Gift Returns: The Holiday Hangover That Busts Retail Budgets, Overflows Dumpsters

Need to downsize that beautiful new couch that you adore but just doesn’t fit in your living room? Or offload that new pair of trousers with the unflattering pattern that your father-in-law gifted you this holiday?

If so, there’s a high likelihood that you’re about to enter the holiday hangover zone, better known as retail returns, a frustrating process that eats cash, wastes product and alienates good customers. A veritable lose-lose-loser of a scenario that is only getting worse alongside the steady rise in online shopping and estimated to eat as much as $200 billion a year in the U.S. alone.

“If you don’t have a solution in place and a lot of your returns — say 30% — end up coming back your way and then later ending up in landfills, that’s a pretty significant number,” Tobin Moore, co-founder and CEO of returns management firm Optoro, told PYMNTS. “Online returns affect the customer experience significantly,” he added, noting that 89% of customers who have had a bad returns experience say they won’t shop again from an online retailer.

Cue the Returns Revolution

To be fair, the problem is clearly complex and solutions are not cheap or easy, which is exactly why an accounting department would ever even consider the dumpster option in the first place.

But there is hope, and progress being made to declaw the “return to sender” problem, Moore said. Although he graciously gave the overall retail industry a C or C-minus grade for its returns operations, there are players and processes that are doing much better.

On that note, Optoro is applying returns technology to help retailers like Target, American Eagle, Best Buy, Ikea and Stapes leverage data science and live decision-making to make it easier for consumers and retailers alike, and its work appears to be gaining attention. Earlier this month, Optoro announced a $25 million strategic investment led by Zebra Technologies, UPS and eBay, who are all eager to innovate in the space while lowering costs and increasing profits along the way.

On top of the increasing, industrywide order flow, Moore said, this year had the added pressure of unprecedented inventory headwinds to deal with, which presented its own unique set of challenges.

Indeed, 2021 was a year where retailers were given some pretty bad curveballs. Supply chain issues, product shortages, and the like dampened retailers’ ability to get products to consumers as intended. That meant retailers were faced with an immediate challenge, Moore said, to find a way to leverage the inventory that gets returned so it can be put back in stock quickly to alleviate worse-than-usual shortages or “out of stock” hiccups.

To be sure this mindset is relatively new to retail, as Moore — who has been in the “reverse logistics” industry for 16 years — said returns weren’t something retailers were too focused on a decade or so ago.

“Initially, my job was just educating people on this returns problem,” he said.

But now, big names are investing in this space, he added. Doing so is proving advantageous. To have a profitable business, cutting down on waste when goods are shipping around without a home or a touch base point is important.

Retailers have one shot to get consumers on board to make a future purchase. If, for example, you bought shoes but they don’t fit well, you may not want to go buy a new pair from the same site.

Unsurprisingly, there’s a movement afoot in the returns technology space to create a revolution of sorts. For instance, to make the return process more seamless, Moore pointed to a solution his company is working on with Staples where consumers can just drop off a product in-store — no label or shipping box necessary. Maybe just a QR code scan.

“Consider how Amazon has partnered with Kohl’s and others to create universal express drop-off points. For those shoes or that shirt you want to return, you’d just go through the process on your phone, it’ll give you a bunch of locations nearby where you can just drop it off — even if it’s an online-only retailer,” he explained.

“That’s something we’re working on now,” he said.

And it’s taking hold. “I think you’ll see over the next couple years, it will catch up to the front end,” he predicted.

Think Like a Consumer

Although retailers are trying to make it so consumers don’t want to return items, this mindset, he said, isn’t completely realistic, as consumer purchasing preferences are personal and dependent on individual preferences.

“At the end of the day, people go to stores, they try things on, they leave items in the dressing room, and they buy what fits. It will be very hard to ever fully replace that,” he added.

“The key is if something doesn’t fit and someone doesn’t want it, you don’t want them to keep it. This isn’t good for the environment,” he said. “You want to make it easy to bring an item back out for resale, for someone who wishes to purchase it again.”