Apparel retailers brace £360m of Christmas returns, research shows

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Retailers face £360 million of Christmas 2020 clothing and footwear returns, according to new research from Retail Economics in partnership with Penningtons Manches Cooper reveals. This comes as apparel retailers have grappled £4.3 billion of returns across 2020 as a whole.

Online weighs on returns

With the proportion of online clothing and footwear sales rising to 36% in 2020, up from 22% in the previous year, the step-change in sales has brought operational challenges.

New research shows that, on average, consumers return about 17% of the value of their online clothing and footwear purchases, which equates to around £2.0 billion of returns on ecommerce sales of £11.4 billion across 2020. This compares to a returns rate of less than 12% for store purchases, which represents some £2.3 billion of returns on store sales of £20.2 billion in 2020.

As the fit and quality of fashion can be difficult to convey online, apparel retailers have dealt with an additional £372 million worth of returns from online sales in 2020 compared with the previous year.

Gen Zs are the most prolific returners, particularly for online purchases. For online orders, 18 to 24 year olds return double the value of apparel purchases compared with the over 65s.

Returns channels under pressure

The growth of online orders has put pressure on fragmented returns channels, including the Royal Mail and Post Office

The research shows that apparel shoppers like the convenience of returning unwanted items to physical stores, preferred by around two fifths (46%) of shoppers who return products. This was ahead of the Post Office (32%), while over one in 10 (13%) favoured pickup points. This equates to around £166m of unwanted Christmas gifts going through stores, some £115m of returns through the Post Office, and £47m to pick up points.

But as the supply of physical retail effectively shrinks during the current national lockdown, the pressure of returns intensifies across fewer channels. The Post Office will bear the brunt of these festive returns – as opposed to physical stores – as a wave of shoppers make returns through this channel.

This comes on top of recent pressure on parcel services, such as Royal Mail deliveries not arriving on time due to reported capacity constraints and resourcing issues with staff sickness.

Penningtons Manches Cooper head of corporate and fashion Matthew Martin says: “The Covid-19 pandemic has created a new wave of consumers shopping online for products that they have previously only ever purchased in-store and, as the volume of online orders is ramped up, so too has the quantity of online returns. Getting returns right matters because it encourages shopper loyalty so there is no way out for retailers.
“Gen Zs are the most prolific returners who have developed a distinct behavioural culture of over-ordering with the clear intention of returning unwanted items. The growth of returns not only increases pressure on logistics but also further erodes profit margins in an already fiercely competitive market. Our research reveals that apparel retailers face around £360 million of Christmas gifts heading to returns departments – the equivalent of 18 million £20 Christmas jumpers.

“Clothing retailers are between a rock and a hard place.  Not only do they have to offer shoppers efficient, free and convenient returns – more than half of those surveyed avoid retailers who do not offer free returns – but their profit margins are further diluted by canny online young shoppers who effectively use the returns policy as a substitute for an in-store changing room.

“But as online is where the growth will continue to be, retailers need a strong grip on understanding what drives the activities that impact their business models such as returns and how to put measures in place to lessen that impact.”

Retail Economics senior consultant Nicholas Found says: “As shoppers and retailers seize the opportunity of online during the pandemic, we’ve seen around half a decade of online growth in the space of one year. But this leaves profitability at risk of being eroded in what has ultimately been a crippling year for apparel, with sales down around a quarter on 2019.

“The true cost of trading online is being weighed heavily by higher return rates compared to store sales. This comes on top of a competitive digital landscape and a backdrop of a rising cost per acquisition for online customers.

“The variability of online costs is putting pressure on traditional retailers to pivot their propositions and streamline legacy fixed costs. In doing so, retailers must remain open minded to digital investment and partnerships to ease costs and expand capabilities, or risk falling behind the curve.”