Retailers have started to report their Christmas performances, and while online growth is something that many of them will trumpet proudly, the rise of etail presents a growing challenge for the sector.
This year will see record levels of unwanted gifts being returned to retailers, with one estimate putting the total amount being sent back at £223m.
ParcelHero has identified January 6 as the day when the number of consumers sending unwanted items back peaks – and this year it is expected to be more than ever before.
Research by the delivery business suggests that this year 62 per cent of us will send something back they or one of their loved ones bought online ahead of Christmas, totalling £223m from UK consumers alone. That's a significant jump on last year, when 51 per cent of us returned a present to the retailer.
ParcelHero says that fashion is the sector with the highest volume of unwanted goods going back to the retailer, accounting for 14.5 per cent of all purchases.
And this is presenting a growing challenge for retailers. While they trumpet the rise of online sales – in many cases, the only thing that is keeping sales going in the right direction – retailers are faced with a growing pile of unwanted gifts after the flurry of festive purchases.
Virtual fitting room business Fits.me estimates that every item returned costs retailers between £10 and £15, though this does not factor in the cost of re-selling an item once it's been marked down from the original price.
Chief executive James Gambrell told City A.M: “Can you think of any other business where between a third and a half of what you sell comes back, and you have to refund it, process it, and then maybe get stuck with it? Retailers used to be accepting of it because ecommerce was still a small percentage of total sales, but as online sales grow, those costs are getting prohibitive.”
It's not just UK consumers sending items back. A growing number of British businesses are shipping items back from overseas customers, and this is hurting the bottom line too, says Gambrell.
“Ultimately, offering free returns is how online retailers have overcome consumer hesitation [when ordering online]. But they have become a victim of their own success, because now consumers expect it, so retailers who don't offer it will often lose business," he adds. “This year they are still having to [offer free returns] but they might not be so inclined next year.”
Online sales have continued to storm ahead this year, with the likes of John Lewis revealing that etail now makes up more than a third of total sales (36 per cent to be precise).
The department store declined to comment in detail, although acknowledged it was having to deal with more returns than ever before as a result.
In a statement the company said:
The amount of returns is proportionate to the number of sales we receive, therefore, if our sales increase then naturally so will the number of returns in line with this.
But it might not just be the retailers who suffer. Business risk analyst Nick Hood suggests that the inbalance of power between retailers and suppliers might mean some of the pain is pushed further down the supply chain.
“It's going to make it difficult for retailers to get off to a good start in 2015 because they will be so busy handling the repercussions of overselling in 2014,” he told City A.M. “But what you can be absolutely sure of is that given the unequal, onerous relationship that exists in the sector, whatever damage it does to retailers, a lot more damage will be passed down the supply chain.”
Hood agrees with Gambrell that retailers must review their model to reduce the level of returns coming back. But while Gambrell suggests much of this can be done prior to purchase, Hood's recommendation is to cut consumers off from the model that “indulges and pampers” them by allowing them to send items back “willy nilly”.
“It's something retailers will have to face up to,” he says. “It simply cannot go on like this.”