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Shoppers are expected to return up to $120 billion worth of holiday products, Optoro estimates.
Retailers spend as much as 66% of the price of a product to process a return.
But it's costly for the environment, too: About 6 billion pounds of returns ends up in landfills.
Chances are, if you exchanged gifts this holiday season, you're currently saddled with a small mountain of stuff to return now that the holidays have passed.
As you check retailers' return policies and track down boxes to ship things back, you may be wondering: what will happen to all that stuff?
The answer is complicated, expensive, and, in some cases, wasteful: Some companies will take a product back and resell it, others will tell you to just keep it and issue a refund anyway, and still others will dump your unwanted items in a landfill.
And the 2021 holiday shopping season is expected to create even more returns than usual. Up to $120 billion worth of products will be sent back through the supply chain between Thanksgiving and the end of January, and two out of three shoppers will return at least one gift, according to estimates from reverse logistics firm Optoro.
"Returns are very painful for all parties — customers, retailers, the planet," Optoro cofounder and president Adam Vitarello told Insider.
So as retailers and customers grapple with the onslaught of returns throughout the month of January, here's what it means for the buyer and seller — and the environment.
Why is the number of retail returns so high this year?
The total rate of returns has held steady over the past few years, but e-commerce returns have started to climb significantly: Online returns more than doubled between 2019 and 2020, according to data from the National Retail Federation.
The rate of returns is made worse by a practice known as "bracketing," which is when a customer buys multiple sizes or colors of a single item, chooses the version they like best, and sends the rest back to the retailer. It's especially prevalent when retailers offer free shipping and returns — to customers, it seems low-risk.
Of course, the pandemic has played a role in forcing more shoppers online than ever before. Total retail spending jumped 8.5% in November and December 2021 compared to the same period last year, with e-commerce sales up 60% compared to 2019, according to recent data from MasterCard.
And UPS said recently that's it's expecting to process more than 60 million returns between November 14 and January 22, which is a 10% increase over last year.
Shipping these products back leaves an environmental footprint: Optoro estimates that the shipping of returns emits 16 million metric tons of carbon dioxide each year.
What does this mean for retailers?
The pandemic has also forced retailers to change the way they handle returns, because store closures have required non-digitally native companies to shift their processes online.
But beyond the challenges wrought by the pandemic, accepting a product back is just plain expensive for retailers. Optoro estimates that it now costs a company 66% of the price of a product to process a return, an increase of 7% over last year. That cost includes transportation, processing, discounting, and liquidation.
At the same time, returns are an incredibly important tool for retailers to drive customer loyalty: If a company doesn't have a great returns process, they may lose that customer; if it's a great returns experience, then customers will stay loyal.
And the process doesn't just impact the person returning the item — it impacts the next person who wants that item. If a company doesn't restock an item quickly enough or doesn't have a smooth logistics operation, the next customer could be frustrated that that item remains out of stock, Vitarello said.
What happens to the products that are returned?
Some companies have been using returns to restock items held up somewhere in the global chain. American Eagle, for example, has been quickly restocking returned leggings to make up for its lack of inventory after manufacturers in Vietnam went under pandemic lockdowns, the company's supply chain chief recently told The Wall Street Journal.
Other products are sold on secondary markets — companies either open their own resale sites or post products on eBay or ThredUp.
Some companies have tried to avoid dealing with returned products altogether by telling customers to keep them, but that's not great for the environment either, since most people will just throw those items away, Vitarello said — he described the practice as companies just "passing the buck" to the consumer rather than coming up with a better way of managing returns.
A significant amount of products — about 6 billion pounds — still ends up in landfills each year, Optoro estimates. That includes items like returned baby products, many of which are automatically thrown away to prevent liability issues, but it also includes something as simple as a sweater from last season.
"It's just easier for [a retailer] to process those goods and put 'em in the landfill than try to do something else with them," Vitarello said.
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