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The holiday season brings with it a flurry of gift-giving and, inevitably, a surge in shopping. As Black Friday and Cyber Monday approach, many shoppers may consider snagging deals with the safety net of easy returns. However, it’s important to note that many retailers have been quietly tightening their return policies in recent years.
In my role as a marketing professor, I delve into how retailers handle the wave of returns that often follow major shopping events, shedding light on the hidden costs associated with convenience. While returns might seem like a standard aspect of retail, they entail significant complexities. The National Retail Federation reports that returns cost U.S. retailers nearly $890 billion annually.
This hefty sum is partly due to returns fraud, which ranges from “wardrobing”—where shoppers wear purchased items once before returning them—to more deceitful actions like falsely claiming an item never arrived.
Returns also demand considerable resources due to the need for reverse logistics: shipping, inspecting, restocking, and often repackaging items. Many returned goods can’t be sold at full price or end up being liquidated, leading to revenue loss. Additionally, processing returns incurs labor and operational costs that further diminish profit margins.
How e-commerce transformed returns
While return options have been part of retail for decades, their prevalence has surged in recent years, mirroring shifts in shopping behaviors. In the era before online shopping, purchasing was a tactile experience—shoppers would feel fabrics, try on clothing, and view colors in natural light. If something didn’t meet expectations, customers would return items to the store, where staff could promptly inspect and restock them.
Online shopping changed all that. While e-commerce offers convenience and variety, it removes key sensory cues. You can’t feel the material, test the fit or see the true color. The result is uncertainty, and with uncertainty comes higher rates of returns. One analysis by Capital One suggests that the rate for returns is almost three times higher for online purchases than for in-store purchases.
When the COVID-19 pandemic hit, the move toward online shopping went into overdrive. Even hesitant online shoppers had to adapt. To encourage purchases, many retailers introduced or expanded generous return policies. The strategy worked to boost sales, but it also created a culture of returning.
In 2020, returns accounted for 10.6% of total U.S. retail sales, nearly double the prior year, according to the National Retail Federation data. By 2021, that had climbed to 16.6%. Unable to try things on in stores, consumers began ordering multiple sizes or styles, keeping one and sending the rest back. The behavior was rational from a shopper’s perspective but devastatingly expensive for retailers.
The high cost of convenience
Most supply chains are designed to move in one direction: from production to consumption. Returns reverse that flow. When merchandise moves backward, it adds layers of cost and complexity.
In-store returns used to be simple: A customer would take an item back to the store, the retailer would inspect the product, and, if it was in good condition, it would go right back on the shelf. Online returns, however, are far more cumbersome. Products can spend weeks in transit and often can’t be resold – by the time they arrive, they may be out of season, obsolete or no longer in their original packaging.
Logistics costs compound the problem. During the pandemic, consumers grew accustomed to free shipping. That means retailers now often pay twice: once to deliver the item and again to retrieve it.
Now, in a post-pandemic world, retailers are trying to strike a balance – maintaining customer goodwill without sacrificing profitability. One solution is to raise prices, but especially today, with inflation in the headlines, shoppers are sensitive to price hikes. The other, more common approach is to tighten return policies.
In practice, that’s taken several forms. Some retailers have begun charging small flat fees for returns, even when a customer mails an item back at their own expense. For example, the direct-to-consumer retailer Curvy Sense offers customers unlimited returns and exchanges of an item for an initial $2.98 price. Others have shortened their return windows. Over the summer, for example, beauty retailers Sephora and Ulta reduced their return window from 60 days to 30.
Many brands now attach large, conspicuous “do not remove” tags to prevent consumers from wearing items and then sending them back. And increasingly, retailers are offering store credit rather than cash or credit card refunds, ensuring that returned sales at least stay within their company.
Few retailers advertise these changes prominently. Instead, they appear quietly in the fine print of return policies – policies that are now longer, more specific and far less forgiving than they once were.
As we head into the busiest shopping season of the year, it’s worth pausing before you click “purchase.” Ask yourself: Is this something I truly want – or am I planning to return it later?
Whenever possible, shop in person and return in person. And if you’re buying online, make sure you familiarize yourself with the return policy.
Lauren Beitelspacher, Professor of Marketing, Babson College
This article is republished from The Conversation under a Creative Commons license. Read the original article.