Online purchases have significantly higher return rate

In many households, the following scenario is something of a Christmas morning ritual: Pry the wrapping off your gift from Grandma. Feign some "oohs" and "aahs" over the shaggy sweater with the loud pattern. And subtly paw around the box, hoping there's a gift receipt so you can return it for something you really want.

It is this consumer mind-set that makes late December and January the busiest time of year for merchandise returns. Although retailers have long had to grapple with the logistical hurdles of processing a glut of unwanted items, retail and supply-chain experts say the rise of e-commerce has greatly intensified the challenges. Items bought online tend to have a significantly higher return rate than in-store purchases, leaving retailers to adjust their inventory and labor strategies.

About 23 percent of all returns - nearly $60 billion in goods - take place during the holiday season, said Tobin Moore, chief executive of Optoro, a company that helps retailers improve their "reverse supply chain."

While many retailers see a 5 to 10 percent return rate on in-store purchases, Moore said the rate is typically 10 to 15 percent for online transactions. For apparel brands, experts say, the online return rate can be 20 to 30 percent.

A deluge of returns can be expensive for retailers, and not just because they have lost the initial sale. They often foot the bill for return shipping. To resell the item, they might have to put it on the sale rack at a reduced price or take it into the secondary market - an outlet store, perhaps, or a discount retailer such as T.J. Maxx. And they're also incurring labor costs for unpacking, processing and restocking the goods.

Despite the costs, retailers have come to view flexible, easy-to-understand return policies as table stakes for competing online.

"When we first started in e-commerce, the thinking was, 'We'll make it as hard as possible to return, because then the sales will stick,'" said Maria Haggerty, chief executive of Dotcom Distribution, an e-commerce logistics company. "As e-commerce has evolved, the retailers have realized that customer acquisition is such a huge cost, that if you get one sale from them, you don't want to lose them" with a frustrating return policy.

That's why some retailers are working to streamline their processes, providing shoppers with prepaid return labels for online purchases and trying to reduce the steps it takes to complete the return. Overstock.com, for example, recently trimmed its return process from 12 steps to three.

Although retailers are focusing on making the process more convenient for shoppers, a perhaps more important goal is to prevent them from having to make returns in the first place.

Overstock President Stormy Simon said the online discount retailer is focused on improving its product photography and descriptions so consumers know more upfront about what they're getting.

"The more savvy consumers become with researching their items, the better off it is for all of us," she said.

Many shopping Web sites, including Nordstrom, Boden and Lands' End, offer "fit predictor" tools that help shoppers figure out size. Although the guides are a customer convenience, analysts say they're also likely aimed at stemming the tide of returns by reducing the number of customers who buy the same item in different sizes while intending to keep only one.

Customer reviews, too, are part of retailers' strategies to reduce returns. Analysts say innovative retailers are parsing the feedback to help let customers know, for example, whether a certain style of pants is running large or a fabric is pilling in the wash.