and there’s very little that’s convenient about waiting in line at a crowded shopping mall on December 27th.
A 2019 report from business intelligence analysts Narvar revealed that the vast majority of returns were the result of the wrong size, fit or color of an item. However, that same survey indicated that 10 percent of some 3,519 respondents simply didn’t care for their purchase while 4 percent of Amazon shoppers intentionally purchased multiple items knowing they would return some or all of their order.
The difference between 2019 and 2020 is striking. According to a recent study sponsored by PYMNTS, 63 percent of shoppers have already planned for holiday returns while a 2020 survey from Propeller Insights indicated that 61 percent of consumers viewed refund policies as being critical to their purchasing decision; resulting in what the National Retail Federation has estimated to be $101 Billion worth of returned merchandise online in 2020.
Refunds or Returns?
It’s been estimated that the process of handling returns can cost businesses an average of 10 percent of total supply chain costs. With anticipated shipping rates scheduled to increase in 2021, more retailers are finding that providing refunds for relatively inexpensive gifts or weight intensive items are a more cost effective solution to managing the process—even without physically making a return.
According to a recent report in the Wall Street Journal, both Amazon and Walmart are just two of the digital retailers who are using artificial intelligence to estimate the cost value of managing returns; a factor which can be as contingent on the cost of extra labor and resources as it is shipping. As a result, retailers have begun issuing a full refund for customers on selected low holiday sellers, encouraging them to keep or donate the item rather than incur shipping fees.
It’s a trend which could be threatening to take off. Recent estimates suggest an increase in digital return rates of 70 percent in 2020 in comparison with the previous year, while UPS is anticipating a 23 percent increase in returns totaling some 8.75 million in packages during the week of January 4th—typically peak season for return deliveries.
How Retailers and Sellers Can Adjust to Increased Returns
Simplify the return process by providing an automated return system.
Make certain any return policies are clearly stated in your listing to avoid confusion
While free returns encourage future sales, make certain your present volume can command them without cutting into your profit margin.
Allow a flexible window of time for customers to make returns (note that for Amazon sellers, this will be typically automated within 30 days after the receipt of a purchase.)
Cut down on cart abandonment by reinforcing your return policy during the checkout process.
Ensure you’re getting the most cost effective shipping rates by diversifying transportation and fulfillment services during peak seasons.
As digital purchasing cycles continue to evolve in 2021, the need for retailers to adapt to changing customer demands has never been more critical. Purchasing habits are changing constantly in eCommerce and no season is guaranteed to be equal. Failing to have a process in place to manage customer expectations can be detrimental to your success. And customers are demanding friendly return policies now more than ever. They may seem frustrating; but it can mean the difference between customer loyalty and customer abandonment.
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