Retailers have a lot of worries as they approach the holiday season.
A report from goTRG reveals a retail backdrop influenced by inflation, the upcoming presidential election, and the rise of artificial intelligence (AI). And then there are other growing concerns over rising inventory levels, the problem of returns, and the evolving nature of returns fraud. The survey also notes how some retailers are rejiggering all facets of their holiday strategies from how they time their promotions to adjusting return policies and dealing with fraud prevention.
GoTRG is a reverse logistics firm that helps retailers and manufacturers manage retail returns. The company manages 40 million units annually, and sees returns as a $1.5 trillion problem that represents a significant threat to retailers. The company surveyed more than 450 U.S.-based retailers having annual revenue exceeding $750 million, with the respondents holding the title of director or above in areas such as reverse supply chain, reverse logistics, customer returns, supply chain, merchandising or store operations.
According to Sender Shamiss, goTRG’s CEO and co-founder, the top reasons for returns in fashion are “sizing, fit, color and ‘bracketing,’ when a customer buys multiple items of the same product—such as difference sizes, colors, or styles—with the intention of keeping only one and returning the rest.” He also said that during challenging economic times, “we see consumers return items due to buyer’s remorse.”
“The most common online returns are clothing (23 percent), shoes (16 percent), accessories (12 percent), and consumer electronics (10 percent),” Shamiss said, adding that e-commerce is the channel with the most frequent returns, “hovering around 15 percent to 20 percent, with spikes as high as 30 percent during the peak holiday season.”
And while retailers are implementing different ways to curtail the rate of returns, many try to “save the sale” by incentivizing customers to accept credit for the returned item instead of a refund, a move that is presumed to “result in a new purchase for an equal or higher value item,” Shamiss said. He said that what consumers don’t know is that retailers try to discourage them from returning items at third-party partners—FedEx, UPS—by charging them a fee. Even though the fees don’t cover the full cost of processing a return, the charge could influence if and how the consumer will return the items.
“Consumers can use this to their advantage by understanding that retailers may incentivize them to avoid returns,” Shamiss said, explaining that many brands provide a credit plus money towards an exchange instead of a return.
Inflation and the presidential election
Despite the overall inflationary economic backdrop, the survey found that 60 percent of respondents said they raised prices in the past 12 months to offset the growing costs associated with returns. And 41 percent said they worry that the 2024 presidential election could impact their holiday sales. GoTRG said presidential elections historically result in a temporary dip in consumer spending as shoppers delay major purchases to take a “wait and see” approach until after the election. But despite the concerns, goTRG found that an analysis over the last 40-plus years shows that general election years are no different from any other year. That means there’s no direct correlation or impact on consumer spending behavior throughout the holiday season.
But what may impact holiday retail sales this year has been the rise in AI. Nearly half of retailers surveyed at 47.4 percent are using AI to minimize return rates by offering more detailed product description and sizing information. Thirty-six percent said they used AI or machine learning (ML) to analyze customers’ past purchases and returns to predict if they are likely to return items. Thirty-nine percent use AI or ML to identify products with high return rates and the reason they they are often returned, while 25 percent rely on the critical tool to determine accurate apparel sizes. And AI-powered chatbots and virtual assistants can help streamline customer service by providing instant responses to questions and help reduce wait times during peak shopping periods.
How retailers are protecting their bottom line
Managing inventory and returns could be retailers’ biggest headaches for the season. Data last year from the National Retail Federation, a retail trade organization, indicates that returns fraud ballooned into a $101 billion issue, representing 13.7 percent of all returns.
With fewer shopping days between Thanksgiving and year end, retailers have adjusted their selling strategies. Fifty-six percent of retailers said they have higher inventory levels than last year, and nearly 47 percent said they started holiday promotions before or in early September to help offload the extra inventory. Fifteen percent said promotional sales will begin in October.
But there’s still the problem of returns weighing on retailers’ minds. To combat the problem, retailers plan to implement strategies that they hope will cut down on return rates from e-commerce orders. The top strategy at 44 percent was the implementation of return-shipping fees, followed by limitation of free return shipping to loyalty program members or VIP customers at 42 percent. Thirty-nine percent said they rely on technology to provide greater accuracy on product descriptions and sizing information. That same percentage also said they partnered with a third-party service provider or with the retailer for free, in-person return drop-off. And 38 percent said they are offering free in-store returns. The good news is that there seems to be some signs of improvement. Sixty-three percent this year categorized returns as a severe or significant problem, versus 73 percent a year ago.
For excessive returners, retailers have other options they can use to curtail the problem. They include imposing restocking fees, shortening the window for returns, not allowing them to make returns, and banning them from the website.
But just as some retailers are getting a better handle on strategy to deal with high return rates, a growing concern centers on returns fraud during the holiday season. Over half of those surveyed said returns fraud has become a bigger problem for their business over the past 12 months, with 52 percent indicating that the problem worsens during the holiday selling season.
Leading the list at 17 percent is the return of used, non-defective merchandise. This problem is sometimes referred to as “wardrobing,” where customers wear or use items and then return them as new. Close behind at 16 percent is the returns of merchandise purchased using stolen or otherwise illegal payment methods. And not far behind at 14 percent is the returns of goods stolen or shoplifted, a tactic used by organized groups to convert stolen inventory into credit or cash. Leading the list in a survey earlier this year at 20 percent was the return of shoplifted or stolen goods, followed by wardrobing at 18 percent and the return of items purchased using stolen or illegal payment methods at 15 percent.
