Buyers Get Paid To Keep Returns

Brahm Buck

Share Tweet Share Share Share Email You buy it. You keep it. On the fence about keeping it? We’ll pay you to keep it. So much has changed in retail amid the great digital shift, which has made it easier and speedier to get what we want delivered.  It’s also […]

You buy it. You keep it. On the fence about keeping it? We’ll pay you to keep it.

So much has changed in retail amid the great digital shift, which has made it easier and speedier to get what we want delivered.  It’s also easier than ever to give back what’s not wanted. Consider the fact that the very same packaging in which an item comes to the front porch can oftentimes be used to send something right back.

That impulse buy? The sweater that looked better on the website model than on you, that New York Times bestseller that fell flat after the first few pages, the pasta maker that suddenly seems a pandemic project way too ambitious? It’s easier to just box it up and send it back.

Returns, then, are simply part of the deal. We no longer have to schlep down to the store, make eye contact with the merchant, explain the issues, turn over the physical receipts. No need, even, to go to the post office.  You can just send the item you want from the same porch to the porch on which it was delivered.

Back in the midst of the pandemic, we wrote that customers have gotten into the habit of checking return policies just as surely as they check the delivery timeframes, and how much might be charged for shipping. In an interview, Narvar CEO Amit Sharma told PYMNTS that consumers “are investigating their options, and if they’re not clear on what will be done in the case of a return, they might not even place the order. So, shipping and returns definitely impacts the customer experience, the customer strategy and even the top-line sales. If you don’t send the expectation around shipping and returns, they might not even place the order.”

The National Retail Federation estimated earlier this year that as much as $428 billion in merchandise was returned last year, and that online returns were $102 billion, which represents a more than doubling over 2019’s levels.

The costs have been significant: For every $1 billion in sales, the NRF estimated the average costs of returns to be $105 million.  That implies that roughly 10 percent of the operating margin takes a hit somewhere down the line, after the sale has been recorded and the cash received. Then, depending on the retailer, the item sits in inventory, unsold, and perhaps has to be written down later in the future. Along the way, it does not have to eat the shipping cost of getting things back to the warehouse.

It’s early March, and we’re likely to see a falloff in the return rate of goods purchased during the holiday season. But then again, since the digital shift is inexorable, and the simple mathematics would mean that higher levels of sales would also generate more returns.

You yourself might be part of the trend of ordering several variations on an item — that sweater in red, and blue, and black – to see what works and opting to return what doesn’t.

As reported earlier this year, Amazon and Walmart have been shifting the way they handle refunds. Customers can ask for a refund, but they might not have to return the item even if they’re granted one. In other words, they’re getting paid to hang onto an item. Money flows back into their credit/debit account (but not the whole purchase price), and they’ve effectively gotten an item for a discount.

There are a few benefits: The consumer doesn’t have to box up and get the item out to the retailer. The merchant, in turn, gets to save a bit, in terms of operational costs. (Of course, there’s the glut of stuff that might accumulate when someone keeps an item and gets a new one in a different size or color. But making space for it all is another matter.)

The Incentive

A January 2021 PYMNTS study found that there’s an economic incentive to hang onto items. In the report, titled “Online Ordering’s Return Round Trip: Do Discounts Change Consumers’ Minds About Returning Holiday Purchases?”, we surveyed a census-balanced panel of nearly 2,300 U.S. consumers to help formulate strategies for dealing with holiday returns. Among the findings: Discounts of as low as 5 percent “could persuade 39 percent of consumers ready to return an item to keep it, 10 percent boosts that to 45 percent.”

Then there’s the incentive for consumers to monetize what they don’t want. Where secondary marketplaces may have been the province of eBay and craigslist, there are also and Poshmark and a host of others that focus on a particular type of product – tech and electronics, for example, or clothes. We’d surmise that the appeal of an item yet to be unboxed might fetch a relatively higher price. In this way, consumers can defray the cost of an item. Add the discount paid by the original merchant to keep the item, and the consumer might actually eke out a profit. The great digital shift, then, could make all of us into merchants, after a fashion.

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About The Study: The Holiday Shopping Retrospective Study: Merchant Insights For 2021 And Beyond, a PYMNTS and PayPal collaboration, examines consumers’ shopping practices and preferences during the 2020 holiday season and what these mean for merchants now and for holiday seasons to come. The report is based on a census-balanced survey of 2,070 U.S. consumers.

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