What: US retailers face mounting returns challenge as e-commerce growth leads to USD 743 billion in returned merchandise, forcing industry-wide strategy shifts.

Why it is important: The scale of returns represents a fundamental challenge to e-commerce economics, requiring retailers to rethink their entire approach to online sales, from product presentation to return policies.

The retail industry is grappling with an unprecedented surge in returns, which accounted for 14.5% of total retail sales in 2023. Online purchases show significantly higher return rates at 17.3% compared to 10% for in-store purchases, reflecting the challenges of digital retail. The practice of "bracketing" - ordering multiple sizes or variants with the intention of returning unwanted items - has become particularly prevalent in apparel, where return rates can reach 40%. Retailers are responding with varied strategies, from implementing return fees to telling customers to keep low-value items. Some are investing in technology and third-party solutions to speed up resales, while others are adding "frequently returned item" labels to their listings. The challenge is particularly acute given consumer expectations of free shipping and easy returns, making the economics of US online retailing increasingly complex.

IADS Notes: The record US online spending this Black Friday highlights a parallel challenge in retail: the mounting cost of returns. The latest NRF data from December 2024 shows returns reaching USD 890 billion, prompting two-thirds of retailers to implement return fees. This crisis is exacerbated by consumer behavior, with September 2024 data revealing that 39% of consumers return online purchases monthly, each return costing retailers USD 25-30. Traditional solutions like return fees have proven ineffective, as reported in March 2024, forcing retailers to explore alternative approaches. The situation is particularly acute among younger consumers, with November 2024 data showing 69% of Gen Z engaging in over-ordering practices. In response, retailers have adopted various strategies, including "keep it" policies for low-value items where return processing costs exceed item worth, as documented in December 2023. This evolving dynamic demonstrates how e-commerce growth necessitates fundamental changes in how retailers approach returns management.

US retail’s multibillion-dollar returns problem