Holiday Returns May Be a Major Sore Spot for Retailers

By Rocio Fabbro

Retailers are becoming wary of the gift receipt, as holiday returns cause headaches in stores’ checkbooks and supply chains.

Holiday spending is expected to reach record levels this year, with the National Retail Federation predicting as much as $966.6 billion in retail sales between November and December.

With the rising spending on holiday gifts and goodies, returns are also looking steep: Optoro, a returns technology company, estimates that U.S. consumers will return $173 billion of products between Thanksgiving and the end of January.

In 2022, customers returned 17.9% of holiday sales, or $171 billion worth of merchandise.

Almost half of the retailers find returns to be a severe problem, particularly during the holiday season, according to a survey of 500 U.S.-based retailers by returns solutions firm goTRG. That represents a 3000% increase from last year, when just 2% of retailers said it was a severe issue.

Companies like H&M and Zara are tackling the problem head-on by eliminating free returns to disincentivize a growing practice among consumers of using their homes as fitting rooms, ordering different colors and sizes of clothes and returning the rejects. About 40% of retailers are charging return fees this year, up from 31% in 2022, according to retail technology company Narvar.

Others are taking a proactive approach. Amazon.com has placed warnings on “frequently returned items,” to encourage shoppers to do more research before hitting “add to cart.” Nearly 60% of retailers this year will offer “returnless” or “keep it” policies for products that are not worth the returns’ costs, goTRG found. It costs sellers $30 on average to process returns on an online purchase, meaning that any item that costs less than that is likely not worth being returned.

What’s more, companies lose about half of their margin on returns, factoring in the costs associated with selling the item and handling the return, Tom Enright, a retail analyst at research firm Gartner, told The Wall Street Journal. Returns accounted for a total of $816 billion in lost sales for U.S. retailers in 2022, the NRF found.

Then there’s the waste problem. Just 30% of returned items make it back onto shelves, with many of them highly discounted, according to estimates shared with the Journal by reverse-logistics company Pollen Returns. The rest are either donated or sent to landfills. According to Optoro, 9.5 billion pounds of returns ended up in landfills last year, the equivalent of 10,500 fully loaded Boeing 747s.