We all know the thought is what counts, but that doesn’t mean you have to keep the three-sizes-too-small sweater gifted by your great aunt this holiday season. Businesses can almost guarantee a sudden jump in returns once the holiday aftershock hits. How can you account for gift returns in your demand forecasting and quality control efforts?
2022 Holiday Returns Predictions
55% of retailers expected customers to spend more in the 2022 holiday season. Deloitte predicted holiday retail sales to increase between 4 and 6%, with total holiday retail sales expected to land between $1.45 and $1.47 trillion.
Salesforce predicts a returns tsunami. Returns the week following Cyber week were nearly twice what they were in 2021. Salesforce predicts over 1.4 billion holiday orders – 13% of all holiday orders– to be returned this year, up 57% YoY.
Retailers are prepared for similar results. 31% of retailers forecast between 11% and 21% of holiday merchandise will be returned after the 2022 holiday season, and 16% expect between 21% and 20%.
Why are people returning more products in 2022?
While it’s difficult to pinpoint one culprit for the jump in return rates, the following factors play a significant role.
First, people started hunting down holiday gifts earlier this year. 56% of holiday shoppers started buying gifts in October. That’s 11% more early-bird shoppers than the 2021 holiday season experienced. When customers purchase gifts early, they have more time to change their minds. Maybe they see something that better fits their loved one’s interests, or maybe they’re dealing with a child’s rapidly cycling preferences.
The economy is the second factor impacting return rates. As we head into a potential recession, 72% of survey respondents expect to pay more for gifts this year. 44% of those respondents are hunting for sales and coupons and 43% say they will switch retailers for a lower price. Potential compromise bumps up the probability of the recipient returning their gift. Returns on sale items are especially costly for retailers, as they have a small resale window.
Supply chain concerns led many customers to order backup gifts just in case their original choice didn’t arrive on time.
The last – and potentially most impactful – factor increasing return rates is the overwhelming boost in online holiday shopping. eCommerce sales are expected to increase by 12.8%-14.3% year over year, reaching between $260 and $264 billion. That increase is already visible, with eCommerce sales increasing 12.7% from October 2021 to 2022 and 96% from October 2019 to 2022.
This adds to the holiday returns burden, as eCommerce return rates are 20.8% — much higher than return rates for in-person purchases.
The rise in eCommerce shopping introduced a bracket buying trend. Customers order multiple variants of the same product, keeping the one that best fits their needs and returning the rest. This is a big problem for retailers, as it disproportionately raises return rates per order.
How Holiday Returns Impact Demand Forecasting and Quality Control
Accounting for holiday returns complicates demand forecasting. Holiday demands shift rapidly. Returns are made weeks or months from the original purchase date. Predicting the looming deluge of returns even skews production planning. You have to balance how much product will be returned, how much can be resold and how the demand will shift once the holiday season comes to a close.
Adding insult to injury, holiday returns cloud quality control assessments. If you experience a large number of returns for a certain product, you will need to identify the quality issues triggering the increase in returns. Scrutinizing quality control processes is far more complicated when the user completing the return wasn’t the actual customer.
In a typical season, returns are made because the customer received a product they were not satisfied with. Holiday returns are made because a gift recipient was not satisfied with the choice their gift giver made. Therefore, the recipient could simply not be part of your target market. Or there could be quality issues, the product could be misrepresented online or the customer could’ve bought more than one gift just in case.
Identifying the reason for a return helps direct whatever actions you take to improve future customer satisfaction.
How to Handle Holiday Returns
Withstanding the incoming flood of holiday returns comes down to careful forecasting, quality assessment, product presentation and data analysis.
Collecting data for each return will help you solve the quality control problem. If you know why the customer returned the product, you can better assess whether or not the product or its representation is faulty.
Prioritize Accurate Product Representation
Because such a big portion of returns are from online sales, product descriptions are vital. If you portray the product accurately online, it’s more likely to meet customer expectations when it arrives at their door.
For clothing items, this means developing accurate size charts and displaying the items on a diverse set of models. For other products, make sure you describe how they work, how they charge, their strengths and limitations, and other relevant information. Be sure to include lots of visuals. Photos are great, but videos will help customers gauge what the product will be like in person.
Use an Advanced Forecasting System
Use an advanced demand forecasting system with algorithms that account for returns. Utilize the solution to assess historical sales, market trends, growth patterns and external driving factors like supply chain disruptions, economic conditions and even holiday return patterns into account.
Ultimately, you want your demand forecasting system to help identify what customers are wanting to return, when they will return the items and how many returns will likely take place. This requires data for customer return rates as well as individual product return rates.
Consider Adjusting Return Policies
60% of retailers created stricter return policies for this holiday season, with some even introducing fees to deter customers from returning products. Altering return policies is typically more appealing to customers than increasing purchase prices to account for the loss. 67% of surveyed retailers are charging additional shipping or restocking fees, 32% are offering longer return windows and 24% are offering returnless refunds to bypass returns processing costs.
Disclaimer: free returns do remain near the top of the customer’s priority list, so tread carefully here.
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