How to Revamp Your Holiday Returns Policy

The holiday season is already in full swing, and retailers will soon be bearing the brunt of holiday return behaviors. While commentators frequently point out that consumers like playing hard and fast with return rules, this is nothing compared to what can happen during the holidays.

Managing returns during the holidays requires a very different approach to the rest of the year. With return rates skyrocketing as customers return unwanted gifts, brands need to make sure that their return policy and return workflows can accommodate the quirks of the holiday season.

So, what does a return policy fit for the holiday season look like? In this blog, we're going to dive into the world of holiday returns management – and how you can prep your return policy to handle the vigors of peak season.

Why does a return policy need to be adjusted for the holiday season?

Processing returns can feel like a hassle at the best of times - without considering changing up your entire return policy. So, why is it important to adjust your store's return policy specifically for holiday returns?

Put simply, returns management during the holiday season offers a different set of challenges than the rest of the year.

Return rates rise during the holiday season

Return rates tend to increase during the holiday season due to a multitude of retail events in the fourth quarter. This surge in holiday purchases is accompanied by a corresponding rise in returns. According to the National Retail Federation, 17.9% of the merchandise purchased during the 2022 holiday season was returned - over 1% higher than the 16.5% average return rate throughout the rest of the year.

This puts huge pressure on retailers to process a high volume of returned merchandise within a short space of time. If return policies are not configured to handle this intense return period, it can cause lengthy backlogs in processing exchanges and refunds. Designing a specific holiday return policy helps to take pressure off your operations team and make it easier to retain revenue.

Consumers take longer to return merchandise

In a typical online shopping scenario, customers usually test a product right after receiving it to determine whether they want to keep it or return it. However, the process changes significantly when people are shopping for holiday gifts.

When the person buying the gift is not the one who will use it, returns or exchanges often occur long after the initial purchase. By the time the recipient finally gets their gift and opens it on Christmas day, the retailer's return window may have already passed.

Because of this, a standard online return policy might not effectively cater to the needs of gift recipients looking to exchange or return gifts. Holiday return policies are specifically designed with this situation in mind, covering items purchased during a specific timeframe to ensure that holiday gifts are not unfairly penalized.

Aligning with promotional events

If you're running holiday promotions for events such as Black Friday and Cyber Monday, your return policy needs to be evaluated in line with these activities.

For example, if you plan on offering generous discounts on final sale items, your return policy needs to reflect that consumers are unable to return or exchange these items. Alternatively, you may want to put shorter return windows in place for holiday products to ensure you still have resale opportunities before the holiday season is over.

Holiday return trends for 2023

We've covered how the nature of peak season can impact return management. But what are some challenges that retailers will need to keep in mind specifically for the 2023 holiday season?

Return fraud is growing

Return fraud in retail is nothing new, but the growth of e-commerce and mail returns has made it easier than ever for consumers to skirt return rules. According to the 2022 Consumer Returns in the Retail Industry Report, fraudulent returns are costing the retail industry over $85 billion annually. The most common cause is bracketing, when consumers buy multiple versions of the same item with the intent of returning, followed by falsely reporting that items are damaged or missing from online orders, and abusing coupons and loyalty perks.

When return volumes are at their highest during peak season, it's more difficult for retailers to manage returns effectively and keep a lookout for potential fraud cases, especially if they don't have an automated system that can flag disparities. This is leading to greater investment in AI and machine learning technologies to limit fraudulent behaviors.

Charging for returns

The notorious restocking fee might be unpopular, but it's becoming increasingly common as major retailers like H&M look for ways to discourage consumers from asking for refunds. This may take the form of getting consumers to pay for return shipping costs, or else deducting a fee from the total refund amount. This also has the effect of steering customers towards in-person returns, which allows store associates to recommend alternative products and retain revenue.

Naturally, consumers aren't enthused by the prospect of paying to return items, with 55% citing restocking fees as unfair and inconvenient. Despite this, other major retailers are following suit with H&M, including Uniqlo, Neiman Marcus, and Kohl's. While this may undermine practices like bracketing or poorly-researched purchases, retailers need to be aware of how this may affect conversions during peak season.

Return policies are tightening

The unique circumstances of the COVID-19 pandemic, including store closures and supply chain constraints, led both small and major retailers to relax their return policies in a bid to maintain sales. Generous conditions, such as free returns for up to 90 days after the purchase date, became the norm as consumers adjusted to buying and returning items online.

But as retail returns to normal, many brands are pulling back on lenient return conditions. This started in 2022 when 36% of major retailers surveyed by Inmar Intelligence said they were dispensing with policies such as free return shipping and has continued to pick up speed in 2023.

According to a recent survey in August by Blue Yonder, 69% of respondents were aware that many retailers had tightened their return policies. Changes include shortening holiday return deadlines, product-specific return restrictions, and requiring returns be made in-store rather than online. This marks a significant pivot away from the relaxed policies that shoppers have grown accustomed to, in part due to the growing cost of returns. Returns are forecast to surpass $620 billion in 2023, which equals a lot of revenue disappearing out the door.

Designing a holiday-centric return policy: 5 tips for success

Current return trends are pointing to a more conservative approach to returns as revenue losses and processing costs stack up. Yet this doesn't mean brands are completely abandoning customer-centric return policies. Some 93% of retailers say it is “somewhat important” or “very important” to offer a generous return policy to attract customers. So, stuck between growing costs and high consumer expectations, how should retailers approach holiday returns in 2023?

Lengthen your return deadline

Although many retailers have traditionally considered the holiday season as starting on Black Friday, surveys show that consumers are thinking about holiday gifts much earlier. According to Jungle Scout’s Q3 2023 Consumer Trends Report, 27% of consumers started holiday shopping as early as August, an increase from 19% in 2022. This is motivated in part by higher inflation and consumers taking advantage of back-to-school deals.

A longer return window to accommodate an earlier start to the holiday season is going to increase return rates. But if return windows aren't adjusted to 60 or 90 days to accommodate holiday returns, a lot of gift recipients are likely to miss deadlines - especially if consumers have been holding onto merchandise for several months prior.

A good way to reduce returns while still offering flexibility for holiday purchases is to require gift receipts to access a longer return window. This allows brands to differentiate between gift purchases and consumers that just taking advantage of seasonal discounts to shop for themselves.

Consider whether or not to pay for return shipping

Online shoppers are forced to take a risk by purchasing products that are untried or untested, which naturally increases the likelihood of a return. Over three-quarters (77%) of respondents said they have made a return because their product didn’t fit as anticipated. This has led to a growing expectation that brands should pay for all of the costs associated with a return – including shipping.

Yet return rates are also much higher during peak season. So, footing the bill for return shipping can quickly erode the profit margins of small e-commerce sellers.

Consider looking for a middle ground for allows you to pay for return shipping in specific circumstances. For example, if a product needs to be returned due to damage or human error i.e. a mispick, paying for return shipping is a nice gesture that acknowledges that a customer's experience was not up to standard. Likewise, consider offering return shipping for exchanges only to give your customers an incentive to return or opt for a replacement item.

Embrace self-service returns

Understandably, more brands want to have an eagle eye on the returns process to identify fraudulent behaviors. But having your staff micromanage the returns process can cause more problems than it solves.

As return volumes increase, you'll have to seriously scale up your customer service efforts to avoid processing delays. Moreover, a manual returns workflow that requires a tedious back-and-forth of emails can result in missed opportunities to promote exchanges and retain revenue.

A self-service returns workflow puts the journey in the hands of the customer by enabling them to initiate returns and select their preferred return method. As well as taking pressure off your customer service team, a straightforward returns process means that customers are much more likely to shop with your brand after the holiday season: 96% of consumers would return to a retailer that offers an “easy” or “very easy” return process!

Implement return automation

Every time a customer service representative has to undertake a repetitive action to keep a return request moving is a missed opportunity to automate with the right software solution. Returns automation uses rules-based programs to enforce a chosen holiday returns policy, approve returns, and even suggest alternative products that customers can exchange items for – all without needing the involvement of a live agent.

Shoppers can simply enter their order number in the online returns portal and select which items they would like to return, exchange, or ask for store credit. Return software such as Loop and Happy Returns by PayPal all offer streamlined automation solutions for peak season and beyond, allowing customer service representatives to focus on the more complex service requests that crop up during the holidays.

Make holiday returns seamless in 2023

Return management is a headache for e-commerce fulfillment retailers large and small, especially during peak season. While tightening up your returns policy during the holiday season might help you manage return volumes in the short term, it's not a long-term strategy to build brand loyalty. By aligning your return policy with holiday shopping behaviors and finding a balance between generosity and protecting your bottom line, you can meet consumer needs with flexibility and give shoppers a streamlined returns experience that promotes repeat purchasing behavior into the New Year and beyond.