Dec 28, 2021 - Economy

Retailers surrender to unprecedented costs on online returns

Amazon boxes sit on top of each other alongside a white FedEx truck.

Amazon packages in front of a FedEx truck in New York on Nov. 26. Christopher Lee/Bloomberg via Getty Images

Returning unwanted gifts this holiday season is becoming so expensive for retailers that they just might let customers keep the products — and issue refunds anyway.

Why it matters: The cost of online returns is soaring, contributing to increased prices, product shortages and supply chain stress.

The big picture: Returning a $50 item is expected to cost an average of $33, up 59% from 2020, according to Optoro, a returns processor.

  • Worker shortages and supply chain problems are taking a toll, Optoro CEO Tobin Moore tells Axios.
  • About three in 10 online purchases are returned, according to CBRE Supply Chain.

The impact: Retailers are expected to pass on the cost of returns in the form of higher prices.

  • “The consumer pays the price of a free return,” Columbia Business School retail studies professor Mark Cohen told Today.

Some retailers, namely Amazon, sometimes tell returners to keep it. It would cost them too much to process a return, Moore says.

But, but, but: Don’t try to game the system to get free stuff.

  • “There's tracking involved that will determine whether or not consumers are taking advantage of the system,” adds Moore.

State of play: The challenge for online retailers is to process returns quickly and get the goods back onto their virtual shelves, minimizing depreciation.

  • “The faster you can get a good back to stock, the more you can avoid markdowns,” Moore says.

Yet online items that are returned are often discarded, donated or repurposed for sale through an alternative route.

  • Don’t shed any holiday tears for retailers, though. They just recorded a sales increase of 8.5% from Nov. 1 through Dec. 24, compared to 2020, according to Mastercard SpendingPulseTM. That included an 11% increase in online sales.

What's next: A rising number of shoppers are returning goods bought online to physical stores, the Wall Street Journal reports.

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