The holiday shopping season is often a peak for retailers' sales. But the flipside to that boom is it leads to peak returns season — costing retailers billions to handle unwanted, used or damaged goods each year.
The surge in digital shopping is only compounding the pain, as record online sales means record online returns. It's not uncommon to see return rates of 30 percent or more for merchandise that's bought online. Clothing returns can be closer to 40 percent.
In total, Americans returned $260 billion in merchandise to retailers last year, or 8 percent of all purchases, according to the National Retail Federation. That swells to 10 percent around the holiday season. Because less than half of returned goods are re-sold at full price, retailers may end up forfeiting 10 percent of their sales at the busiest time of year, according to Gartner Research.
Unwanted and damaged goods either get tossed out or sent through a lengthy chain of liquidators and wholesalers, paying pennies on the dollar to the retailer before eventually selling them to bargain-hunting consumers.
"Retailers are not very good at managing returns right now, and so unless they invest in their ability to manage returns, the volume of returns coming back will cause problems in their overall supply chain," said Tom Enright, supply chain research director at Gartner.
He warns retailers that dealing with returns the old way is a "ticking time bomb turning into a major cash hole."