E-commerce is a blessing and a curse in the world of retail. While it’s played a key role in the overall success of retail in recent decades, it’s also saddled the industry with a growing returns problem. For every percentage growth in sales, more items are returned by customers.

As the 2023 holiday season’s returns tallies become more clear, we’re reminded again of the importance of having a good plan in place to limit the negative financial impact that returns impose. Holiday returns for 2023 were expected to total about $148B, according to the National Retail Federation, NRF. That’s compared to $171B for the 2022 holiday season, $151B during the 2021 holiday season, $101B in 2020, and about $100B for the 2019 holiday season.

Returns related to the holidays seem to be on the decline for the first time since the pandemic, which is good news, but that doesn’t tell the whole story. Before COVID and the lockdowns completely shifted consumer buying habits in 2019, retail returns for the year stood around $309B, 8.1% of total retail sales. Returns hit their high watermark in 2022, more than doubling the 2019 number, at $816B or 16.5% of sales. 2023 saw the first decline in total returns in years, at $732B or 14.5% of total retail sales.

Despite that recent decline, the cost burden isn’t shrinking, leaving many retailers to find ways to reverse course.

The Pandemic Effect

Nearly four years ago to the day, the pandemic and the multiple lockdowns took their big swing and changed things forever. As terrible as it was, it was a boon for e-commerce. Lockdowns and distancing turned people away from bricks and mortar to e-commerce, the safest option for in-person shopping.

Prior to Covid, retail growth back in 2019 stood around 3.5%; jumping to 7.6% the next year, then 14.4% in 2021, and back to seven percent in 2022. Growth in 2023 was expected to drop again to somewhere between four and six percent.

The lasting effect of the pandemic on the retail universe is most reflected in e-commerce, as millions of consumers adopted online shopping. This created a very large new group of loyal e-commerce customers; they won’t be giving up this new-found ease of shopping any time soon, and they’ll keep the returns conundrum rolling for years to come.

Returns have always been a negative in e-commerce, the more we shop online, the more likely it is we’ll receive an item that doesn’t fit, or just doesn’t meet the “mark” since we couldn’t try it on or try it out.

Tightening Returns Policies to Lessen the Blow

Returns are no longer a seasonal endeavor, with the biggest hit coming during the holiday season. Today, returns must be viewed as a year-round problem, answered with an “always-on” business strategy.

For every $1B in sales the average retailer lost $165M in returns in 2022, a figure that is ever-growing. During the pandemic, many eased returns policies. Then, as the emergency started to fade, retailers started looking for ways to recover some cost from returned items. The expense of accepting a returned item can be more than the resale potential of that item. Shipping costs also certainly eat up a major piece of that value. Then, add the cost of manpower to process those returns, and other key actions within the returns pipeline; it should come as no surprise that retailers are looking at all avenues to right-size this problem.

About 58% of retailers moved to “returnless” or “keep it” models for their returns. Others have put fees into place to cover some of those costs. Some are offering store credit instead of refunds, while others are asking customers to bring returns back to the physical store instead.

All of this has to be done while keeping customer loyalty the overriding priority. Putting more strict policies into place has to be done in a way that doesn’t alienate customers. The good news is that, in the retail world, customer loyalty isn’t exclusive to a restrictive returns policy.

Maximize Returns Operations, Lower Costs

One thing above all others stands out as far as preserving the value of a returned item. Moving returned items through the system quickly and back into stock for resale is vital here. Retailers that treat returns with the same urgency as outbound orders will realize the benefits.

For so many, this can be difficult at best. That’s why having a great 3PL partner, one tasked to manage returned goods, managing the process in an expedited manner, is absolutely essential. Streamlining the process in a way that reduces transportation costs and accelerates the return-to-market cycle should be the ultimate goal.

This is where the expertise and experience of strong 3PLs can make all the difference, getting rid of the hassle and decreasing the negative cost. But there are plenty of simple things any e-commerce company can do today:

Be prepared: Plan for the influx, being prepared is key to success, especially during the hefty returns season after the holidays. It’s never too early to plan and make sure the returns process is clear and efficient, which can include dedicated teams to handle returns, clear returns policies, and a streamlined system for processing returns.

Pre-empt Returns: Provide tools and information that reduces the chance an item will be returned in the first place. Things like online “sizing” tools, customer feedback with reviews about sizing, sizing charts, and plenty of product imagery as well can reduce the chance a customer’s order won’t “meet the mark.”

Analyze the data: Understand the trends! Knowing why something is being returned in the first place can lead to discovery when data is analyzed in a way that identifies patterns and trends. This can allow retailers to take additional steps in a customized approach.

Communicate with customers: Today’s shoppers increasingly want transparency from retailers, especially during the returns process. Keep them informed, knowing what to expect goes a long way in making up for fees or other policies meant to reduce cost burden.

Automate: Streamlining the returns process with the use of automation can be a major aid to staff. Simple tools like barcode scanners, RFID tech to track returns, automated messaging to keep customers in the loop, and tools to analyze data and trends, can be an e-commerce retailer’s best friend.

Find New Opportunities: E-commerce companies should constantly evolve by finding new opportunities to improve the customer experience. Whether it’s new technology or a new concept, be in the know so you can leverage the latest and greatest!

Returns are, no doubt, a significant challenge. Especially after the holidays. But, with the right approach that addresses this as a year round problem, it can be a great opportunity. For e-commerce retailers that are prepared, are constantly looking for trends and new discoveries, communicating/updating customers inside the returns process, and automating where it makes sense, tackling the returns problem and ultimately reducing the cost burden is within reach.

Most importantly, focus on the relationship you’re building with your warehouse fulfillment center or 3PL. They really are your secret weapon!

It won’t be long before we’re in the midst of the ramp up to the 2024 holiday season. The time to review your returns protocols, review the 2023 data/trends, and build a more efficient system for the next season is now!

Tom Behnke is Sr. Advisor, Boxzooka.