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How do retailers handle so many returned purchases?

Returns cost retailers a ton of money, but some companies say having a good return policy is part of providing a great shopping experience.
Posted at 6:16 AM, Jan 17, 2023
and last updated 2023-01-17 07:18:16-05

The holiday season led to lots of presents — and millions of returns.

The National Retail Federation, or NRF, estimates shoppers returned about 17% of their purchases in 2022, a whopping $816 billion in retail merchandise. Online, more than 1 in 5 purchases get sent back to retailers.

During the pandemic, stores saw a skyrocketing amount of online purchases. The U.S. Census Bureau estimates e-commerce sales spiked by $244 billion in 2020 alone. Customers, of course, like to return their purchases, according to the NRF, making returns an important perk for retailers to offer.

During the height of the pandemic, stores relaxed return policies to increase online shopping. Amazon lengthened the period for returns, as did Home Depot and Best Buy. 

The NRF says returns are an opportunity to provide "a great experience" to customers, adding, "Although accounting-wise a return is a lost sale, from a service perspective a return is a moment of truth."

"When people want to shop now oftentimes they will order a whole bunch of things in different sizes and colors," said Janell Townsend, a professor of marketing and international business at Oakland University.

Customers don't intend to keep most items. Stores call this "bracket shopping," and it's expensive.

The NRF estimates $85 billion worth of goods were returned fraudulently in 2022. There's also the cost of shipping returned items to warehouses, paying employees to restock some items, contracting with firms to resell other items at a steep discount, or covering the cost of burning merchandise or burying it in a landfill.

For every dollar in returned items, the Strategic Resource Group says those logistics cost between 15 and 30 cents. And the amount of retailers' goods that sit in customers' homes before they're returned is by one estimate 30%.

"Retailers are really trying to figure out how they can allow consumers to return but also not have to shoulder all the expense," said Trae Bodge, a smart shopping expert.

To try to reduce returns, companies like Gap and Old Navy have shortened their return windows to a month.

Anthropologie, REI and L.L. Bean now charge a fee of about $6 for mailed returns.

Another cost of returns is the environmental impact.

In 2021, logistics firm Optoro found that returned goods were responsible for 27 million metric tons of CO2 pollution, and 9.6 billion pounds of goods were dumped into landfills

It's something to consider before clicking on the return button — or maybe even before buying in the first place.