It’s the Time of Year to Kick Yourself Over Online Shopping

by Leticia Miranda of Bloomberg News, 1/8/24

Most of us probably spent the 2023 holiday season helping to break a record.

Online shopping hit a new high, raking in $222.1 billion from the start of November to the end of December. And there is no sign of e-commerce slowing down. The ease of scrolling through websites at any time of day continues to trump the hassle of the in-person shopping experience: commuting, long lines, lugging around shopping bags and poor customer service — just to name a few annoyances. Bloomberg Intelligence estimates that online shopping will make up 33% of retail sales in the US in the next three years and that 60% of the increase will be driven by digitally native shops such as Amazon.com Inc. and SheIn Group Ltd.

But as online-only retailers become more popular, a huge drawback is becoming more apparent: the inconvenience of returns. It’s that time of the year, just after the holidays when droves of shoppers make the pilgrimage to shipping centers to send back unwanted items. The original rush of making an online purchase is quickly replaced with irritation, as shoppers come to terms with the reality of not having a brick-and-mortar store where they can go to exchange or return holiday purchases. Instead, they have to repackage air fryers and sweaters and find time in their busy schedules to lug them to their local post office, FedEx Corp. or United Parcel Service Inc.

Added to this headache is free returns becoming rare, which forces consumers to pay to have an unwanted item shipped to wherever it needs to go. For instance, the online-only thrift store ThredUp Inc. raised its restocking fee from $1.99 to $3.99 last year, Amazon introduced a $1 fee on some returns made at UPS stores if shoppers have a free option within the same distance or closer.

Online returns are such a pain that more than 40% of consumers say they would prefer to sit in rush-hour traffic than make a return, according to a 2022 National Retail Federation and UPS-owned Happy Returns survey.

While changing return policies has added to the pain of online shoppers, it’s been a different story for retailers. Raise your hand if you’ve ever kept something because you didn’t feel like dealing with the responsibility of shipping it back. Companies are counting on folks just like you. Restrictions on free returns have helped reduce the return rate for online purchases. The NRF estimates retailers made roughly $5.13 trillion in retail sales with an online return rate of 17.6%, slightly higher than the overall 14.5% rate for returns. This is quite an improvement from the working average return rate of 15% to 30% before the pandemic. That’s a win for the industry.

But on a granular level, an inconvenient return policy could mean lost sales for some businesses. As consumers begin factoring in how time-consuming and costly making returns can be, they skip over buying goods from certain online stores altogether. According to the NRF and Happy Returns survey, 50% of shoppers have abandoned a purchase because the return policy was too bothersome.

As e-commerce turns more competitive with new, low-cost players entering the market, it’s crucial for online stores to offer consumers more wiggle room for human error or risk not retaining return shoppers. People aren’t the best at guessing what pair of jeans will fit them or others. Sometimes, the color of an area rug is a shade too light in person. Perhaps the “perfect” air fryer for your brother is one that his partner already gifted him for the holidays. We need to feel like we have some buffer room.

Going forward, that might look like having a year-long return timeframe, as in the case of Zappos, or adopting “keep it” policies where businesses refund shoppers and let them keep the item. Companies can also consider expanding on what Amazon has done in setting up free return locations at Kohl’s Corp. and Whole Foods stores. Store-less retailers can partner with startups such as Happy Returns, which has locations around the country where consumers can just scan a QR code and drop off their unwanted stuff. No need to remember to print out a shipping label at the office.

What seems to work for both shoppers and retailers are return credits, according to a RetailMeNot survey published last month. More than 60% of shoppers said they would do some extra shopping if the store provided a coupon or discount with a return, and more than 40% of shoppers said that making a return is like getting free money — which could motivate them to buy something else from the same store. By offering a coupon or discount on a returned item, retailers may be able to offset processing costs while keeping shoppers happy.

Still, for now, returning online purchases is a hassle. The balancing act of convenience versus cost might just mean keeping a pile of “junk” that you stow away in a closet somewhere or pass off on to someone — anyone — who is willing to take it off your hands. And who knows, maybe if you throw a piece of cloth over the storage bin you no longer want, it could make for a good side table.

A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out our podcasts.

Bloomberg News provided this article. For more articles like this please visit bloomberg.com.

It’s the Time of Year to Kick Yourself Over Online Shopping

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