Data: Cost of online returns hammering third of stores

According to a survey of store managers conducted by commercial property agency Savills and shared exclusively with Retail Week, almost half of all store managers (48%) said their shops accepted online returns.

Almost two-thirds (65%) of those – or 31% of the overall sample – said that when they processed online returns, the money was deducted from their store’s sales figures.

However, only 20% of managers said their stores were credited with online sales made within their immediate catchment, despite their shops effectively doubling up as a marketing tool to build awareness of their brands among the local population.

It means that bricks-and-mortar locations are almost twice as likely to be penalised for online returns than to be credited for ecommerce sales made in their surrounding area.

Although Savills did not provide an estimate as to how much the trend is costing retailers’ bricks-and-mortar divisions, it warned that it “could be fatal to some physical stores if it continues”.

£2.5bn-worth of returns

According to separate data from supply chain management experts LCP Consulting, more than £2.5bn-worth of online orders will be returned to retailers between mid-December and mid-January alone.

Even if half of that order value, as determined by LCP Consulting, ended up being returned via stores, it would wipe out more than £400m of store revenues in the space of just one month.

Savills’ ‘Online Sales vs Online Returns’ report said: “In addition to the deduction of online returns from a store’s P&L, the staff resource required to deal with these returns, as well as click-and-collect orders, can be significant.

“With many retailers on turnover arrangements, this research highlights the inconsistency of approach across the industry”

Graeme Clark, Savills

“With customer service becoming an ever more important factor to the in-store experience, many retailers are having to remove staff from the shopfloor, while at the same time having to deal with the very thing that is hampering the store’s profitability – the deduction of online returns from its bottom line.”

Savills said the report highlighted the need for landlords to “engage more closely with retailers to understand store performance”, particularly with businesses operating on turnover-based leases.

Graeme Clark, head of shopping centre management at Savills, said: “With many retailers on turnover arrangements, this research highlights the inconsistency of approach across the industry to the treatment of online sales and returns – and ultimately the reporting of gross turnover at store level.”

Savills property management research director Stephen Toal added: “Landlords and their occupiers need to continue engaging with each other to understand the role physical stores are playing in the omnichannel process.

“This will help to ensure an equitable outcome for both sides and to ensure the health of the physical store going forward.”