According to the National Retail Foundation (NRF), retail returns increased to $761 billion in 2021, accounting for approximately 16.6% of total U.S. retail sales. This number represented a significant increase from 2020, in which the total rate of returns was 10.6%. This sharp growth in returns was attributed to the rise in overall sales across U.S. retailers, which has been steadily increasing as the pandemic wanes. This is most recently exhibited by last month’s Black Friday shopping period, which saw record breaking numbers, with 196.7 million U.S. consumers shopping over the Thanksgiving holiday weekend, according to NRF.
To meet the increasing customer desires to shop across multiple channels and locations, retail businesses have to take into account a tremendous amount of logistics involved in their operations. The rise of ecommerce in the last 20 years has shifted the way vendors need to address logistics. To remain competitive, retailers must continue to meet customer expectations for consistency across all parts of the shopping experience, including managing a smooth returns process.
Insider Intelligence estimates that in 2022, the value of U.S. online returns will total 26.5% of what consumers spent, up from 19.8% three years ago. The record shattering growth in total sales this year continues to add to the increasing amount of returns. Retailers need to brace for this influx in returns with the explosion of sales growth, especially over the holiday season.
Unfortunately, many retailers have been slow to react to the increasing costs of returns and suffer from several factors as a result — from shipping costs, to supply inequities, to tax compliance complications. Below are a few things retailers need to be thinking about in order to prepare for 2023 and beyond.
Revisit your returns policy
As the rate of returns change, so too must retail return policies. The influx in expected returns is coming, and it’s on retailers to make sure they understand their policies and communicate them to both employees and customers. If not, this can lead to a recipe for disaster with the conclusion of the holiday shopping season.
Because items are hitting shelves long after shoppers’ demand for items has decreased, retailers are adjusting their holiday strategies by changing their returns policies and discounting the prices of goods. As Avalara’s holiday readiness survey shows, retailers are adjusting by tightening their return policies. 40% of retail respondents said that they were shrinking return windows this holiday season. By revisiting your returns policy, you can use it as an opportunity to think about how you can be better prepared not only for this holiday season, but into 2023.
First, determine how to accept returns and establish a returns window. Choose a range that works for your products and don’t forget to factor in your tax schedule. Product returns can create tax headaches if they occur after you’ve already remitted the sales tax you collected on the order. Reduce the cost of returns by limiting what can be returned, applying shipping fees, and increasing overall pricing. These can all become unpopular with customers, so make sure you assess how the competition approaches each process so you don’t fall behind. Lastly, always remember to communicate with customers — be clear about your policies upfront and keep them informed on pending changes.
But even after altering policies, with a shortened return window and still crowded logistics value chain, merchants are facing another complicated layer of technical challenges with tax calculations, inventory management, and refund processes.
Automate the physical aspect of returns
In order to meet the evolving expectations of the 21st century consumer, businesses need to adopt new methods to stay ahead. According to Avalara’s holiday readiness survey, 39% are turning to automation technology to make post-purchase tasks like fulfillment, shipping, and returns easier.
This involves operations like providing shipping labels and connecting inventory management systems. Automating the physical aspect of returns will help deter some of the traditional constraints on businesses, and will lead to a more accurate and efficient returns process, delivering a better customer experience across all the channels and locations where retailers operate.
Automate the financial aspect of returns
To streamline their logistics and operations, businesses shouldn’t stop at the physical aspects of returns alone. By automating the financial aspects, like refunds and tax returns, it will make for a more seamless experience both for retail employees and customers.
If a product is returned before the collected sales tax has been remitted to the tax authorities, retailers may be able to simply refund the tax due to the customer and the numbers will net out. But if a product is returned after sales tax has been remitted and sales tax returns filed, retailers will need to complete a more complicated sales tax reconciliation process.
Automated tax compliance software can keep track of the various rates at the places where retailers are processing returns, and how those differ from the rates in the places where the original transaction occurred. It also can help keep track of changes in tax deadlines, rates, and rules that retailers might miss.
The growth in the amount of sales this season will surely mean an explosion of returns. An increasing number of consumers will continue to return items, especially during the holiday season and months after. It will be incumbent upon retailers to implement the tools, talent, and technology to grow — including a focus on automation of both physical returns of products and for managing the monetary side. According to Avalara’s survey, 32% of U.S. retailers are thinking ahead for next year and adjusting their purchasing plans. It’s never too early to start planning to get ahead of next year’s holiday season.
George Trantas is the senior director, global marketplaces, at Avalara.