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Many Unhappy Returns? Online Sales May Have a Hidden Downside

Retailers expect returns, and that expectation rises during the holidays. That's logical -- the greater the share of purchases that are made as gifts for other people, the greater the share that are likely to be not quite right in some way for the recipient.

So returns and exchanges have long been a fixture of this season, but they may be increasing due to the large and rising share of items being purchased online.

The unavoidable lack of in-person interaction when it comes to digital purchases -- you can't touch them, test them, or try them on -- seems like it would naturally lead to more of them wending their way back to their sellers. That could be bad news for retailers -- or it could be an opportunity.

Most Americans expect to receive gifts they have to bring back. Image source: Getty Images.

Digital sales are growing

Digital sales grew from $449.88 billion in 2017 to $517.36 billion in 2018, a rise of 15%, according to Internet Retailer's analysis of U.S. Commerce Department numbers. That's similar to the 15.6% growth they experienced the year before.

And digital shopping has been showing signs of even stronger results thus far in the 2019 holiday season. Cyber Monday's online sales were up 19.7% to $9.4 billion, and Black Friday's online sales came in at $5.4 billion, up 22.3% from last year, according to data released by Adobe Analytics.

Oh good, they put the gift receipt in the box

According to a survey conducted by Oracle, 77% of respondents said they expect to return some of their gifts. And nearly 20% said they anticipate returning at least half of them.

About a third of those surveyed will handle those returns via mail -- a result that robs the retailer of the chance to turn the return into a bigger sale. However, 65% of respondents expect they'll make their returns to a store, which offers those businesses the opportunity to make an impression.

"Retailers need to seize the moment when shoppers return gifts. The traffic generated by holiday returns holds significant opportunity for retailers to build better customer profiles and generate new opportunities for engagement by personalizing the returns experience," said Oracle Retail Vice President Jeff Warren. "Preparing for returns is a best practice, leveraging returns intelligence to inform product development and new customer acquisition strategies is next practice retail."

What should shoppers do?

Obviously, nobody wants to give an unsuitable gift. Avoiding that may require more brick-and-mortar-store research, even if you ultimately make the purchase online. (Just because the media frenzy over "showrooming" has passed doesn't mean we've stopped doing it -- only that retailers have adapted to it.)

And even more than our inability to see precisely what we're getting with an online purchase, many of us may be getting tripped up by our desire to surprise the people we're buying gifts for. That's a lovely idea in theory, but some pre-shopping discussions with our friends and family about what they'd like would give us a higher chance of choosing wisely.

Returns can be an opportunity for both consumers and retailers. Bringing items back to brick-and-mortar stores gives gift-recipients the chance to exchange them for items they actually want. Those interactions also give retailers a chance to grow the sale, and perhaps win over customers who might otherwise not have walked through their doors.

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Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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