IHL Report Demonstrates Returns Add Up To A $1.75 Trillion Price Tag
By Christine Kern, contributing writer
Overstocks, out-of-stocks, and returns add up to big headaches for retailers.
Recent research from the IHL group has found that worldwide losses from overstocks, out-of-stocks, and returns combine for a whopping $1.75 trillion in annual losses. The report, “Retailers and the Ghost Economy: The Haunting of Returns,” commissioned by Order Dynamics, found that returns constituted some $642.6 billion; out-of-stocks, $634.1 billion; and overstocks, $471.9 billion. Returns represent $246.3 billion in North America alone.
“Driven by growth of digital commerce, return is going to go up,” said John Squire, president of OrderDynamics, “This cuts into the cash flow.”
According to the report’s findings, quality problems and product defects were the leading cause of retail returns, accounting for $162 billion in returns worldwide. That’s 1 in 4 retail returns, and 1.1 percent of total retail sales worldwide. Sizing issues haunt apparel retailers, with $62.4 billion in returns due to poor fit.
According to IHL’s research, the leading causes of retail returns are:
1. Defective/poor quality: $162 billion
2. Bought wrong item: $99.3 billion
3. Buyer’s remorse: $88.7 billion
4. Better price elsewhere: $83.4 billion
5. Gift returns: $64.1 billion
6. Wrong sizing on item: $62.4 billion
7. Return fraud: $28.2 billion
8. Didn’t match online description: $6.1 billion
9. Late delivery of items: $4.6 billion
10. All other reasons: $43.8 billion
The report also suggests, however, that such merchandise returns are at least partly preventable.
“Merchandise returns can be a particularly vexing problem for consumers,” Greg Buzek, president of IHL Group said. “When merchandise is out of stock, shoppers typically just go elsewhere or purchase a different product – but if they make a purchase and then have to return it because of poor quality, improper sizing, late delivery, or it doesn’t match the online description – it’s not only frustrating but often leads to a consumer ceasing to shop with that retailer.”
The report suggest some areas for improvement of the customer experience that retailers can implement to increase profits by minimizing returns.
John Squire, president of OrderDynamics explained, “For example, apparel retailers can standardize sizing across brands, offer personalized size guides and clearly communicate sizes to shoppers in all channels. But retailers need connected data across marketing, merchandising, returns and customer reviews to be able to recognize where these issues exist in the first place.”
According to Squire, “Profitable growth in this ‘on-demand economy’ requires moving beyond standard business intelligence of what and why something is occurring to the next level of proactive, actionable, prescriptive analytics that allows them to make the right decisions at the speed their customers and shareholders expect.”