More online sales mean retailers need to solve a $50 billion returns problem this holiday season

Key Points
  • The value of returned online orders this holiday season is forecast to total as much as $41.6 billion.
  • UPS has said it anticipates handling more than 1 million returned packages every day this holiday season, reaching a peak of 1.9 million items on Jan. 2.
  • Retailers are trying to find ways to cope, with $50 billion in profits left on the table each year.
A woman works at a distrubiton station at the 855,000-square-foot Amazon fulfillment center in Staten Island, New York, on February 5, 2019.
Johannes EIsele | AFP | Getty Images

'Tis the season for giving gifts and then returning that sweater your mom gave you that didn't fit.

The new normal for many consumers is buying gifts from the comfort of the couch. And as online sales continue to grow, the amount of items that people are returning during the holidays only continues to grow with them. To records.

Shoppers are expected to return $41.6 billion worth of merchandise bought on the internet this November and December, according to a study by commercial real estate services firm CBRE, in partnership with Optoro, a company that helps retailers process returns. That's up from a projection of $37 billion last year, and would make an all-time high, the report said.

This figure is calculated by assuming shoppers return, on average, 15% to 30% of online purchases. That's compared with a return rate of about 13% for shoppers at bricks-and-mortar stores.

The report by CBRE and Optoro said the overall returns rate in the retail industry continues to grow at 10% annually. This year, total returns of purchases made both in stores and online during the holidays are expected to top $100 billion, up from more than $90 billion last year, the firms said.

The United Parcel Service, meanwhile, has said it anticipates handling more than 1 million returned packages every day this holiday season, reaching a peak of 1.9 million items on Jan. 2, which would represent a 26% jump from the highest rate in 2019.

The retail industry should be taking the $41.6 billion seriously. Companies, more than ever, need to be prepared to handle a surge in returns of e-commerce orders. If they're not, they risk running into packages getting tangled up along their supply chains, with customers waiting on refunds to hit their credit cards, and then returned merchandise going unsold.

The retail industry loses $50 billion each year because of inefficiencies with handling returns, Optoro said. And it said there are more than 10 billion instances annually of "needless shipments," which, as an example, could amount to an item taking an extra trip to a warehouse that could have and should have been avoided.

"[The holidays] are a time when retailers are seeing all these sales and that does translate into rising profit margins," Matt Walaszek, associate director of industrial and logistics research at CBRE, said. "However, the returns are quite costly. ... The costs are the No. 1 stressor for the retailers."

Companies are finding other pain points, especially when returned merchandise sits untouched, without being processed and turned around to be resold. Returned apparel can lose 20% to 50% of its value over eight to 16 weeks, according to Optoro. Electronic devices lose 4% to 8% of their value each month, the firm said.

If retailers can't resell returned merchandise in their own shops, many will try to put it in discount stores, or give it to other companies that buy resold merchandise. The worst case is they destroy it. And Optoro says returns generate 5 billion pounds of waste in U.S. landfills each year.

Some retailers are proactively taking steps to try to ease the pains, and trash, that come with returns.

Now, you can return anything you've bought on Amazon at any one of Kohl's more than 1,000 stores, and Kohl's doles out coupons to people who use that service. Nordstrom is opening up pint-sized shops known as Nordstrom Local that don't actually house any inventory but are meant for services like alterations and handing online returns.

A company called Happy Returns has drop-off locations across the country. And it has partnered with brands — many of which don't have many of their own bricks-and-mortar stores — like shoemaker Rothy's and apparel companies Everlane and Revolve, to accept their returns there.

Target and Walmart have heightened marketing around the fact that shoppers can make their online returns in stores, at kiosks that they've positioned at the front to make it more convenient for people who would rather mail the items in. Retailers are hoping to cut back on their own shipping expenses.

"Customers have gotten really accustomed to free returns," Walaszek said. "We are really spoiled. And retailers have to figure this out to be able to compete in this marketplace."

The National Retail Federation is calling for holiday retail sales to increase between 3.8% and 4.2% this year. That would amount to sales of between $727.9 billion and $730.7 billion. NRF is expecting online and other nonstore sales in 2019, which are included in its total forecast, to climb between 11% and 14%, amounting to between $162.6 billion and $166.9 billion.

Here's which retailers are thriving during the holiday shopping season
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