It turns out that the holiday season was more profitable than expected, considering inflation, lingering supply chain woes, and projected economic turbulence. People shopped longer, earlier, and spent more than they have in the last three years.
According to data from the National Retail Federation, online Black Friday sales were up 2.3% compared to 2021, with $9.12 billion spent online that day alone. Looking at the holiday season overall, consumers generated as much as $960 billion in revenue, with online sales reaching about $210 billion.
Despite doomsday projections, merchants worldwide are breathing a collective sigh of relief after a successful holiday. However, at the risk of being the bearer of bad tidings, retailers are not out of the woods yet.
As in previous years, a surge of returns is already underway. Plus, the holiday “chargeback hangover” is coming right around the corner.
Consumers Will Get Their Money Back… One Way or Another
Returns are not ideal. However, a return will present the opportunity to recover your sale, at the very least. If handled well, a return may even present a chance to deepen your relationship with a customer, as we’ll see later. You won’t have that opportunity with chargebacks, though.
Chargebacks are forced payment reversals conducted at the banking level. With a chargeback, the funds you earned from a sale will be clawed back from your bank account and returned to the customer without your consent.
The harder you make returns for your customers, the more likely they will be to skip past you and ask their bank for that refund instead. As we are all aware, chargebacks are going to cost you more than simple returns. Further complicating the process will only come back to bite you in the end.
Previous data shows the number of chargebacks issued by banks rises precipitously in late January through February. This is because most chargebacks are filed 45-60 days after the initial purchase, leading to an annual post-holiday headache for merchants.
Holiday Returns: Impact to Opportunity
CNBC reports that consumers are expected to return $158 billion worth of merchandise early in 2023, which accounts for 18% of all 2022 holiday sales. In fact, more than three-quarters of shoppers will return one or more of their holiday purchases this month.
That $158 billion worth of purchases doesn’t account for overhead costs like interchange fees, shipping and handling, and restocking fees. Because of these additional costs, many merchants have adjusted their return policies to shift some of those expenses back onto the consumer. Some even go so far as to deny free returns altogether, as cited in the CNBC piece.
Frankly, this is a mistake.
While returns aren’t ideal, there is a better way to look at this. Some of those returning customers may be convinced to exchange the item for something else, which makes a return a great opportunity to recover the sale. Some may wish to spend more during the exchange, opening a whole new opportunity to generate revenue. The trick here is to plan ahead.
Some retailers have begun to offer added incentives to help recover sales. For instance, giving customers a 10-20% bonus to accept store credit in place of a cash refund. Others run targeted promotions after the holiday, pushing similar products that might pique a shopper’s interest.
Ultimately, the point is to consider each return an opportunity to recover revenue. This is crucial; a return could just as easily devolve into a chargeback if handled improperly.
Be Prepared Rather Than Reactive
Again: returns aren’t ideal, but they’re a much better alternative to a chargeback.
Your return policy should be as consumer-friendly as feasibly possible, and you should place a keen focus on customer service throughout this season. Failure to do so will inevitably result in disputes and chargebacks.
The “chargeback hangover” is an unfortunate side effect of stellar holiday sales and will occur whether you are ready for it or not. That said, preparation is the key factor to ensure that you keep losses as low as possible.
A streamlined and simplified return policy, paired with exemplary customer service, can go a long way toward limiting the number of chargebacks you receive during this period. You can have all the fraud tools you want in place, but increased friction at checkout is going to cost you on the backend. Therefore, what you really need is a multi-faceted approach to sales, marketing, fraud prevention, and chargebacks.
You need to think about your return policy as part of your broader chargeback prevention plan This could make all the difference on your bottom line.
