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UPS Expects Soaring Holiday Returns; Peak Day 26% Higher Than 2018

UPS Inc. (NYSE: UPS) said Monday that holiday returns traffic will peak Jan. 2 at 1.9 million packages, a 26% increase from the 2018 peak. UPS also expects 1.6 million daily returns during the week before Christmas, another indication that the days are past when returns traffic was concentrated after the holidays.

In recent years, the growth of e-commerce and a hyper-competitive retail market has pushed more sales and returns into the pre-Christmas period. Throughout December, UPS will transport more than 1 million returns a day back to retailers, with the volume hitting its first peak by mid-month. The first spike will likely be triggered by retailer promotions, which will prompt shoppers to buy gifts early, UPS said.

The second and largest spike in returns, which UPS dubs "National Returns Day," will occur Jan. 2, the traditional day for peak holiday returns.

UPS declined to comment on projections for total peak-season returns volume. It expects a 5% year-on-year gain in overall volume to 32 million daily packages, on average. Daily return volumes, on average, should exceed that percentage, according to a spokeswoman.

According to the National Retail Federation (NRF), $369 billion worth of goods were returned in 2018, equal to about 10% of total U.S. retail sales. About $72 billion of $719 billion of the value of holiday goods was returned last year, NRF said. Studies have pegged e-commerce returns rates at around 20%, though some experts contend it is much higher. Brick-and-mortar returns rates are in the 8%-10% range, according to various studies.

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E-commerce returns are a boon and bane to retailers. Studies have shown that retailers can gain durable competitive advantage by their ability to handle returns seamlessly. In UPS' annual online shoppersurvey, 68% of respondents said the returns experience shapes their overall perceptions of a retailer, and 73% said the experience would influence whether they would use that retailer again.

For retailers, however, developing a strong e-commerce returns process has become a challenge, to say the least. Consumers increasingly expect returns to be free both in terms of cost and conditions. Because consumers are not sampling items in a store before buying, they often order multiple versions of an item, keep one and return the rest. This creates massive logistical complexities for retailers since the goods are unlikely to be shipped back to where they were ordered and end up being returned to multiple locations for resale or disposition. Consumers' propensity to order multiple boxes, keep one and return the rest would explain why a higher percentage of online orders are returned than those placed in a traditional retail store.

Another problem is packaging. Many items, especially single-item garments, are shipped in plastic poly bags that are sometimes torn upon opening and rendered unusable. To ensure they have an available box in which to stuff a return, consumers are encouraged to keep the original packaging intact and to pack the package in as close a condition as possible to how it arrived. UPS and rival FedEx Corp. (NYSE: FDX) have physical stores where returns can be packed properly.

Several carriers and retailers have embraced the buy-online-return-in-store" (BORIS) concept as a cost-effective way to handle returns. UPS and FedEx have partnered with retailers like Dollar General Corp. (NYSE: DG), Michaels Stores (NASDAQ: MIK) and CVS Corp. (NYSE: CVS)., Inc. (NASDAQ: AMZN) has an arrangement with retailer Kohl's Corp. (NYSE: KSS) in which Amazon shipments can be returned to a Kohl's location for a return. The concept benefits carriers because they can aggregate returns at specific consolidation points rather than stop at individual homes. Retailers gain because it creates additional foot traffic and the chance for higher sales.

Image Sourced from Pixabay


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