An efficient, convenient, and cost-effective returns process is essential for retailers in today’s competitive environment. One poor returns experience can lead to a lost customer for life, especially when buying online. On average, only five to 10% of in-store purchases are returned. However, for online purchases, these percentages multiply as return rates range on average from 15% to 40%. Most of the higher rate of online returns is due to not seeing an item in person as well as not being able to try on the items prior to purchase. As a result, a consumer may order multiple sizes or colors to try on at home and then ship back what they do not want — often with shipping paid for by the retailer, according to the co-founder and CEO of Happy Returns.

E-commerce as a percentage of total US retail sales has been on the rise, but COVID-19 accelerated the growth much faster than anyone had previously forecast. Based on US Census Bureau data, for the first half of 2020, e-commerce as a percentage of total retail sales averaged 13.95% compared to 10.65% for the same period in 2019.

On a global basis, between $150 billion and $250 billion in returns were in flux to be processed when retail stores began to finally reopen after being closed due to COVID-19, according to IHL Group, a global research and advisory firm for the retail and hospitality industries. The lack of consistent standards for retailers to follow regarding returns has led to a broad spectrum of returns policies. Some retailers have temporarily stopped accepting returns altogether, while others have extended their standard return windows during the pandemic.

On average, IHL Group has found that food, drug, and mass merchants lose five margin points on returns, and department and specialty stores lose six margin points. A returned item means the company did not make the sale it thought it had recognized. Companies may try to mitigate this loss by reselling the item, but that leads to another cost within the returns process – restocking. An employee has to sort, inspect, retag or repackage, and replace the item on the shelf for in-store returns. An online return is more costly. “Free shipping” has become expected by consumers. Retailers are often on the hook for this cost — shipping to the consumer at the initial purchase time and then back to the retailer/warehouse when it is returned.

Consolidating returns at a store location is often less costly than paying to ship an item from a residence. Amazon partnered with Kohl’s in 2019 to help reduce returns shipments. Meanwhile, Staples announced a partnership with Optoro, a technology company that works with retailers and manufacturers to manage and resell their returned and excess merchandise. The service, named Express Returns, allows consumers who purchase items from retailers that use the Optoro platform, such as Best Buy, Target, Bed Bath & Beyond, IKEA, American Eagle, BJs, and Under Armour, to obtain a QR code that is scanned when they return the item to a Staples store. Items can be returned loose, without packaging, and placed in a shipping pouch at Staples. Optoro plans to expand Express Returns to additional retail chains in the future.

Another option is Happy Returns, which allows its retail partners to return products to FedEx Office stores without a box or label for an immediate refund or exchange. The customer receives a QR code before bringing both the item and the code to a FedEx Office store. FedEx then gathers the box-less goods from different companies into one shipment and sends them to one of Happy Returns’ two regional processing hubs.

According to IHL, only about 40% of retailers had optimized their return processes before COVID-19. As e-commerce continues to become a greater percentage of total retail sales, it is critical for retailers to manage their returns both cost-effectively and most efficiently for customers – often two competing priorities. According to one recent market survey, almost 85% of survey respondents indicated that a positive returns experience encourages them to shop with a retailer again in the future. Optimizing the returns experience will continue to be critical for retailers as we move into 2021 and beyond.