For online commerce, January has become a month to manage returns. This year, many sellers expected that the unprecedented holiday season, which resulted in record sales because of the COVID pandemic, may also result in record returns in January.
In a recent study by online fulfillment service Ware2Go, the return rate for online orders is typically 10 to 12 percent higher in comparison with physical retailers. During the holiday season, the online return jumps another 10 percent higher. In addition, the Ware2Go consumer study estimated that 88 percent of Americans expect to make holiday gift returns and 54 percent expect to do so within 2 weeks after the holidays.
Online retailer Amazon, which is also used by many third-party small business marketplace sellers to sell products on its platform, told buyers in December that it has expanded the number of easy returns options for holiday gifts.
The ease of returns became a promotional focus for the nation’s largest online commerce companies as the 2020 holiday season was expected to draw many new or less experienced online buyers who are less familiar with how to potentially return their gift purchases.
Black Friday weekend data provided the first industry-wide confirmation that the anticipated shift by consumers toward online shopping for holiday gifts was going to be real. For example, the National Retail Federation (NRF) estimated that the number of shoppers who decided to buy online only during the 2020 Black Friday weekend rose by 44 percent over the year before. In addition, the NRF said, “For the first time, the number of online Black Friday shoppers passed the 100 million mark, up 8 percent over last year.”
These trends continued well into December, despite huge chaos with shipping delays as USPS, UPS, and FedEx handled an unprecedented level of parcel volume that even prompted UPS and FedEx to throttle pickups from some large shippers. Amazon managed the onslaught of orders a little better with fewer complaints about late deliveries, much of it due to its investment into its own logistics network.
Amazon and Others Implement “Keept It” Returns Strategy
As small business sellers grapple with how to manage returns, large online commerce companies are taking returns to the next step by asking shopping not to bother sending products back while still refunding the full purchase price.
The Wall Street Journal reports that Amazon, Walmart, Target and other large online retailers are using artificial intelligence to decide if it makes financial sense to have customers return unwanted items. Mostly, these decisions are being made on light-weight and low-cost items that would incur high shipping fees, return processing costs, and also takes into account a customer’s purchase history.
This strategy is not completely new and has been used sporadically by Amazon and some other online retailers, but apparently this year it is gaining momentum. “We are getting so many inquiries about this that you will see it take off in coming months,” said Amit Sharma, CEO of Narvar, a returns management company.
A Walmart spokesperson confirmed to The Journal that it was using the “keep it” option in select cases. In Addition, a Target spokesperson told the WSJ the company was also offering the choice in some situations and encouraging customers to donate the unwanted item.
It’s not just Amazon pushing this returns strategy, it is a larger number of major brands that just rather not have the item back and immediately satisfy the customer with a full refund.
A New Battle For Small Business Sellers
As large online retailers can easily afford to deal with some returns this way, for small business sellers, especially on marketplaces like eBay and Etsy, this could become another headache down the road.
Amazon has for many years changed consumer expectations in online commerce. Fast Shipping, Free Shipping, and even Free Returns are now expected by a large number of consumers buying online.
eBay and Etsy have struggled at times to convince sellers of the “benefits” by offering free shipping, nevermind free returns. Of course, none of these “consumer conveniences” are actually free and the seller incurs the costs.
While shipping and logistics costs are also big expense items even for large online merchants, it is much easier for them to justify these costs due to their scale.
For sellers on marketplaces this is a much more difficult situation. They do not own the customer, the marketplace owns the customer. Most customer service friendly policies imposed by or highly suggested by marketplaces really help the marketplace, not the individual seller.
On a marketplace, just the free shipping expense alone can be a big issue because sellers have to make a profit on a per sale basis. In most cases, they do not get the luxury of repeat sales at various price levels that allows them to average the cost across all products that could justify losing money on some lower priced items. By not “owning” the customer, they do not gain the benefit of the potential repeat business as many buyers just search the marketplace themselves, not necessary specific stores or sellers.
If this just “keep it” refunds strategy proliferates into the mindset of online consumers, it will be another thorny issue for small and micro business sellers to deal with as they sell on marketplaces. it could add more hidden costs to doing business on a marketplace with the real beneficiary of the customer-friendly policy being the marketplace itself.
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