Tag Archives: returns

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Merchants Prepare for Over $40 Billion in Returns [2023 Update]

Not everyone is always thrilled with their Christmas gifts, and now that we can shop for anything we want with relative ease and next to no effort, so too can we return items.

Holiday Record E-commerce SalesYear on year, Christmas shopping habits are growing and the dollar amount consumers spend is on the rise. It’s only inevitable that so too should returns increase. This is why this year, merchants are expecting to refund a whopping estimate of $41.6 billion worth of merchandise bought online. At least this is what a study undertaken by the commercial real estate services firm CBRE is estimating, along with their partner Optoro, which specializes in assisting merchants when it comes to processing returns. The projection for 2018 was $37 billion, so this is a pretty hefty increase which would make for an all-time record.

By assuming that, on average, around 15% to 30% of all online purchases are returned, CBRE and Optoro can calculate the return figure. By contrast, old-fashioned brick and mortar store shoppers return around 13% of their purchases.

An Early Start to Online Returns and High Volume

CBRE and Optoro’s report also states that each year, the return rate in the retail industry grows by around 10%, and up from last years $90 billion, this year’s overall cost of returns, both online and in-store, is predicted to reach upwards of $100 billion.

In other areas, USPS is expecting to handle over 1 million returned packages each day of the Christmas period, with its peak hitting on January 2nd with 1.9 million items, over 26% higher than the peak so far in 2019.

CBRE Matt Walaszek Report

According to associate director of industrial and logistics research at CBRE Matt Walaszek, “[The Christmas period is] a time when retailers are seeing all these sales and that does not translate into rising profit margins. However, the returns are quite costly. The costs are the number 1 stressor for the retailers.”

Inefficient methods for handling returns costs the retail industry around $50 billion each year, according to Optoro. Also, with over 10 billion “needless shipments” each year, costs really are adding up for retailers. Often, retailers aren’t able to resell returned merchandise themselves, so one tactic is to try to sell the merchandise to discount stores. Failing that, merchandise has to be destroyed, which, along with the $50 billion in costs each year, generates 5 billion pounds of waste.

Continuing on from what he said before, Walaszek added, “Customers have gotten really accustomed to free returns. We are really spoiled. And retailers have to figure this out to be able to compete in this marketplace.”

Conclusion

Christmas retail sales are expected to rise around 3.8% to 4.2% this year, which would see sales between $727.9 billion and $730.7 billion. With all these increases in sales, money lost through returns is only going to continue to increase too.

Eleven-letter Dirty Word: Chargebacks

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If you surveyed everyone in the payment processing world, both merchants and processors, what they wish they could do away with for good, I would venture a guess that 8 out of 10 would say chargebacks. Unfortunately this is not going to happen in the foreseeable future. And the reason for that is simple: the credit card associations and credit card issuing banks have setup the system to ensure that consumers feel secure in using their credit cards.

The causes of chargebacks vary but inevitably boil down to one simple truth: the customer disputes the charge on their account from the merchant. These range from circumstances that are out the control of the business owner to conditions that can easily be remedied. They include, but are not limited to the following:

  • Fraud occurred or is suspected
  • Discrepancy in amount charged
  • Good or service paid for but never received
  • Unauthorized or duplicate transaction
  • Quality of the good or service did not match customer’s expectation
  • Customer does not recognize the transaction or the associated company name

Just based on this short list alone it is evident that chargebacks are inherent within the credit card system. While the majority of industries are compliant, there are certain verticals that have been identified as having higher occurrence of chargeback rates. The card associations tend to deem these “high risk” and many have trouble getting on boarded with most merchant services providers.

Avoiding Chargebacks

Depending on what type of merchant you are, there are simple steps you can take to greatly reduce the risk of having chargebacks. Let’s explore some different scenarios.

Brick and Mortar Merchants

Typically if you are a retail merchant with a physical location your risk of chargebacks is relatively low. The customer is receiving the good or service right at the time of payment and if the merchant has good business processes the customer should be happy with the quality. Also, your staff should be aware that whenever possible to swipe the physical card to ensure the lowest possible rate. Common practice is also to get a signature on the receipt and keep copies on file for 18 months in case of disputes. If you must key in the transaction by hand, be sure to make an imprint of the card with a signature as well.

Internet & Mail/Telephone Order

With the absence of a face-to-face transaction there are a number of added hurdles that need to be cleared in order to ensure a successful transaction. One first step is to make sure that your processor includes your customer service number along with your DBA (doing business as) name to be displayed on the customer’s statement. This will eliminate any confusion as to where the charges are coming from.

Online sellers should take advantage of fraud prevention tools that are available by the processing bank. These include AVS and CVV2. Address Verification System (AVS) compares the billing address with what is on file with the card issuer. Now while AVS does not approve or decline a transaction, a merchant can use the resulting code that is returned to pre-screen the transaction before committing to the sale. Card Verification Value 2 (CVV2) is the three-digit number that is printed on the back side of the card to the right of the signature panel. In a card-not-present environment this is just one more step to help protect the merchant. For more information read the VISA card-not-present tools.

What to do when…

When you find yourself facing a chargeback claim, a compliance allegation, or an arbitration request the biggest thing to keep in mind is to pay attention to the deadlines presented, act quickly, and provide as much supporting documentation as possible. The more documentation you gather over the process of doing business, the more ammunition you will have to support your claim. Also, failure to abide by the timelines for response means the loss of the transaction amount. In addition, the business may also be fined for non-compliance.