While the holiday shopping season is the most profitable time of the year for online retailers, there’s always one challenge this time of year: Online retailers wish they could manage better returns.

Recent statistics indicate that returns are a significant issue for e-commerce retailers, particularly during the holiday season. Consider a recent forecast from commercial real estate firm CBRE and reverse logistics provider Optoro that found 2023 holiday returns could reach $173 billion when the final tally is done, with $80 billion of those returns coming from online.

The online sales return rate from the holiday shopping season is known to spike to 30% of all sales.

What are Retailers Doing About It?

Retails revamp their returns strategies:

Online retailers have tried many return strategies to build consumer trust and loyalty. According to Jadah Hawkins, SVP, global market leader retail and e-commerce at customer experience services provider Alorica, many changes have been driven by technological advancements and evolving customer expectations. Hawkins explains that these include Enhanced customer-friendly policies that provide for more lenient return acceptance to attract and retain customers, such as longer return windows, easier return processes, and offering refunds in various forms, such as store credit or exchanges; Online returns and drop-off points that include prepaid shipping labels to offer customers more flexibility and convenience, and; Improved communication that provides for more proactive, clearer and transparent information about return options, expected timelines, and potential fees.

Finally, more sustainable options that provide eco-friendly alternatives for returned items, such as recycling, refurbishing, or donating returned products to minimize waste, Hawkins says.

According to the experts we reached, online retailers have taken several steps to manage better returns, including the use of AI and other strategies:

AI and data analysis: Retailers are looking through their data with machine learning to better prepare for their returns. For example, return policies for a single customer could be changed if they return a significant percentage of their purchases. For often returned items, shoppers can be notified of that fact before they purchase.

Return policies and processes: While some retailers have developed more consumer-friendly returns policies, others are starting to charge for returns, such as stocking fees or shortening the return window. Others are making it easier with pre-printed return labels and drop-off sites to manage logistics better.

Third-Party Services: Online retailers partner with third parties and reverse logistics companies to better run returns, including managing shipments, fulfillment, and processing and restocking returned products.

Return Management Apps: Online retailers continue to embrace returns management applications from such companies as Orderhive, ZapERP, Happy Returns, and others to help streamline the returns processes, provide customers with the status of their returns, and automatically update the retailer’s inventory management system. According to Industry Expert Research, the return management app market should grow roughly 28% annually through 2028.

Experts Expect the use of AI and the Focus on Improving the Customer Return Experience to Continue

Retailers to continue using data and AI to optimize return policy and processes

Of course, AI plays a more significant role in returns management and will continue to do so. “One of the most common strategies is to use AI-powered systems to analyze return requests and automatically authorize returns based on predefined criteria,” explains Jeff Wiedwald, senior vice president of solutions and fulfillment at fulfillment services provider Radial. “This helps in speeding up the process by reducing manual intervention and ensuring consistent decision-making,” Wiedwald says.

This obviously helps online retailers better understand and predict customer return behavior. “By understanding patterns and trends, they can proactively address issues that might lead to returns, such as sizing issues or product defects, Wiedwald adds.

AI-powered chatbots are increasingly being used to assist customers with return-related queries, Wiedwald continues. “These bots can provide instant responses, guide customers through the return process, and offer solutions without human intervention. These are just some of the ways retailers are using AI for returns. We anticipate the integration of AI to become more prevalent in returns strategies. It not only enhances efficiency but also contributes to a better customer experience by providing quick and personalized solutions,” Wiedwald says.

Sidra Berman, chief marketing officer at post-purchase software provider ParcelLab, explains that today’s consumers expect tailor-made experiences that are dynamic and engaging, and retailers are turning to AI to create those experiences. “AI technologies are allowing retailers to optimize and streamline customer experiences for returns at record speeds, offering more ways to delight based on specific requests,” Berman says.

Berman adds that online retailers also utilize customer data to deploy personalized communications around returns, including asking why customers are returning items and if an exchange is more suitable. “Retailers that incorporate on-brand messaging and improve returns visibility will recapture revenue and increase customer lifetime value,” Berman says.

While some online retailers may be hoping to squash free returns, 72% of shoppers told SAP Emarsys Customer Engagement that they show greater loyalty to retailers that provide free returns.

Based on a survey of 2,000 shoppers in the United States, the research also found that 88% of US consumers have stopped shopping with a retailer because of a paid returns policy being introduced, while 54% actively avoid retailers that charge to return items.

Additionally, 26% of consumers say that retailers could reduce their rate of returns by offering a more personalized product selection, and 24% say that they could do so by providing more personalized marketing materials. Forty-one percent of respondents say they would like more personalized recommendations and deals that make the online experience more like shopping in a store.

“Today’s consumers are looking for a more personal touch and want to know their voices are heard,” says Sara Richter, CMO at SAP Emarsys. “To deliver a tailored experience, retailers must make the most of advanced tools like Customer Engagement Platforms, Customer Data Platforms, and AI to understand customers’ shopping habits and return patterns,” says Richter.