Ecommerce Businesses Grapple with High Return Rates
January 24, 2023
The e-commerce market shows no signs of slowing following the rapid growth of online shopping at the onset of the COVID-19 pandemic. It broke $1 trillion in value at the end of 2022, constituting 70% of the total retail market.
These booming sales accompany a high rate of return on purchased goods. In 2022, 20% of online purchases were returned (approximately $218 billion in value), a figure which has doubled since 2020. Returns average between 15% to 30% of purchases across retail categories, though auto parts, apparel, and home improvement experience the highest rate of return.
Providing a competitive return policy is now seen as an essential aspect of e-commerce business and building trust with customers who expect a seamless, free return option. Returns quickly become a headache for companies who must decide whether to resell items, be written off from the manufacturer, or accept the loss.
E-commerce giants such as Amazon, Walmart, and Zappos are continually innovating seamless online shopping experiences that rival brick-and-mortar stores. Meanwhile, rising expectations for return policies are proving to be yet another entry barrier for small online sellers with limited e-commerce infrastructure.
Online apparel shoppers are known to purchase multiple pairs of the same article, knowing they can return what doesn’t fit or is not preferred. In response, Walmart purchased virtual fitting room start-up, Zeekit, in the hopes of limiting the number of apparel returns. Online shoe retailer Zappos encourages purchasing multiple pairs and offers a one-year free return policy for any merchandise purchased online.
Amazon has historically utilized their own Whole Foods stores and partnered with major brick-and-mortar stores such as Kohl’s and Staples to widen their return infrastructure capabilities at reduced cost.
Handling returns is costly and time consuming. As a result, Amazon, Walmart and Target sometimes allow customers to keep certain items they wish to return or exchange rather than deal with the expense of processing the return, given that the item is unlikely to be resold or doing so is cost-prohibitive.
Though e-commerce giants like Amazon and Walmart have the financial strength to innovate their return policies, the onus they have helped create on companies to handle cost-free returns is yet another barrier to entry for small businesses looking to break into the rapidly-growing e-commerce market.
As a result, many small online sellers look to offset substantial e-commerce infrastructure costs by selling on Amazon and Walmart, who offer third-party sellers the option of overseeing the logistics of delivery, storage and returns at a cost.
At ZQUARED, we process all returns and work with each of our brand partners to create a customized plan for managing the process in a manner that works best for them. We ensure that each returned item is thoroughly inspected and evaluated, and inform our partners of any recurring issues we may observe.