Holiday Returns Expected to Surge to $890 Billion in 2024, Impacting Retailers and Environment

This year’s holiday shopping season is poised to witness unprecedented levels of consumer spending.

However, amidst this surge in spending, there is a growing concern about the corresponding rise in product returns.

Record-High Returns Expected

A recent report from the National Retail Federation (NRF) and return management company Happy Returns predicts that returns in 2024 will account for a staggering 17% of all merchandise sales. This translates to a whopping $890 billion worth of returned goods. In comparison, the return rate for total U.S. retail sales in 2023 was approximately 15%, amounting to $743 billion in returned products. The report highlights the concerning trend of increasing return rates as the pandemic-induced surge in online shopping continues to shape consumer behavior.

While product returns are a year-round phenomenon, the holiday season witnesses a significant spike in return rates. Retailers anticipate that the return rate for the upcoming holidays will be, on average, 17% higher than the annual rate.

Changing Consumer Behavior

The surge in online shopping during and after the pandemic has led to a shift in consumer behavior, particularly regarding product purchases and returns. Many shoppers have become accustomed to ordering multiple sizes or colors of items, intending to return the unwanted ones—a practice referred to as "bracketing." According to Happy Returns, nearly two-thirds of consumers now engage in this practice. Furthermore, a report by Optoro revealed that 69% of shoppers admit to "wardrobing," which involves purchasing an item for a specific event and returning it afterward. This signifies a 39% increase from 2023.

The Financial Impact of Returns

The financial ramifications of these return behaviors are considerable. Optoro found that processing a return costs retailers an average of 30% of an item’s original price. Additionally, the alteration in product trajectories due to returns poses a significant challenge for retailers whose sustainability efforts are impacted. Returned products often do not end up back on the shelf, leading to concerns about carbon emissions associated with repackaging and reselling, especially when products are sent overseas for redistribution. The environmental impact of returns cannot be overlooked; in 2023, returns generated a staggering 8.4 billion pounds of landfill waste, as reported by Optoro.

Addressing the Challenges

In response to the increasing financial and environmental challenges posed by returns, a notable 81% of U.S. retailers implemented stricter return policies in 2023. These measures included shortening the return window and introducing return or restocking fees. However, there is also a growing emphasis on enhancing the returns experience for customers. A notable trend among retailers, including major players like Amazon and Target, is allowing customers to keep the product while still receiving a refund. This approach not only streamlines the return process but also aims to mitigate the volume of returned items.

Furthermore, companies across various sectors are adopting innovative solutions to manage returns sustainably. Patagonia, for instance, launched its online Worn Wear resale program in 2017, setting a precedent that has been followed by several brands, including J.Crew, Neiman Marcus, Coach, and Levi Strauss & Co. Additionally, some Ikea locations have initiated programs to buy back used Ikea furniture for resale at their stores, demonstrating a proactive approach to addressing the issue of returns.

Moreover, retailers are exploring partnerships with businesses such as Once Upon a Child, Plato's Closet, and Play It Again Sports, where returned items are marked down and sold as secondhand, further promoting a circular economy.

The Importance of Return Policies for Consumers

The evolving landscape of returns is not only influencing retailers but also shaping consumer behavior, particularly among younger generations. As return policies increasingly become a crucial consideration for shoppers, a significant 76% of consumers view free returns as a decisive factor in their purchasing decisions. Additionally, a negative return experience has the potential to deter 67% of shoppers from engaging with a retailer in the future, as reported by the NRF. Furthermore, a survey conducted by GoDaddy revealed that 77% of shoppers check the return policy before making a purchase, underscoring the importance of transparent and customer-friendly return policies in modern retail.