The holiday season is often hailed as the most wonderful time of the year for retailers, as shoppers eagerly snap up gifts for loved ones and indulge in some well-deserved retail therapy. However, amidst the festive cheer, there's a less celebrated yet equally significant phenomenon: the surge in retail returns. 

The challenge of managing retail returns becomes even more pronounced during the holidays. According to the National Retail Federation, retailers saw 17.9% of the merchandise purchased during the 2022 holiday season being returned, equating to a whopping $171 billion. 

In September 2023, 49% of retailers identified returns as a severe problem for their business. This sentiment echoed an astonishing nearly 3000 % jump since September 2022, when only 1.6% of retailers considered it a severe problem. Nevertheless, retailers are not sitting idle. A substantial 75% have proactively invested in enhancing their returns processes over the past year, with the majority allocating budgets ranging from $1 million to $5 million. What's even more noteworthy is that 90% of these retailers have allocated more to their investments in this area compared to the previous year. 

Changing Return Windows 

During the holiday season, retailers typically extend their return windows, offering additional flexibility to shoppers. This practice acknowledges the reality that it may take a while for gift purchases made early in the season to be determined by the recipient as not suitable or appreciated. While this extended return period benefits consumers, it can pose challenges for retailers, as they must manage an influx of returned items that may no longer be in season.  

What’s different this year, is that only 16.8% of retailers reported they plan to extend their returns window while 41.8% said they plan to shorten their returns window. Retailers are undoubtedly getting smarter about mitigating their financial losses due to returns, and are changing policies to better align with their business priorities instead of offering an accommodating customer experience.  

Another reason retailers seem to be discouraging returns this year could be that they currently have an oversupply of inventory. In goTRG’s recent pre-holiday survey, 67.4% of retailers reported that their inventory levels are currently higher than they were last year.   

Retailers Extending Sales Earlier 

In recent years, retailers have attempted to mitigate the surge in December returns by extending their sales earlier into the holiday season. Some even start promotions as early as August, aiming to spread out the shopping frenzy, and distribute the return burden. Last year, Amazon, for the first time ever, hosted Prime Day-level events twice within a single year. The traditional Prime Day, the highly anticipated annual summer sale, took place in July, followed by the Prime Early Access Sale just three months later in October. Industry experts interpret this second Prime Day in October as Amazon's initiative to kick-start the holiday shopping season. By incentivizing consumers to shop earlier, retailers aspire to alleviate the pressure on their return processing systems and gain additional time to resell returned items before Christmas. 

Impact of eCommerce Returns 

The rise of eCommerce has brought a new dimension to the holiday return challenge, with 48.4% of retailers indicating that 11-20% of their online purchases are returned. Online shopping offers convenience, but it also leads to an increased rate of returns due to factors like incorrect sizing, damaged goods, or simply changing one's mind. Amidst these challenges, retailers have devised a strategic approach: allowing (often their most loyal) customers to retain certain items instead of paying for them to be shipped back. This tactic is especially common for low-cost items. A notable 59% of retailers indicated that they have adopted such "keep it" policies for returns that aren't financially viable to ship back. This strategy not only curtails logistical expenses but also bolsters customer loyalty and trust.  

Moreover, recent years have witnessed supply chains being overwhelmed with on-time delivery challenges, exacerbating the complexity of processing e-commerce returns. This may be why 48.2% of retailers indicated that they will be deploying strategies to encourage BORIS (buy online, return in store) returns this holiday season. 

As the holiday season approaches, retailers must prepare for the challenges posed by high return rates. By adapting their strategies, leveraging technology, and embracing innovative concepts like "keep it" returns and BORIS incentives, retailers can better manage the influx of returned items. Clear policy messaging, adequate staffing, and a sound resale strategy are key components to mitigating the impact of returns during this festive time of year. With the right strategies and tools in place, retailers can navigate the holiday season successfully and ensure a happy and hassle-free shopping experience for all. 

Steve Rop is COO of goTRG.