Holiday Returns: The Hidden Drain on Supplier Margin
- The HRG Team
- 4 days ago
- 3 min read
Holiday sales feel great. Holiday returns don’t. The weeks after Black Friday through January generate a tidal wave of merchandise returns—and with it, a spike in excessive defectives, RTVs, price-variance disputes, OTIF-related claims, and post-audit deductions that quietly erode supplier margins.
In 2024, U.S. retail returns were projected at $890B, with retailers estimating that 16.9% of annual sales would be returned. For the winter holidays specifically, retailers expected return rates to be ~17% higher than their yearly average. That volume forces AP and post-audit teams to go hunting—often upstream, at the supplier.
Curbside/BOPIS adds more pressure. Last season, 17.5% of online orders at retailers offering curbside were picked up that way, peaking at 37.8% on Dec. 23—great for shoppers, tough on accuracy. Mispicks and data mismatches show up fast as operational chargebacks, and months later as post-audit claims.
And policies are tightening. In 2024, ~25% more retailers charged for return shipping, and many shortened windows—signals that costs are rising and scrutiny is increasing. Meanwhile, return fraud/abuse is now believed to be ~15% of returns, with losses around $103B in 2024.
Expect more challenging documentation demands from retailers before they grant credits.
Also worth noting: shoppers still prize convenience—76% say free returns influence where they shop—so retailers will balance friction with cost recovery, and some will push more “defectives” or policy-driven deductions back to suppliers.
How Holiday Returns Turn Into Deductions
“Excessive defectives” & RTVs. High return volumes, rushed inspections, and vague reason codes lead to blanket defect claims—often with thin evidence.
Price variances after promos. Holiday discounts stack; if your price files, effective dates, or item masters weren’t synchronized everywhere, expect overcharge claims.
OTIF & logistics knock-ons. Congested appointments + split shipments = short/late receipts that reappear as deductions when returns spike.
Label/ID mismatches. Seasonal packs, bundles, or refreshed packaging create scan errors that cascade into operational chargebacks and post-audit disputes.
A quick (fictional) picture
A toy supplier launches a gift bundle. One UPC in the bundle wasn’t mapped in two portals. Orders soar; curbside picks mis-scan singles as bundles. January brings a flood of returns—stores mark “defective.” The retailer issues deductions for “label mismatch,” “excessive defectives,” and “price variance.” None of this is a real case—fictional, but painfully plausible.
What Suppliers Can Do Now (so January doesn’t hurt)
Lock the item + price story before you ship.
Freeze promo price files; verify UPC/GTIN, pack counts, and effective dates in every retailer system. Snapshot pre-promo and in-promo files; save ad proofs and approvals—that’s your post-audit lifeline.
Stress-test labels and data.
Run “mock receipts” on your top holiday SKUs: scan outer/inner/carton barcodes, confirm ASN fields, and validate any bundle or 2D/alternate code mapping. Catching one bad barcode prevents hundreds of compliance deductions.
Prepare a returns evidence kit. Standardize RMA numbers, photo requirements, serial capture (where applicable), and reason-code definitions with your retail partners. Require images for damage/open-box claims; log who authorized “destroy in field” vs. RTV.
Tighten packaging + in-box content.
Do quick drop/ship tests; add clear setup guides and QR help links. Many “defective” returns are usability issues—less confusion = fewer claims.
Pre-agree “keep/donate” thresholds. For low-value items, pushing replacement/credit without return can be cheaper than reverse logistics. Negotiate thresholds now, not in January.
Track returns by code/DC weekly. Build a simple dashboard: SKU × DC × reason code × retailer. Spikes expose root causes fast (bad lot, label version, pick/pack issue).
Map policy changes by retailer. Shorter windows and paid returns shift shopper behavior and can inflate store-level defectives. Keep a policy matrix for your top accounts.
Plan the “second life.”
Refurbishing, liquidating, or using outlet channels recovers value and reduces dispute pressure. The longer returns sit, the costlier they get.
Calibrate fraud flags (lightly).
Watch for high-risk patterns: serial mismatch, repeat claimants, bracketing/wardrobing signals (apparel), or no-photo damage claims. Retailers are tracking this; suppliers should, too.
Close the loop with product + CX.
Feed top return reasons back to design, PDP content, and customer support scripts. If 76% of shoppers weigh free returns, offset that cost by reducing preventable returns at the source.