It was a very Merry Christmas for retail. Cyber Monday on Nov. 27, 2017 was dubbed the, “largest online shopping day in history.” The first three weeks in November scored retailers 18% more in sales than 2016. And, the icing on the cake was that stocks even rose to double digits for big-box retailers like Kohl’s, Macy’s, Target and Ralph Lauren. This has made even the most Grinch-like skeptics of retail had their own hearts grow three sizes bigger after hearing those numbers. But, there is a catch. As people take down their trees, lights and décor, they also made merchandise returns in record numbers.
Growth of E-Commerce
Now that consumers purchase more items online for the holidays than ever before, there are more returns. When buying online, one does not fully know how a product will look or fit until it is seen in physical form. According to Buzzfeed News, e-com returns account for 25% of all merchandise bought online. It is no surprise that apparel has it worse where almost 50% off all online purchases are returned as fit can be tricky to assess through a computer screen.
In addition, online shoppers have demanded free shipping from retailers. A survey by UPS reported that 79% of shoppers expect free shipping and free returns. Amazon even changed their return policy in favor of the customer. CNBC described the policy saying that Amazon Marketplace sellers who forego Amazon’s fulfillment centers and ship products themselves will have any return automatically authorized. For the holidays, many retailers were forced to loosen their return policies to stay competitive. But, it has led to unexpected costs.
Someone’s Got to Pay
Besides taking the monetary hit on shipping and return shipping costs, there are other ways retailers are paying. Optoro, a reverse logistics platform, states that around 50% of returns are restocked and resold. But, the other half, to the tune of 5 billion pounds of returned goods, take up residence in local landfills. Even worse, is that usually special merchandise is brought out for the holidays and by the time consumers make their returns, stores are no longer selling the item. Therefore, companies eat the cost of the item in its entirety as it’s no longer about to be put back on shelves. This is especially true for apparel as next season’s clothing is already adorning shelves and racks.
The rise of e-commerce as the means for consumers holiday shopping creates new opportunities for growth as well as new logistics problems to find solutions to. Free shipping and free returns create and environment in which they feel safe to make more purchases, thus increasing sales. But, the costs of returns and unsellable merchandise eats at those profits. Move over Retail Apocalypse, there’s a new problem to solve.