Retailers are pre-empting a deluge of Christmas returns with an unpublished policy

Another man’s treasure.
Another man’s treasure.
Image: Reuters/David Ryder
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After scrambling to get goods onto shelves and doorsteps for Christmas, retailers are preparing for a deluge of items that shoppers and gift receivers did not want after all.

Typically, a little over 10% of items come back in returns, and for online sales, which boomed during the pandemic, as much as 18% are returned, according to the National Retail Federation (NRF).

The holiday returns season starts the day after Black Friday and lasts until the end of January, and the reverse logistics to process them piles up on top of existing pressures on the supply chain. “If returns aren’t processed quickly, they take up tremendous space in warehouses and slow down a retailer’s ability to fulfill forward deliveries,” said Meagan Knowlton, director of sustainability for Optoro, a reverse logistics tech company.

In 2020, overall returns added up to $428 billion. The number is expected to be higher this year as US retail demand remains elevated—the federation has forecast about $860 billion in holiday sales alone. “More sales typically leads to more returns, so high-growth retailers are beginning to feel the pain more and more,” Knowlton said.

Some retailers are adopting a “just keep it” return policy

While “free returns” policies are meant to entice purchases, the logistics of getting a product back from a customer and on a shelf is far from free, accruing costs for retailers in customer service, pick-up and delivery, warehousing, and processing, as well as losses from items that are then resold at a deep discount or liquidated.

Though costs across products and industries vary due to things like weight and distance, Knowlton says a return can cost as much as 66% of the price of an item, or $33 for an item whose original retail price was $50. For retailers already facing down the high costs of supply chain chaos, some returns are just not worth the trouble, especially with customers reluctant to venture to store to drop off returns. So some retailers began quietly telling customers to keep their refunded holiday items.

Refunding a displeased customer without asking for the product back is ripe for fraud, so “keep the item” policies are usually unpublished—though they have become widespread. According to a survey in July by Narvar (pdf), a return logistics company, 75% of customers have been told to keep an item they’d already been refunded for. (NRF estimates that about 6% of returns are fraudulent.)

The offer to keep the item was overwhelmingly extended to returning or “VIP” customers—about 90%—rather than first-time buyers, and mostly for cheaper goods. Items less than $20 made up 59% of these types of returns, while only 18% were for items that cost over $50.

Amazon, Walmart, Target, Wayfair, Chewy, Wish, Kohl’s, and Shein, were the retailers mostly commonly cited by consumers in Narvar’s survey.

Returns could help with inventory replenishment

The chaos that caught the supply chain and retailers off guard in 2020 was a trial by fire from which some lessons have emerged. Last year, overwhelmed delivery drivers meant more than a million packages missed Christmas. This year, there are indications that more packages are arriving on time, which could mean fewer returns of gifts that missed their mark.

At the same time, retailers beleaguered by nearly two years of supply chain volatility have a renewed appreciation of unwanted but popular items, which, thanks to automation, can be put back on sale within days rather than months, Knowlton of Optoro said. These returns can replenish retailers’ low inventories, while skirting the astronomical rates and congestion of transpacific shipping.

“This year in particular, we’ve seen more of our retail customers leverage returns to fill the inventory gaps borne out of the supply chain crisis,” Knowlton said.