The peak-season returns cycle came to end around the middle of January. While no final data is available, the consensus is that would be as unprecedented as the forward part of the delivery process.
U.S. consumers returned an estimated $101 billion in merchandise this past holiday period, equal to about 13.3% of the value of all ordered holiday merchandise, according to a survey of 62 retailers published Jan. 11 by the National Retail Federation and Appriss Retail. The increase in year-on-year returns traffic came from online ordering, where the value of returns during 2020 more than doubled over 2019 levels, the survey found.
Consumers returned an estimated $428 billion in merchandise to retailers last year, approximately 10.6% of total U.S. retail sales in 2020, according to the report.
The survey found that for every $1 billion in sales, the average retailer incurs $106 million in merchandise returns. Additionally, for every $100 in returned merchandise accepted, retailers lose $5.90 in fraud.
Returns, and the reverse logistics process supporting them, are gaining in relevance. Retailers that once housed forward and reverse logistics in one facility are now looking very seriously at buildings dedicated to returns handling. Providers that specialize in reverse logistics will also be in strong demand in the years ahead as returns management increases in complexity along with importance.
In mid-January, FreightWaves chatted via email with Ryan Kelly, vice president, global e-commerce marketing at FedEx Corp. (NYSE:FDX), to get a view of the returns landscape and how the company seeks to simplify a confusing process for consumers and retailers.
Q: Other than the record volumes, was there anything that stood out to you about returns during the peak season?
A: We actually saw more return volumes in December than in January. We believe that’s likely due to people buying online earlier this year, which means they also started their returns earlier. An increase in returns was definitely the result of online shopping from the pandemic and peak. However, another reason might be the influx of consumers who were new to online shopping and were unfamiliar with matching items on a website with their expectations.
Q: At this point, is the focus in returns management on generating value for the returned items, or in satisfying consumers who increasingly consider the returns experience a key factor in using a retailer again?
A: Recent FedEx research shows that returns absolutely matter to online shoppers. About 52% of those surveyed have abandoned a shopping cart due to a seller’s returns policy. Customers want a hassle-free experience that includes free shipping — or to be able to return a purchase to a storefront — and easy access to a shipping label. FedEx offers an extensive portfolio of returns transportation, label creation options and technology to provide a frictionless experience for both consumers and retailers.
Generating value for the returned items is definitely still important. However, returns cannot always be resold. Forrester estimates that about “half of online returns have little to no salvage value.” Returns mean reduced cash, profits and margins. This is why we strongly recommend to merchants that they develop a returns strategy that makes sense for them.
Q: The complexity of reverse logistics is due in part to the asymmetrical nature of returns, that most are not returning to the retail store or distribution center of origin. Has visibility technology advanced to the point where this core issue has either been resolved or mitigated?
A: A big part of the solution lies with broadening the network of access points to expand pickup and drop-off locations for consumers and reduce a pain point for retailers. More than 92% of the U.S. population lives within five miles of a staffed FedEx location. That includes our FedEx Office stores, as well as our retailer partners Kroger (NYSE:K), Dollar General (NYSE:DG), and Walgreens (NYSE:WBA). This is a huge competitive advantage when bundled with returns because it offers a convenient and low-cost tender solution that helps control first mile costs for online retailers.
Our alliance with Walgreens has been expanded to support no-label solutions to consumers through our returns technology. A customer receives a QR code on a mobile device, and scans the code at Walgreens to avoid the hassle of printing a return label. This can be done at FedEx Office & FedEx Ship Centers as well. If a retailer has provided a QR code, the consumer can take the item to participating FedEx Office, Walgreens, or FedEx Ship Center locations, and not have to worry about printing a label. We also have a dashboard that provides merchants with increased returns visibility and the type of data they need to make informed inventory and staffing decisions.
Q: Are there any processes in place or being developed that can help retailers and their logistics partners track which products are most likely to be returned, and which consumers might be more likely returners?
A: We work with merchants to encourage them to do everything they can to understand why consumers are returning items, then try to prevent them through better communication and education. For example, if customers are returning a sweater because it’s too big, be sure to mention that the sweater “runs large” in the description on the website. The FedEx Returns Technology portal can provide merchants with a better understanding of the root causes of returns.
Q: Do you see a leveling off of returns activity in the 2021 peak, assuming we are past the virus by then?
A: Not at all. Much of the shift to online purchasing will stay in a post-COVID world. In fact, pre-COVID, FedEx projected that the U.S. domestic market would hit 100 million packages per day by calendar year 2026. The market is now expected to hit this target by 2023. Approximately 96% of this growth is expected to come from e-commerce. Depending on the category, returns of online purchases can be two to three times higher than those of store-based sales.