Retailers may pay customers to keep returns

In 2023, retail returns surged to a staggering $743 billion, accounting for 14.5% of total retail sales. Notably, the return rate for online purchases was higher, at 17.6%, translating into $247 billion, compared to 10.02% for in-store purchases. As retailers grapple with the financial burden, many have started innovating their return policies to alleviate costs and improve customer satisfaction.

Among the most significant changes is the growing trend of "keep it" return policies. First introduced in June 2022, a CNN Report stated that Target, Walmart, Gap, and Urban Outfitters are seriously weighing their options for revising their return and exchange policies. The first major retailer in the e-commerce space, Amazon, launched a "returnless return" policy for certain cheaper, expensive-to-ship items several years ago—when the cost of receiving the return outweighs the cost of the merchandise.

Retail Returns hit 16.6%, up by 6%

According to a survey by the National Retail Federation and Appriss Retail, retail returns hit an average of 16.6% in 2021—up from 10.6% the year prior—adding up to more than $761 billion of merchandise that's likely to end up back in stores, outlets, and warehouses. They can also move them to foreign liquidators in Canada, Mexico, and Europe.

Research shows that in 2023, about 13.7% of total returns were attributed to abuse and fraud, costing the industry $101 billion. This has led retailers to balance customer convenience and managing costs by offering store credits and leveraging third-party drop-off points to streamline the returns process.

42% of retailers reduced the return window in 2023

In 2023, approximately 42% of retailers reduced the return window, with many cutting the period from 60 days to as short as 14 days. Additionally, 36% made certain items non-returnable, and 30% introduced flexible restocking fees and shipping charges. For instance, some retailers charge different amounts based on the reason for the return, effectively managing return logistics and associated costs more efficiently.

While, Zappos, Walmart, and Target maintain long return windows

Despite these changes, certain retailers offer remarkably lenient return policies to attract and retain customers. Zappos, for example, allows returns up to 365 days from the purchase date, offering unparalleled flexibility. Other brands like Walmart and Target also maintain customer-friendly return windows of up to 90 days, with online and in-store returns options, including curbside services.

The 'Keep It' Return Policy: Amazon

The first major retailer in the e-commerce space, Amazon launched a "returnless return" policy several years ago for certain cheaper, expensive-to-ship items when the cost of receiving the return outweighs the cost of the merchandise.

Rising fuel costs and ongoing troubles at ports across the country make selling products overseas challenging. Insiders say some of these large companies are considering a 'keep it' option for returns this year. While the 'keep it' policy has advantages for retailers in the current market, it does have one drawback: fraud. Customers may buy up more merchandise and make false return claims, leading to even more increased returns.

Strategies for handling e-commerce returns

Various strategies have driven innovations in handling e-commerce returns. Retailers are increasingly using data analytics to monitor returns and identify patterns, which helps adjust inventory and improve product descriptions to reduce the likelihood of returns. Creating user-friendly returns portals and constantly refining these processes are key measures to manage returns efficiently.

Adopting artificial intelligence (AI), augmented reality (AR), and other tech solutions in e-commerce are emerging trends aimed at reducing return rates. AI can offer personalized shopping experiences, while AR allows customers to try products before purchasing virtually, thereby minimizing the mismatch and subsequent returns.

As the retail industry continues to confront the challenges posed by return logistics, innovative return policies and advanced technologies are set to play a crucial role. The balance between leniency and cost management will define the evolution of return policies, with the focus increasingly shifting towards customer satisfaction and operational efficiency.