As the holiday season approaches, retailers are preparing for a significant rise in both sales and an unprecedented influx of returns. According to a foreboding report from the National Retail Federation (NRF) and return management firm Happy Returns, returns are projected to reach 17% of all merchandise sales in 2024, amounting to a staggering $890 billion in returned goods. This marks an alarming increase from the previous year’s return rate of 15%, equating to approximately $743 billion. The reality is that while returns occur all year, the frequency spikes during the holiday rush, with retailers expecting holiday return rates to be even higher than the annual average.
Amena Ali, the CEO of Optoro, aptly summarizes the troubling trend: “Ideally, I hope there is a world in which you can reduce the percent of returns,” she says. Still, she warns, “the problem is not going to abate any time soon.” This statement encapsulates the larger issue of consumer behavior that has been evolving in recent years, particularly as online shopping has boomed due to the pandemic.
The pandemic has not only changed the retail landscape but has also instilled new shopping habits among consumers. A significant number of customers now engage in “bracketing,” a practice where they purchase multiple sizes or colors of an item with the intention of returning what does not fit or appeal. Research indicates that nearly two-thirds of consumers admit to utilizing this practice. Furthermore, 69% of shoppers acknowledge they have participated in “wardrobing,” where an item is bought for a specific occasion and returned shortly thereafter — a sharp increase from the previous year.
These consumer tendencies are clearly contributing to the rising tide of returns, with 46% of respondents admitting they return items multiple times a month. This not only impacts profitability for retailers but also strains reverse logistics systems that are ill-equipped to handle the surge of returned merchandise. According to estimates, processing returns can absorb as much as 30% of an item’s original price, leading to a significant financial hit for retailers.
The ripple effects of these returns extend far beyond the financial implications for businesses. A substantial portion of returned items fails to make it back onto store shelves, prompting questions surrounding sustainability. The reverse logistics processes — which involve repackaging, restocking, and sometimes reselling items overseas — contribute to increased carbon emissions, further compounding the environmental dilemma. Data from the U.S. Environmental Protection Agency indicates that in 2018 only 54% of all packaging was recycled, and in 2023, the waste generated from returns reached a staggering 8.4 billion pounds, exacerbating landfills and environmental degradation.
With sustainability becoming a crucial business strategy, retailers are confronted with the dual challenge of managing returns while also addressing their environmental footprints. Failure to innovate in their return management could lead to long-term consequences for both their brand reputation and their operational costs.
In response to these challenges, a notable shift in return policies is occurring across the retail sector. Reports reveal that in 2023, about 81% of U.S. retailers implemented stricter return guidelines, such as shortened return windows and the imposition of restocking fees. And yet, these measures may only partially alleviate the overwhelming volume of returns. Remarkably, some prominent retailers like Amazon and Target are even moving toward a more customer-centric approach, allowing customers to retain products without having to return them for a refund.
Several companies have also pioneered buyback programs to keep items in circulation. Industry leaders like Patagonia, J.Crew, and Ikea have adopted these practices, opting to buy back used items for resale. Retailers like Walmart and Amazon are tapping into refurbished product markets, showcasing an innovative approach to manage unsold or returned inventory.
Looking forward, it is clear that return policies are becoming an essential aspect of the shopping experience, particularly for younger consumers like Generation Z and millennials. A survey indicated that 76% of shoppers recognize free returns as a crucial factor in selecting where to shop, while 67% report that a negative return experience would deter them from future purchases. These insights highlight the shifting consumer landscape, where return experiences are not just an afterthought but are increasingly shaping purchasing decisions.
As the holiday shopping season looms, it’s imperative for retailers to not only adapt their strategies revolving around returns but also facilitate a seamless purchasing experience. In a world where return rates are spiraling, a holistic approach that balances consumer satisfaction with operational sustainability will determine the winners and losers in the evolving retail landscape.