Retailers say “just keep it” on some holiday returns

high angle photo of a retail store with makeup and jewelry counters and escalators January 5, 2024

While the holidays are behind us, retailers are still working to manage the flow of returns, estimated to reach $170 billion for the 2023 season. As they balance customer service needs with the desire to reduce the cost of transporting, sorting, restocking or throwing away items, many are telling consumers to “just keep it” with some items. Here’s what’s behind this new approach to managing returns.

Erik Foster

Head of Industrial Capital Markets
[email protected]
+1 312.273.9486

Retailers offset return costs with a “just keep it” mindset

After the surge in holiday shopping comes the inevitable period of returns. U.S. consumers are expected to return about $170 billion worth of holiday purchases from the 2023 season. That’s nearly 30% more than last year, according to Optoro, a retail logistics consulting firm. All those coats, shoes, computers, and general household goods will then be flowing back to retailers’ stores and warehouses to be checked in and restocked. Or will they?

In recent years, retailers have added some creative measures to cut the cost of returns while also balancing the need to accommodate customers. This year many are using the “Just keep it” strategy on some items that are costly to ship back.

Returns from holiday shopping typically start the day after Black Friday and go into February. They are a significant strain on the retail system, as they have to be transported, sorted and then resold or thrown out for a loss.

In recent years, retailers have added a variety of options to cut down on their costs for returns, from offering store credit to charging for returns and encouraging consumers to bring online purchases back to their stores. “Easy returns are a significant marketing vehicle to build customer loyalty and develop a pipeline of repeat customers and lower customer acquisitions costs,” says Carl Quesinberry, Senior Director, Avison Young Consulting Services, who has extensive experience in occupier advisory services.

For the 2023 shopping season, nearly 60% of U.S. retailers surveyed were telling consumers to keep items that were too costly to ship back, such as small kitchen utensils or large furniture pieces, according to goTRG, a returns services firm that surveyed 500 executives with 21 major retail companies. About 26% of companies have such “no return” policies in place, but they are not always publicized due to concern over the potential for fraud.

one hand passing a payment card to another hand over a retail counter

These creative measures are a response to the increasing cost of shipping, sorting and restocking returns. They are also part of each retailer’s logistics strategy that examines how goods are shipped through the various stores, warehouses and logistics centers. Companies track costs throughout the ordering, buying, shipping and return process and often determine that lower cost items – or those with high shipping costs – are not worth taking back.

“Retailers categorize returns into five different categories: Returns & Exchanges, Resale, Repairs, Replacement and Recycling and disposal,” says Quesinberry. “These segments require triage at a center point to determine the best course of action. Reverse logistics facilities require more physical labor and assessment by a human worker to best extract value back from the returned item.”

Holiday returns add up

According to the National Retail Federation and Appriss Retail statistics, holiday returns in 2022 were about $816 billion, 16.5% of the total U.S. retail sales for that year. Retailers spent $171 billion processing those returns and the return rate was in line with the 17.9% rate retailers expect.

According to Chain Store Age, four in 10 consumers said they expect to return at least one gift this holiday season. And, 31% of those shoppers plan to buy several of the same item knowing they can return the ones that don’t work, an approach called bracketing. The challenge for retailers is to offer customer friendly return policies without encouraging bracketing.

Some retailers have made it more difficult to return items by shortening the return window from 60 or 90 days to 30 days during most of the year, while also expanding that window for holiday purchases. Some charge additional shipping and restocking fees on returns made by mail, although they risk driving away customers to competitors with more lenient policies.

In this “just keep it” scenario, an unwanted spatula could be a keeper for the consumer as it would cost too much to send it back. That large ottoman or chair might also be a keeper, but only when the return can satisfy the company’s fraud prevention guidelines. While some items might slip through, most will be thwarted by technology that tracks consumer buying and return behavior. Also, some retailers consider the customer’s previous shopping habits and only extend the service to trusted, loyal customers.

Returns have become an important focus for retailers as they try to manage costs across their logistics network. By tracking returns and implementing different strategies to contain costs, retailers can impact their bottom line – and perhaps change some consumer shopping habits at the same time.

thumbnail image of REIT and economic indicators for 2024-01-02

Sources: CBS News, Chain Store Age, Forbes, goTRG, National Retail Federation, Optore, Reuters