We've all seen the headlines about the growth of online shopping during the Christmas season and the increased importance that events such as Cyber Monday play in retail.
The National Retail Federation forecasts that online sales over the November to December period will grow 6% to 8% this year, doubling the retail industry estimates as a whole. Here are some statistics from various sources:
- Online and other non-store sales increased 10.3% year over year during November, far surpassing sales growth seen at bricks-and-mortar stores.
- 103 million people shopped online over the Thanksgiving weekend, compared with 102 million who shopped in a physical store.
- Cyber Monday revenues surged 16% to more than $3 billion for the first time, a single-day record for online sales.
- Online sales for the five-day period starting on Thanksgiving Day and going through Cyber Monday totaled $11.11 billion, a 17% year-over-year increase.
- 70% of traffic to Wal-Mart's (NYSE:WMT) website on Cyber Monday came from mobile devices.
- Amazon.com (NASDAQ:AMZN) cornered some 36% of all online sales made on Black Friday, far outstripping second-place Best Buy, which had but 8%.
- Package delivery leader UPS expects deliveries between Thanksgiving and New Year's Eve to rise 10% from 2014 to 630 million packages. FedEx is expecting a 12.4% increase between Thanksgiving and Christmas Eve.
- UPS and FedEx announced a combined 150,000 new seasonal jobs to meet the demand; Amazon planned to hire 100,000 temporary workers.
So though it's obvious the influence digital has over retail will only continue to grow in importance over time and the headline numbers paint a picture for a prosperous future for Internet retailers (at least for ones named Amazon), there's a dark, unseemly secret many don't like to discuss, one that retailers ignore at their peril.
Return to sender
What's being left unsaid is how many of those items will be returned.
Returns are a part of retail life for both the store and the customer. Yet when it comes to which sales channels experiences the number of returns, Internet retailers have more than triple the number of returns their physical store counterparts do.
According to packaging products distributor Shorr Packaging, where bricks-and-mortar retailers see return rates approaching almost 9%, online retailers experience returns of more than 30%. Others estimate it could total a third or more of all online sales. Sure, e-tailers may generate as much as $65 billion in holiday sales this year, but Schorr says just under $20 billion worth will be sent back. DynamicAction found that holiday returns had already increased over 9% compared with last year.
That staggering number is both a problem and an opportunity for Internet retailers, because although it means actual sales are much lower than reported, those companies that meet the threat head-on have a better chance of profiting.
What's in it for me?
The folks at Shorr say that while improper fit and receiving the wrong item accounted for 17% and 16% of customer returns, respectively, fully one-quarter of returns are because the item was not what the customer expected.
Those customers aren't delighted with their purchase, but how retailers handle returns can determine whether they gain a loyal customer or push one away. And it can be as simple as offering a free-return policy.
Not surprisingly, the customer service analysts at StellaService find retailers such as Nordstrom, Kohl's, and Land's End have among the best, hassle-free returns policies.
Yes, it's a cost to the company, but those e-tailers that ask customers to pay for return shipping see sales to those customers drop anywhere from 74% to 100%, whereas those companies that pay for return shipping typically see a 58% to 357% increase in sales over the next two years to those customers that return items.
Like Pavlov's dog
But if customers are essentially demanding something for nothing, it's only because the retailers themselves have conditioned the customer to expect it.
Amazon.com, for example, helped push the entire retail industry to come up with innovative ways to lower the costs of shipping to customers with its Prime membership, which includes free two-day delivery on most items. Wal-Mart responded to the challenge by pioneering free ship-to-store delivery, using its 4,000 or so stores as distribution centers.
Amazon offers free returns only on items it sells, not those from third-party sellers, and only for those items that are indicated as being eligible for free returns. Wal-Mart offers customers the ability to return items bought online to one of its stores (though not from third-party sellers).
Easy as pie
In short, making the transaction in both directions as easy as possible for the customer can help a retailer boost sales. Schorr Packaging found that while 85% of consumers say they wouldn't do business with a company that makes the returns process difficult, almost all, or 95%, would do business again with a company that made the process simple.
Product returns don't get as much attention as do the initial sales, but they are at least as important for the long-term health and growth of the company. Those retailers that fail to address this dark secret of the industry will likely be the ones that report the worst Christmas sales numbers this year.
Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends AMZN. The Motley Fool recommends FDX, JWN, and UPS. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.