Edition 124, April 2023

Managing the Holiday Return Hangover and Beyond

By Drew Stevens, OPEX Corporation

It has been more than two months since the whirlwind of the holiday shopping season was upon us, quickly followed by a flood of returned items. And the hangover lingers, as we are once again witnessing the massive impact of underprepared supply chain functions, with retailers everywhere trying to manage the burden. The reasons for this recurring theme are numerous.

We need to look back to 2021, when unfamiliar and looming supply chain issues resulting from the COVID-19 pandemic placed a substantial damper on the typically festive holiday shopping mood. People began shopping weeks and even months earlier than they had in years past, hoping to find and purchase the gifts on their loved ones’ wish lists. Despite the advance diligence, many still failed to find what they were looking for.

Simultaneously, the online inventory in warehouses everywhere was becoming either depleted or bloated, given the unpredictable nature of when, and how much, product might arrive. And the logistics surrounding exchanges and returns became more challenging than ever, with some companies even opting for customers to keep their unwanted purchases rather than spend the time properly placing returned or exchanged items back into inventory.

According to the National Retail Federation (NRF), the average rate of returns for online purchases in 2021 was 20.8 percent―an increase from 18.1 percent in 2020. Bottom lines were being impacted tremendously.

In 2022, the NRF cautioned that although product availability would be much better during the holiday shopping season than the year prior, there was a growing concern about how inflation might impact buyer behavior. A recent study published in the October 2022 edition of the Journal of Consumer Research, titled Spending and Happiness: The Role of Perceived Financial Constraints, found that having less of a psychological financial cushion causes feelings of increased buyer remorse and, subsequently, leads people to return purchases more often. Would financial concerns lead consumers to return more of their holiday haul in 2022? And how would this behavior impact profitability?

A December 2022 report released by the NRF and Appriss Retail anticipated that retailers could expect to see an average of 17.9 percent―$171 billion―of merchandise purchased during the holiday season returned. The report also stated that for every $1 billion in sales, retailers incur $165 million in merchandise returns.

Beyond the holiday shopping season, the NRF forecasted that consumers were expected to return, in total, $816 billion worth of merchandise in 2022, encompassing both online and retail purchases. Of that amount, $212 billion reflects online purchases.

So, here we are in March of 2023, and in addition to the financial burden, returns continue to present an enormous logistical headache for ecommerce companies. Major bottlenecks are occurring in warehouses across the United States and around the world. I have heard countless tales of warehouses with boxes and assorted returned items pushed into corners, rather than being swiftly placed back into inventory.

Numerous resources estimate the cost of an online return to be 17 to 30 percent of the prime cost. Retailers cannot continue to absorb this expense. Isn’t it time to consider how to win the battle of the bottom line?

Just as warehouse automation helps ecommerce companies manage inventory and fulfill orders more efficiently, so is this the answer to the reverse logistics issues plaguing so many. The perceived cost of automating should not be a barrier. What is surprising to many companies is how quickly the cost of warehouse automation can be recouped. The return on investment can be met in as little as two years, even with a multi-million dollar spend.

Utilizing automation to solve the ongoing returns headache is a new conversation we are beginning to have with retailers of all sizes and types. Together, we are determining the most effective approaches to “reversing” the reverse logistics quandary.

What we do know unequivocally is that reverse logistics can no longer remain such a costly afterthought in retail. Too many companies are losing too much money, and the answer lies in technology that already exists.

Consumer behaviors are unlikely to change. How companies choose to operate in this increasingly complicated ecommerce world is fundamental to success. Automation, from inventory tracking and order fulfillment to reverse logistics, is the difference maker.

Drew Stevens
As Vice President of Global Business Development, Warehouse Automation at OPEX® Corporation, Drew Stevens oversees Warehouse Automation solutions for companies around the world. He works directly with new and potential clients, conducting extensive operational analyses and designing customized automation solutions that solve the most significant business challenges of today and in the future.