Retailers face the rising costs of product returns

In my role as a consumer, I was a big fan of shopping online well before the pandemic hit. 

And once it did hit, my shopping became even more “e-centric.”  The one-two punch of the pandemic, coupled with my aversion to hitting the mall, resulted in my buying all of my Christmas presents last year online — and virtually all of them from Amazon.

Here’s why: I was able to find everything I was shopping for on the Amazon site. The prices were always competitive and the return policy so generous that it made hitting the “buy now” button a snap.

But, when I don my industry cap, I find myself wondering if easy-peasy returns are healthy for the industry.

It’s no secret that as sheltering-in-place shoppers bought everything from soap to sofas online, e-commerce sales skyrocketed.

What failed to garner an equal share of the headlines was that online returns had also shot up considerably.

According to a survey conducted by the National Retail Federation and Appriss Retail, a company that has developed an app to track retail returns, retailers got back about 17% of everything they sold online in 2021, compared to an average return rate of a bit over 10% the previous year.

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The study placed the value of the returns in 2021 at a whopping $761 billion, and we know that suppliers had little choice but to step up to the table and eat a good portion of that amount.

Just about every source I checked out agrees that purchases made online have a significantly higher return rate than do purchases actually made in-store, and that makes sense.

In-store shopping gives the consumers a chance to see, feel, touch and in the case of furniture, sit on the item being considered.

According to a package-tracking company called Route, “For in-store purchases, about 5% to 10% result in in-store returns. But when it comes to the digital shopping brethren, return rates rocket to a surprising 15% to 40% of online purchases depending on the industry.”

The topic of returns also attracted the attention of the staff at Fast Company, and in a recent article they published about returns they said: “Processing the average return costs companies 59% of the original sales price of the item. Every year, U.S. companies spend an estimated $50 billion on product returns. At the same time, those returned goods are responsible for massive landfill waste and 27 million tons of carbon dioxide emissions annually.”

You know the problem has gotten bad when some of the country’s biggest retailers, including Walmart, Amazon and Target, tell customers planning to return certain items, “We will issue you a credit, but don’t return the item, keep it.”

With costs for shipping and logistics escalating, a growing number of retailers did the math and concluded the cost to them to get back a returned item often cost more than the actual cost of the product sold.

And, as we unfortunately know all too well, consumer returns ultimately end up as charge-backs, more often than not to the supplier.

In doing research for this column, I came across a number of startling statistics involving charge-backs that are likely to impact retailers this year:

  • According to Lexis/Nexis, retailers lose (on average) $3.75 for every $1 lost to charge-backs.
  • Statista found that 75% of e-commerce retailers saw an increase in fraud attempts in 2021.
  • Chargebacks911 reported that the average cost of a charge-back this year is expected to be $190.
  • CyberSource concluded that “friendly fraud” is the No. 1 fraud attack plaguing retailers.

Friendly fraud occurs when a customer makes a purchase online for a product or service with their credit card and then contacts their credit card issuer to dispute the charge.

At a time when inventory levels are still higher than incidences of consumer purchases, charge-backs and friendly fraud are no friends to retailers or their suppliers.

Riskified, a firm specializing in reducing return fraud, lists the following tips:

Potential prevention methods can include:

  • Defining expectations: Be clear about your return policy and what you will accept for a refund. Only in the original packaging? Only with a copy of the receipt? Have it stated on your website or wherever relevant. Consider also stating it on your checkout page.
  • Shortening the return window: For merchants selling seasonal or limited items, shortening the return window could help prevent switch fraud, for example.
  • Offer specific shipping options: For online and mail order items, there should be a clear and documented process for shipping back returned items. Many retailers use only specific shipping companies, require certain packaging, or offer coded return labels for convenience.
  • Charge a restocking fee: This may seem like an inconvenience to your customers, but it’s a reasonable request for higher-end items.
  • Streamline internal processes: The most effective weapon against receipt fraud is the employees who process the returns. Streamline these processes, making sure that receipts are closely examined and returned items are carefully inspected. With occasional abusers, catching an attempt can help discourage them from targeting your store again.

At a time when every dollar counts, now is the time to be vigilant about bogus returns, friendly fraud and counterfeit charge-backs.

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