Executive Overview: Gifting can be hard and, if not properly managed, can lead to increased returns that have a financial and environmental cost. And these days, it’s typically the retailer that may incur most or all of the cost of returns.
Avoiding the High Cost of Returns
Giving gifts is easy. It’s low stress. People always love the gifts I give them and I always love the gifts they give me.
No. Wait. I take that back.
And that’s the problem. I may have to take the gift back. Or I’m afraid that the person I gave a gift to will have to return it. (Also known as “Gee, thanks for giving me a trip to the store or UPS.”)
Gifting can be hard and, if not properly managed, can lead to increased returns that have a financial and environmental cost. And these days, it’s typically the retailer that may incur most or all of the cost of returns:
- Retailers may have to pay for return shipping.
- Retailers may have to incur restocking or disposal costs.
- Retailers may never make the sale in the first place because either their website isn’t well designed for gift shoppers or the purchaser abandons the cart because they don’t know the size or shipping address of the gift recipient and simply gives up.
No Small Problem
According to an article in RetailDive, “E-commerce soared 31.2% year over year in October and 32.4% again in November. And a quarter of that volume, on average, is likely to be returned, with even higher rates for apparel and electronics,” A.J. Hernandez, CEO of cross-border parcel delivery firm SkyPostal states in the article.
Looking back at the 2020 holiday season, UPS expected to take 1.75 million returns into its system every day during the first week of January, representing the highest weekly total of returns in UPS’s history. The expected 8.75 million returns that week represents a 23% increase over the highest week of returns for the 2019-2020 holiday season.
Globally, 63% of shoppers send returns back to retailers, according to UPS research and 42% of online shoppers say free returns contribute most to a positive returns experience. 69% of consumers say that paying for a return affects the likelihood of buying from a retailer again.
In the end, processing returns can represent a significant percentage of the cost of goods sold.
Dealing with returns can be so expensive that, according to a Wall Street Journal article, some retailers are implementing artificial intelligence systems to determine if it is simply cheaper to tell the customer to “keep it” rather than dealing with a return.
So, dealing with returns may be free (albeit a pain) for the consumer, but it can be expensive for the retailer. Very expensive.
And the issue for retailers is not just the cost of returns but also the consumer experience. Globally, UPS says that 73% of online shoppers state the returns experience could impact their likelihood to make another purchase from a specific retailer.
There’s a lot at stake. And it gets worse.
Let’s Talk About Pollution and Waste
It’s not just the financial and labor costs associated with managing returns, there’s environmental impacts and costs as well. During 2020, sustainability may have taken a back seat to dealing with the pandemic. Nearly 2 of 3 of the 750 execs participating in a new Deloitte survey said they had to reduce their sustainability efforts because of the pandemic and economic downturn. However, as we emerge from that, the focus will likely return to the environment and sustainability. The Deloitte survey states 80+% percent of executives are worried about climate change and cites five key reasons:
- Impact of climate-related disasters: 27%
- Resources shortages/costs: 26%
- Regulations and political uncertainty: 26%
- Insurance costs and availability: 24%
- Damage to reputation: 17%
According to The Verge, five billion pounds (yes billion with a “b”) of returned goods end up in US landfills each year. Even if something was in pristine condition when the consumer shipped it back, it could get damaged in transit. As a result, retailers often determine that it’s cheaper for them to throw the item out compared to having it cleaned, repaired, and returned to the shelves.
Beyond the landfills, there’s pollution from transporting these returns. The trucks transporting the returns spew out more planet-warming carbon emissions and other harmful pollutants. According to Optoro, a company that helps retailers improve their return processes, hauling around returned goods in the US creates over 15 million metric tons of CO2 emissions a year—more than the pollution of 3 million cars.
Sustainability and Corporate Responsibility
Many consumers may base who they buy from on the retailer’s sustainability policies. If you’re not green, some may take their business to a retailer who considers protecting the environment an important part of their brand.
Some companies believe that sustainability is a strategic imperative. “In today’s world, sustainability, responsibility is a competitive measurement,” Ron Jarvis, chief sustainability officer at The Home Depot said in an article in RetailDive. “It’s a measurement that we look at with our suppliers and we know that our customers, consumers and social investors and other investors look at this and say, ‘Is this a company that I want to invest in, that knows what their impacts are for the long term?'”
Supermarket giant Kroger is another example of a company that believes sustainability is a strategic differentiator. Their Zero Hunger/Zero Waste sustainability program merits a link on their homepage and has been a focus for their brand.
Reducing returns can (and should) be a part of a retailer’s sustainability plan.
Wouldn’t It Be Nice If There Was a Way to Reduce Returns?
Consumers will likely continue to increasingly purchase goods online and many will continue “bracketing” — buying multiple sizes, styles and colors knowing that they’ll return some of all of those purchases) so, no matter what, retailers will have to continue to deal with returns.
But, it is possible to help reduce or eliminate returns when it comes to gifting. This can help retailers not only during peak seasons, such as the holidays, but every day as gifting is a year around activity with birthdays, anniversaries or “just because” events.
There is a way
A Gift Experience Management solution, like GiftNow, is designed to make gifting easier and help to reduce or eliminate returns. GiftNow helps encourage seamless gifting on a retailer’s e-commerce site by reducing the potential stressfulness of gift giving and delivering unwanted gifts.
- Gifts are sent digitally to the recipient (no shipping cost for that!).
- The gifter can pick an item knowing that the recipient can alter it or exchange it digitally to get something they want. (And without the gifter even knowing.)
- The gifter doesn’t need to know the recipient’s shipping address. They just need to know their email address or mobile phone number.
- The recipient gets a thoughtful, personalized email or text. It can include a message, a photo or a video greeting. They then see the gift. They can change the size or color, or exchange it for another item or a gift card.
- Once they pick the item, they enter their shipping address.
- The retailer then ships the product to the recipient. (And perhaps via lower rates.) The recipient gets exactly what they want, reducing or eliminating any need for a return.
No hassle for the recipient. No hassle for the retailer. Win-win!
In fact, as I write this, it’s my daughter’s birthday. My wife and I picked out a nice necklace from Kate Spade that we thought she’d like using GiftNow. It turns out our daughter had been eying a Kate Spade handbag. So, she switched the necklace for the handbag and got something she really wanted, not a necklace that she was unlikely to wear or would have to return. The handbag arrived a few days later.
And don’t forget the gift cards
Speaking of gift cards, a Gift Experience Management solution can also help make gift cards a hub for omnichannel commerce. Don’t hide them on your website or make them difficult to purchase or deliver. Gift Experience Management solutions can help retailers do a better job of promoting and managing gift cards to further improve revenues and reduce product returns.
Now is the time to start planning for peak seasons
Mother’s Day. Father’s Day. Back to school. Winter holidays.
Consider what percentage of your online purchases are for gifts. Then consider how many of your abandoned carts are due to the shopper’s frustration in trying to purchase a gift. Imagine converting more sales by making the gift shopping process easier and what it would be like not to deal with gifting returns. Gift Experience Management can help make that a reality.
Kevin Payne is the Vice President of Corporate Marketing for GiftNow