As retailers gear up for the busiest shopping season of the year, marked by tariffs and regulations that can change within days, there’s another peak lurking just beyond it that is getting even more complex and expensive for retailers. It’s the peak season of returns – and many are not ready for how it’s changing.
U.S. retailers saw nearly $850 billion in merchandise returns last year – with that volume being pushed higher by consumers’ buying habits. Increasingly, shoppers are buying multiple colors and sizes of an item with the intention of returning part of the order. For brands selling internationally, every one of those returns carries customs, duty and regulatory complexity.
Over the past year, the financial exposure on those returns has shifted significantly. The end of de minimis exemptions means shipments that previously moved duty-free now face per-parcel and per-HS-code fees. Tariff increases on common commodities have reached as high as 50% in some markets. And more changes, such as the next phase of the EU’s customs reform, which goes into effect on November 1, are expected in the months ahead. The timing and speed at which we’ve seen tariffs shift are changing how e-commerce brands can prepare for both peaks.
Every time there’s an update to duties or taxes, it changes the calculation of what makes a return cost-effective. Many merchants refund the full price of a product, including duties and taxes, to protect the customer relationship – but that means when a product comes back across a border, the merchant pays that fee twice. And when brands optimize purely for the cheapest return shipping option, they often end up with inventory sitting in transit longer, delaying the point at which that merchandise can be resold or put back into circulation.
Some markets offer mechanisms to reclaim duties paid on returned merchandise, such as Canada’s CREDITS program. It requires enrollment and the right documentation to receive the benefit, but it’s one way for the retailer to avoid absorbing the full loss when a customer ships an item back. But for brands and destinations that don’t have access to a benefit like that, they may need to change their returns programs, or charge shoppers in response to tariffs to recoup some of those costs.
It could also bring about more local consolidation points in destination countries so that brands can get the product back and take it out of circulation – without it crossing back over the border and triggering additional duties and taxes. In-market consolidation points also allow packages to be inspected and verified before being sent back, helping catch fraudulent returns before a brand spends more money on additional fees. The National Retail Federation’s report found that 9% of all returns are fraudulent, and that retailers have noticed an increase in practices to deceive stores.
Returns don’t have to be purely a cost event, either. Brands can use the return interaction as a chance to offer an exchange or suggest an alternative product, turning a potential loss into a way to keep the sale and the customer relationship intact.
As retailers assess their returns programs in response to changing tariffs, now is also a good time to stress-test them before peak season hits. A returns process that works at normal volume can break down quickly under the January and February surge.
When the process hasn’t been fully planned out, that’s when cracks start to appear. During peak, return volumes can double from one truckload per week to two at processing facilities. Receiving operations need to be staffed for higher inbound volumes, and returns need a clear destination, since return handling is very different from outbound processing. The plan needs to include how often returns arrive at the processing facility and how the team can properly inspect and process merchandise.
Build Flexibility into The Return Journey
Many returns problems come from poor data alignment between outbound orders and return shipments. For example, customers don’t always return entire orders, or sometimes initiate multiple returns from a single order. Each of those partial returns still needs to match back to the original customs documentation to clear the border cleanly and preserve any eligibility to reclaim duties. When brands can’t quickly reconcile those returns against the original shipment data, returns and refund timelines are delayed.
Another common vulnerability is single-carrier dependencies for first-mile pickup. When a carrier goes down due to a strike or disruption, brands with no alternative have customers holding products they can’t return. Having another option makes it easier to switch without disruption, so there’s always a way to get parcels back from the buyer to the hub.
Peak season will be here before we know it, and the rules that are in place today will not be the same rules brands are working with in January. Brands that lock into one process, one carrier, or one policy for every market are going to feel that when volumes surge. A plan that’s grounded in flexibility will be ready for whatever comes next.
Helaine Rich is vice president of strategic sales & administration at ePost Global.
