How to Navigate Holiday Returns After a Record-Breaking Shopping Season

What goes up must come down--at least, to a degree.

After record numbers of shoppers turned out for Black Friday discounts, the holiday return season is already in full swing--and retailers should be prepared. "We are predicting $173 billion in returns between Thanksgiving and the end of January," says Amena Ali, CEO of the Washington, D.C.-based reverse logistics platform Optoro. That amounts to about 18 percent of all dollars spent over the holiday season, according to the National Retail Federation's forecast--a percentage consistent with last year's rate of return.

That consistency doesn't make the return season any easier for businesses, especially when it comes to quickly processing and restocking returns of seasonal merchandise, keeping customers happy, and cutting back on the overall cost of returns. And while it may be "pencils down" for their return strategy this holiday season, leaders "have to always be improving," says Jeff Wolpov, senior vice president at the Miami-based logistics company Ryder E-commerce by Whiplash. "If you're not evolving, you're dying."

Here's how businesses can optimize their return strategy for the holiday season and beyond.

Prioritize prevention

"Nobody likes to do returns," says Shannon Wu-Lebron, corporate vice president of global retail industry and strategy at the Scottsdale, Arizona-based supply chain company Blue Yonder. "Retailers need to be proactively thinking of how to prevent returns in the first place." A survey Blue Yonder conducted earlier this year shows that "incorrect size or fit" of an item is the most popular reason customers make returns. Damaged or defective products are also a common driver of returns.

To reduce returns, businesses should ensure that products are accurately described, packaged in a way that prevents damage, and delivered to customers in the time frame they expect. Those may be basic guidelines, but they can make a difference, says Wolpov. "Do whatever you can upfront to try to exceed your customers' expectations."

Some more advanced technological innovations can also help with this goal. Fit:Match.Ai, a digital twin matching platform based in Fort Lauderdale, Florida, works with fashion brands, including Fabletics and Savage X Fenty--both owned by TechStyle Fashion Group--to reduce return rates thanks to its AR body-scanning technology, which helps shoppers select their size more accurately, says founder and Haniff Brown. Research by the company shows its technology can reduce return rates by as much as 80 percent.

Build customer loyalty with customized returns

While businesses should have clearly stated return policies--for example, that merchandise can only be returned within a certain period after the date of purchase--they should not handle returns with a "one size fits all" strategy, says Ali.

By using customer data, businesses can both reward loyal shoppers and discourage others from abusing return policies like making frequent and substantial returns. For instance, a customer who is part of a loyalty program might receive free home pick-ups for returns, whereas a habitual returner might have to bring their items to a drop-off point. Customer data can also be used to help retailers determine when to reimburse customers for returns: upon drop-off, receipt, or processing. A trusted customer might receive their refund once they've mailed their return, whereas a new customer or habitual returner might be refunded only after the item is received by the business. "You want to reward good behavior," says Wolpov.

One thing that should remain consistent in the return process for all customers: Communication. "You don't want to give surprises," Wu-Lebron says. "You have to be able to articulate to the shopper what to expect if they need to initiate a return, and that goes along with the personalization technology to be able to show that accordingly."

Make returns convenient--but don't encourage them

Businesses should be careful that their return policies don't discourage customers from making purchases; data from Optoro shows that more than half of customers (64 percent) select one retailer over another because of their return policy, says Ali. But that doesn't mean that retailers should make returns completely frictionless for all customers. "[Brands are] trying to figure out ways they can slow down that return," Wolpov says. "[But] you're not necessarily going to have those inhibitors for the good customer."

To discourage returns, retailers are increasingly making them more costly for customers. Just over 66 percent of retailers charge restocking fees or return-shipping fees, up from 60 percent in 2022, according to a 2023 survey by the return management company GoTRG. Beyond that, businesses might consider requiring customers to request return labels, rather than providing them upfront. And if customers seriously abuse return policies, brands may consider not giving full refunds to customers who exceed a specific number of returns in a given time period, Wu-Lebron says. No matter what impediment a business uses to reduce returns, it should be sure to communicate those policies to customers.

On the flip side, convenient returns can bolster customer satisfaction and loyalty--something all businesses should take into consideration given the cost of finding and converting new customers. "Retention is the new customer acquisition," says Wolpov.

That can look a number of different ways. Consolidated shipping, in which customers bring unpackaged items to a third-party shipper such as FedEx or UPS, can save businesses money on shipping, while also providing convenience to customers who no longer have to print out return labels. Not to mention, it can increase the speed at which customers make their return, which is especially crucial when the return is a seasonal item that needs to be processed quickly, Optoro's Ali says. Store drop-off returns can give businesses upselling opportunities. And free home pickups can serve as a reward for a brand's most loyal customers.

Still, there's no one perfect solution--but now is the time to experiment and find what works for your brand and your audience. "We did a survey and something like 89 percent of retailers have changed their [return] policy in some way or another this year," Ali says. "I think retailers are trying to figure out how to get to that ideal state where you're managing your costs, but then you're actually driving revenue from returns."

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