Soaring e-commerce holiday sales will lead to surge in returns

Holiday e-commerce sales grew by a record 14% last year to $167.8 billion. 2020 will shatter that record with a projected 40% increase to $234.9 billion, putting e-commerce’s share of total retail sales at 32%, according to CBRE Research.

Supply chains will be tested as retailers handle a record number of returns. Brick-and-mortar retail return rates typically average between 8% and 10% of total sales throughout the year, according to eMarketer. Total holiday retail sales (November and December) are expected to reach $741.2 billion this year, up just 1.5% year-over-year.²

The surge in e-commerce demand this holiday season will lead to a corresponding spike in returns, according to Optoro, a reverse logistics software provider. E-commerce sales have a much higher average return rate of up to 30%, and this is even higher during the holiday season. With a projected $234.9 billion in online holiday sales this year, e-commerce returns will be at least $70.5 billion—a 73% increase from the previous five-year average.

Return Costs for Retailers Vary by Product Type

Amid the COVID-19 pandemic, consumers are doing more online shopping for products that support a stay-at-home environment. Optoro’s online proprietary marketplaces, BLINQ and BULQ, have seen an increase in purchases of toys, baby items, electronics, cleaning supplies, appliances and health & beauty goods.

Knowing which products are purchased online is important for a retailer’s bottom line, as different products have varying levels of depreciation. For example, Optoro estimates that the value of fashion apparel depreciates by 20% to 50% over an eight-to-16-week period, creating urgency to get returned items back up for sale.

Apparel retailers likely will see the biggest rise in reverse logistics costs as many customers buy several of the same items to try on and return the ones that don’t fit. Apparel has the highest return rate for online purchases, from 30% or as much as double that of in-store purchases.

Other typical gift-giving segments, such as electronics, small appliances, jewelry and accessories, may see higher reverse logistics costs due to the need to inspect, test, wipe customer data, reimage and sometimes repair for warranty purposes. Electronics are prone to quickly lose value since rapid innovation leads to new models of the same product.

There likely will be an increase in the giving of physical gifts this year, with less giving of experience-related gifts like tickets to concerts and sporting events due to pandemic-related restrictions.