UPS’s Atlanta Regional Super Hub control room – Photo: UPS
Why are holiday gift returns spiking before Christmas this year?
Revealing another wrinkle in the rise of online selling, the peak volume of holiday returns for the first time has arrived before Christmas, according to UPS.
UPS said it expected to ship and process a record 1.5 million returned packages on Wednesday, December 19, dubbing the day, “National Returns Day.” In years past, returns have spiked as the new year began.
“Consumers who got a jump on online shopping in the days before Black Friday are expected to begin returning more than 1 million packages each day in December, jumpstarting the holiday returns season earlier than ever,” said UPS in a statement. “The spike is driven by self-gifting due to retailer promotions, express shipping for deliveries and returns, simplified returns processes and advanced re-stocking and management systems.”
For UPS, National Returns Day will set a record for the sixth consecutive year.
The earlier returns and generally higher return rate throughout December is attributed to retailers increasingly offering holiday discounts well before Black Friday and turning Black Friday weekend into a five-day shopping bonanza, from Thanksgiving through Cyber Monday.
But return rates are climbing overall as e-commerce grows as a percent of sales — online return rates are higher than in-store.
Online holiday spending is being boosted by expanded free shipping options from a number of retailers. Easy returns (free with online and offline options) also support the higher return rate. A new survey from returns specialist Optoro found that 97 percent of consumers are more likely to buy something again from a retailer with which they had a positive returns experience.
According to the “Pulse of the Online Shopper” study from UPS:
- Seventy-nine percent of e-commerce shoppers surveyed said free shipping on returns is important when selecting an online retailer;
- Forty-four percent said the top issue encountered when returning an item online is paying for return shipping.
Retailers’ desire to be generous with free shipping will again face challenges as both UPS and FedEx recently announced plans to increase their delivery rates by 4.9 percent on average post-Christmas and also increase surcharges for additional handling, overages on maximum limits and signature requirements.
- Number Of Packages Returned Expected To Peak Before Christmas, Reflecting E-Commerce Shift – UPS
- For the first time, UPS will handle the most returned packages before Christmas – Washington Post
- The busiest day for holiday returns won’t come after Christmas this year, UPS says – CNBC
- UPS Announces U.S. Rate Changes – UPS
- Shipping Rates to Increase for FedEx Express, FedEx Ground and FedEx Freight Services – FedEx
- Analyst: FedEx, UPS surcharge increases to play ‘big role in the future of free shipping’ – Atlanta Business Chronicle
Discussion Questions
DISCUSSION QUESTIONS: What do you see driving the trend toward continually-increasing and earlier holiday gift returns? Are the higher rate of holiday gift returns largely a cost challenge for retailers or does it present execution challenges as well?
Poll
BrainTrust
Ryan Mathews
Founder, CEO, Black Monk Consulting
Camille P. Schuster, PhD.
President, Global Collaborations, Inc.
I thought the answers outlined in the article addressed most of the issues (self-gifting, for example), but I wouldn’t overlook an important one: mismatched expectations from buying online vs. what you get in reality. Pictures, reviews, and Q&A can all help prevent these issues, but they still occur quite often, and as online shopping grows, the volume of returns from those issues will grow alongside, as retailers figure out what each product needs in order to be able to assure shoppers that they’re getting what they thought they bought.
As the introductory article clearly points out, with the proliferation of online shopping, and combined with liberal return policies at no charge, the unintended consequence is increased returns before the holidays. While this makes the shopping experience easier for the consumer, it places a financial as well as an operational burden on the retailers and the shippers. They are having to handle larger quantities of returns while they are rushing to meet the holiday crunch still in progress! A perfect storm?
There are several reasons for increased and earlier returns: difficulty in determining colors because of the differences in monitors, difficulty determining sizes because of the inability to try things on, earlier sales before Black Friday, a longer sales period over the Thanksgiving period, and people opening gifts when they receive them rather than waiting Christmas. For all these reasons consumers prefer shopping with retailers that have easy return policies. Because online shopping is increasing, returns will also increase. Increased online shopping, consumer expectations, and increased shipping prices all put pressure on retailers in the area of inventory management, quick shipping, and costs. Balancing the contradictions continues to provide a challenge for manufacturers and retailers.
As the percentage of commerce purchases increases so will the rate of returns. And as the “holiday season” extends further and further — with more and more attractive deals — the volume of holiday purchases will also increase. The combination of painless return policies, a holiday season that seems to start before Halloween and the continuing reliance on online shopping is a perfect storm that will continue to drive up returns until one of the three variables changes. And in all probability, that variable will be liberal return policies that allow shoppers to “test” products in the home without a real penalty.
As for the cost to retailers, the execution costs may eventually be greater than the actual value of the returned merchandise. Something has got to give one of these days.
Quite simply you don’t bond with a product bought online as you do in-store. That makes much of it hit or miss once it arrives. The return rates of online will continue to make it less and less profitable compared to in-store.
Spot on Bob! From one old retailer to another!
Free shipping and returns for online orders combined with the rise of self-gifting have shifted purchase behavior as reflected in the UPS study. Programs such as Amazon Wardrobe allow members to order multiple garments for trial over several days before returning unwanted items for free.
Rather than viewing them as increasing the cost of business, consider such programs a way to increase revenues while reducing fit risks for consumers — you build new levels of convenience and create higher satisfaction for the customer at the transaction level and with product enjoyment. That’s how you engender repeat purchases whether online or in-store.
It’s so easy to buy online, now it’s so easy to return! The dark side of online shopping is the execution cost of the vicious cycle of online returns for retailers. Exaggerated by the human cost of managing the revolving shipments in and out of warehouses and stores; item-by-item re-inventoried to be sent out over and over again.
In apparel and shoes, it is well-known that shoppers buy two or three sizes of the same item with the intent of returning two. Online shopping is like a guessing game for the consumer. Reviews, zoom-in close-ups, segmentation, collaborative filtering and 1,000 other techniques lead to more guessing.
Unfortunately, for all the technologies and great photos, online shopping is completely devoid of the sensory cues experienced in the physical world. Online apparel returns are always due to human preference issues. The shopper did not like the fabric, the fit, the length, the color, the drape, and a very long list of random, completely subjective sensory preferences individual to the shopper. Until retailers understand the elephant in the room, warehouse doors will continue to swing both ways.
It’s a self fulfilling prophecy — the easier retailers make returns, the more there will be. Customers all want and deserve a frictionless shopping journey, including returns. Unfortunately this puts an even greater burden on retailers from an execution perspective to manage and process — This has given rise to a new group of vendors that specifically manage returns and even offer marketplaces to liquidate returns that can’t be resold at retail. A new world indeed — retailers must adapt.
Let’s look at the positive side. This is all about easier returns. Much easier than returning to stores.
Easier returns means less risk in making a purchase, with purchasers trying and buying more with less risk. The more they try and buy, the more they keep. So, keep those returns coming.
When buying gifts online, it is easy to make snap decisions on items because there are no unrequested options put in front of the buyer, as can be offered by brick-and-mortar stores. Later, snap decisions are reviewed and many times regretted. This leads to returns. It happens in stores as well when so-called great deals get home. It’s a fact of retail life.
There are two factors driving increased returns this year which are 1.) as stated already, the increase in online purchasing and 2.) the longer season of shopping. The 32 days of shopping this year which is the longest season possible, coupled with the earliest Thanksgiving possible, allows consumers to shop early and return early. The dynamic of easy returns acts as a catalyst for driving up the return count. However in the next few years, retailers are working hard to minimize the costly impact of returns through the use of AR, AI and machine learning — enabling technologies that focus on providing the right merchandise with the initial purchase.
A lot of this is down to the increased volumes sold during the Black Friday period. It underlines two things. First, that the sales growth of online over the period is not quite as good as it first seems. Second, that online comes with lots of hidden costs attached — returns being one of them.
There is an increase in spending, so it makes sense that there might be a proportional increase in returns. Add to that the free shipping and easy returns, and you have a recipe for even more returns. Then the opportunity for a customer to buy online and then return in store adds another level of convenient returns. Sure, there is a cost, and the retailers need to find the formula that factors in returns when setting prices.
Fascinating. We tell consumers we want them to return anything they don’t like. And they do it. And we are surprised.
The online fantasy of cost-free shipping and returns will devastate online at some point – unless online retail begins to charge for what it is: It’s a premium service and should be offered at a premium cost.
Let’s just hope Amazon investors keep up the drumbeat demanding that Amazon begin showing real profits across their business rather than the tiny profits outside of AWS. Only then can the online shopping world begin to establish itself as a real business.
Nikki and Shelley covered the key reason for the spike — e-commerce grows and returns grow with it (the U.S. Census including auto sales shows an increase of ~15 percent year-over-year for Q3 2018). Retailers are also more lax this year with restocking fees and confirmation of purchase while also offering deeper discounts later in the year pushing up replacement returns. And retailers are enabling returns in-store allowing shoppers to continue their shopping experience. Costs are increasing for retailers to manage a return, but so are the tools needed to make it seamless and level the costs. It does come back to execution by the retailer, especially as customers who have a great return experience makes for a great loyalty play (I think a Shopify report suggests 97 percent retention in purchases..)
Retailers are making it easier than ever to return items bought online, which means it’s easier for customers to order more. Whether it’s taking a punt on something or ordering a variety of colors and sizes it doesn’t matter because they can send it back if it doesn’t meet expectations. In many respects it shows that we’re overcoming one of the big e-commerce hurdles — taking a risk on something without having seen or held it. I also think that customers may also be returning goods as better deals on the same products crop up in the run up to the holidays. I’ve seen things drop by as much as £50 since Black Friday to now … if you can send the more expensive version back and re-buy at a lower price why wouldn’t you? I think retailers need to factor further price decreases into their strategy if they don’t want to lose out through returns.
Retailers need to make it easy for consumers to return or risk missing out on a sale to competitors who do. I don’t see it being too much of an execution challenge. Making it easier to return without going into a store is keeping the handling away from bricks and mortar, which are busy with last minute shoppers who have missed out on their delivery windows.
There is certainly a correlation if not causation between the increase in online shopping for gifts and otherwise in late November and early December and the increase in December returns. I also agree with Nikki that as more people shop online, there will be more people who find what they thought they were getting, and the reality of the item delivered differ and generally not for the better. This is a trend that is likely to continue for several years.
Seems to me that analysis of the categorical returns percentages should result in a solution.
The article is very well written and it does capture some points about what is driving the trend toward continually increasing and earlier holiday gift returns. A few more factors driving this trend are:
I agree that returns have a big impact on the cost challenges retailers are facing in today’s market which adds to quantifying the dollar value in terms of revenue. There is some part of the execution as well but we need to clearly identify the timeline along which we are expecting these returns from customers (pre-delivery or in-transit or post-delivery).