Retailers, Brands Lose Billions In Annual Returns

Search marketers need to get better at describing products, helping consumers size clothing, and matching prices at competitors. Research released Wednesday attributes an estimated $6.1 billion in annual returns to products that do not match the online description, $62.4 billion to the wrong size, and $83.4 billion to being able to find a better price elsewhere.

Research, Retailers and the Ghost Economy: The Haunting of Returns -- a report from retail analyst firm IHL Group, commissioned by OrderDynamics -- details the impact of overstocks, out-of stocks and returns, and more. Worldwide losses in these three categories are estimated at $1.75 trillion in annual losses due to returns of about $642.6 billion; out-of-stocks, $634.1 billion; and overstocks, $471.9 billion.

The report suggests that about half of all retail returns are partially preventable. Estimates put $267.4 billion in returns due to defects or poor quality; wrong sizes; late shipment; or the customer purchasing the wrong item, which in many cases search marketers spearheading the company's Web site can improve by better online descriptions.

At $162.0 billion in losses a year, the top category for returns by far is poor-quality, damaged, or defective items. The report suggests that marketers must track, share, and review the numbers by merchants and buyers in hopes of recapturing revenue.

The issue of an online description not matching the actual product contributes $6.1 billion to losses. Although relatively small, this challenge points to a bigger problem: the potential damage to reputation and loss in future sales when items are overhyped or not described correctly. Every interaction with customers matters -- and when product descriptions don't match, it results in a loss of trust.

Another blow to reputation is the $4.6 billion of online sales lost due to deliveries not being made when promised -- the cause of nearly 7% of returns. Retailers must deliver when they say they will or risk losing sales forever.

At $88.7 billion in annual losses, buyers' remorse represents 14% of all returns, with EMEA and North America topping the list of countries. Collectively, the losses are more than the annual income of Home Depot and Limited Brands combined. This is a category that grows based on disposable income, and this deficit accounts for truly lost sales.

Interestingly, retailers lose $83.4 billion worldwide as a result of returns where the customer finds a better price at another retailer. Nordstrom and others have begun to counter that problem by matching the price if the consumer can prove a lower price on the same items elsewhere.

Although technology can't fix all the challenges surrounding the $19.6 billion lost in returns to North America consumers buying the wrong size online, it can help consumers find the correct size. The report attributes $62.4 billion in returns worldwide to buying the wrong size online. This represents nearly 10% of returns and .5% of total sales.

Finally, retailers lose $28.2 billion worldwide due to return fraud, where items not purchased at their store are returned, about 4.3% of returns. Better technology and tracking systems can help to curtail this issue, per the report.

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