Recently I wrote about how retail is neck-deep in an “online-first” world. With online sales of U.S. merchants up 44 percent last year, and e-commerce penetration hitting 21.3 percent in 2020, up from 15.8 percent in 2019 and 14.3 percent in 2018, it begs the question: if online-first is so great, why isn’t everybody doing it?
Simple. Online retail does not make money. Even the vast majority of established, successful, digitally native and direct-to-consumer brands have yet to reach profitability. And it’s largely because of -- yep -- returns. Here’s why.
Consumers Return Significantly More when Shopping Online (as much as 5 times more than in store purchases). That is 5X the return rate. An astronomically high number considering shipping costs.
Estimates for returns of online purchases during the last holiday season ranged from 15 to over 30 percent as consumers stayed away from stores during the pandemic, with apparel at the high end of that range. This compares with return rate estimates ranging from three to 10 percent for in-store purchases during that same period. Shopify predicted in 2020 that an e-commerce return rate of 30% would cost online retailers a collective $550 billion in 2020.