By Arthur Zaczkiewicz
with contributions from David Moin
 on December 27, 2019

As economists are expecting online holiday sales to show an 18 to 19 percent year-over-year growth rate, retailers and brands are faced with a record number of product returns.

Companies are also dealing with steeper shipping costs, which is now becoming a top expense. One carrier alone is expecting nearly 2 million returns on Jan. 2, which is now known as “National Returns Day.”

[See related story: Holiday Shipping, What to Expect This Shopping Season]

UPS, which offers a variety of solutions to help businesses better manage returns, is predicting a “seventh consecutive record-breaking National Returns Day as consumers send back holiday orders ranging from ill-fitting sweaters to duplicate kitchen gadgets,” the company said in a statement adding that on Jan. 2 shoppers are expected “to deposit 1.9 million returns packages into the UPS network — a 26 percent spike from last year’s peak returns day.”

UPS said its solutions make it easier for consumers to return holiday gifts. In its own survey of shoppers, the carrier said consumers “make purchases with returns in mind.” UPS noted that 73 percent of online shoppers “say the returns experience affects their likelihood to buy from a retailer again.”

UPS and other carriers tout services that make the omnichannel experience “easier” for consumers, which includes quick and easy returns. And while shoppers may have a friction-free experience, many retailers are struggling to make it so.

In its “holiday flash report,” 1010data said returns are now considered by retailers “to be a cost of doing business. As online sales have increased, so have returns, and online returns have come at a higher cost than brick-and-mortar returns.”

Researchers at 1010data found that online purchases are returned at a greater rate as compared to products bought in a physical store. And the rate varies between retailers and brands. Authors of the report said that year-to-date through November, “Amazon saw a 6 percent return rate on net spend, while Walmart had only 2 percent. For the Gap, online sales from 2015-2018 were returned at a rate four times higher than in-store sales.”

Andy Mantis, chief business officer of 1010reveal, the consumer intelligence arm of 1010data, said across channel and product category, there’s “a considerable discrepancy in volume of returns.”

“For example, you have Gamestop with a return rate of only 2 percent for full-year 2018, while J. Crew hit 26 percent that same year,” Mantis said. “And there’s much that the online channel can learn from brick-and-mortar about reducing these volumes. While the return of holiday purchases are a large part of retail’s $351 billion annual problem, we discovered these returns, particularly those in-store, can be put to positive use, if retailers understand how to capitalize on them.”

“Numerous aspects factor into the losses associated with returns, from additional postage and restocking, all the way to the risk of not being able to resell the item at its original cost, at a discount, or at even all. However, it’s not all dire news,” the 1010data report noted. “The silver lining is that returns can hold an important place in the lifespan of the retailer-consumer relationship.”

Retailers and brands are also re-emphasizing supply chain efficiencies as online sales soar. Telsey Advisory Group and LJM Consultants hosted a conference call last week regarding the cost of shipping and related trends.

In a research note, Dana Telsey, chief research officer at the firm, said supply chain efficiency “remains a top priority” for companies.

“As e-commerce continues to grow, shipping costs are becoming either the number one or number two largest expense for retailers [from the seventh or eighth largest about 10 years ago],” Telsey said. “When a company offers free shipping and returns, it generally sees a significant increase in revenue, as it helps push a customer to make a purchase. This has put an increased focus on supply chain efficiency, as companies look to reduce this growing [and sometimes new] cost center.”

Telsey also said shipping costs are pegged to increase between 5 and 10 percent, “including handling and oversight fees during 2020, despite FedEx and UPS benefiting from efficiencies in their networks.”

“Notably, increases are expected to tilt toward larger packages, with FedEx recently increasing the overweight surcharge to $24 from $12 two years ago, while lowering the weight surcharge threshold to 50 pounds from 70 pounds,” Telsey added.

Separately, there are other consumer trends worth noting. Mercari, the peer-to-peer resale app for shoppers, said it teamed with YouGov PLC to poll U.S. consumers. They found that 63 percent of respondents acknowledge “having too much stuff.”

And for this holiday season, 30 percent Generation Z consumers polled said they planned on selling their unwanted gifts. This compares to 17 percent of Baby Boomers saying they’d do the same. The poll also found that for the New Year, “getting organized” was a top resolution while more than one-third of respondents said “simplifying their life and accumulating less “stuff” is one of their New Year’s resolutions for 2020.

As for timely delivery, for the most part, retailers made good on their promises.

According to the 2019 Holiday Shipping study by Kurt Salmon, which is part of Accenture Strategy, 91 percent of the orders placed on the retailers’ ‘last ship date’ arrived in time for Christmas.

Kurt Salmon placed orders with 50 U.S. retailers, including traditional big boxes, specialty retailers and online-only businesses, to measure their ability to fulfill customer orders on their last guaranteed shipping date before Christmas.

According to the study, retailers coming out on top for delivering standard shipping orders (placed on or after 12/20) to their customers before Christmas were: Amazon Prime and Office Depot — orders were placed on 12/23; L.L. Bean, Walmart and Victoria’s Secret — orders were placed on 12/22; Macy’s and Bloomingdales — orders were placed on 12/21.

Kurt Salmon underscored the importance of providing a buy online, pick up in-store service. Home Depot, Nordstrom, Kohl’s and Dick’s Sporting Goods satisfied BOPUS orders in less than four hours, even in the waning hours of the holiday season, Kurt Salmon reported.

“BOPUS is the real bright spot this year,” said Steve Osburn, managing director at Kurt Salmon. “Historically BOPUS was a difficult transaction for the customer whereas now retailers have built ease and convenience into the experience by placing kiosks at the front of the store and allocating parking spaces. We are seeing many excel in terms of speed, visibility into inventory and the ability to fulfill last-minute orders. One of the critical components is to ensure they have a function on their mobile app or online that gives the opportunity for a customer to see all the inventory in an easy way in the store that is near them.”

The report also indicated that in the condensed holiday season, which has six fewer days between Thanksgiving and Christmas this year compared to last year, the average last ship date to get gifts in time for Christmas was 12/16, earlier than ever. Last year it was 12/17 and in 2016 and 2017 it was 12/18.