Discounter Target plans to roll out drive-up return services for customers across its chain nationally as retailers change the look and design of their stores to inexpensively handle sent-back merchandise ordered online.

The Minneapolis-based operator of almost 2,000 locations is expanding an initiative it launched a year ago to take care of returns as it looks to open about 20 stores, executives said Tuesday while discussing its most recent quarterly earnings.

Target started adding a drive-up lane to accept returns as an enhancement to its curbside pickup at some locations, and now it plans the next step of that endeavor by taking it national, according to Target Chief Operating Officer John Mulligan. The chain also let some customers order Starbucks coffee to be brought to them along with their goods ordered online.

"Last year we began testing Starbucks at drive-up, and today we're announcing the next phase of our drive-up services with drive-up returns, which started as a pilot last year and will be available across the chain by the end of the summer," Mulligan said. "Not only is this a huge win for our guests, who can now do even more at drive-up, but it brings more efficiency to our returns process with more resale opportunities and fewer expenses for mail-in returns."

Retailers such as Target have been changing the way they physically handle returns to adapt to the increase of e-commerce sales, especially after online shopping rose during the height of the pandemic. Walmart, the largest U.S. retailer by revenue, and Dick's Sporting Goods are among the companies that are accepting returns curbside. Several years ago, Kohl's struck a deal with Amazon to accept the online juggernaut's returns at its department stores. And Levi.com is allowing its customers to return items at Walgreen's, the pharmacy chain.

The goal is to make returning merchandise ordered online as seamless and trouble-free as possible so shoppers will continue doing digital ordering, while allowing retailers to cut the cost of processing any returns. But at the same time, analysts say retailers need to weigh whether they are giving up potential sales by letting customers stay outside.

In advance of the holiday season last year, Walmart announced it was "making the returns experience easier and more convenient with three new and expanded options that save customers time during the busiest season of the year and give them extra peace of mind when shopping for gifts." The Bentonville, Arkansas-based retailer said it was allowing curbside returns so customers could "return items from the comfort of their vehicles while they’re picking up their weekly essentials."

Walmart also offered "Return Pickup from Home" for its Walmart+ members. Customers in select stores were able to have returns "picked up right from their doorstep, taking one more thing off their holiday ‘to-do’ list," according to Walmart. The retailer also gave shoppers until Jan. 31 to return items purchased on or after Oct. 1 last year.

In a statement after its combined earnings report and investor presentation, Target said it would be expanding drive-up returns nationwide starting this spring. That service allows shoppers to return most new, unopened items within 90 days of purchase from the their car for free.

"Drive-up returns will be available on purchases made through guests' Target.com accounts," the retailer said. "Before heading to their Target store, guests can initiate a return through a guided experience in the Target app. Guests then follow the normal drive up process to return their order, and wait in their car for a team member to pick up and complete their return. In addition to making the Target guest experience even easier, drive-up returns" bring more efficiency to the retailer's returns process and reduces expenses for mail-in returns.

Chuck Lanyard, president of the retail brokerage The Goldstein Group, in an email told CoStar News that he's not surprised about Target's plans for drive-up returns because "the retail economy keeps changing post-COVID." But having a customer make a return without entering a store has its drawbacks, according to Lanyard.

"I understand the convenience, but I wonder if it becomes a negative for Target," he said. "When customers return a product, they just drive away, instead of possibly making other purchases once they are in the store."

Kohl's has said one of the advantages of people returning Amazon orders to its stores is that they sometimes look around and buy Kohl's merchandise before leaving.

Neil Saunders, managing director at GlobalData, said what Target is doing with returns isn't so much groundbreaking as it is necessary.

"A few retailers offer curbside returns, including Dick’s, Nordstrom, and DSW," Saunders said in an email to CoStar News. "Walmart also offers the service at select locations. So this isn’t so much a unique innovation as it is Target keeping pace with consumer demand and making things more convenient for shoppers. That said, because of the strength of Target’s omnichannel proposition and its success in areas like curbside pickup, I can see this being widely used by its shoppers."

He added that "if Target can encourage more returns to be made to stores, this will also help with profitability as it is often cheaper to process returns at stores than have customers ship them back."

The company posted only modest total comparable sales growth of roughly 1% in the fourth quarter, with comparable-stores growth of 1.9% and a comparable digital sales decline of 3.6%. Total revenue was $31.4 billion for the period ended Jan. 28, up 1.3% from the prior year.

Target CEO Brian Cornell cautioned that he expects consumers buffeted by economic headwinds, in what "continues to be a very challenging environment," to be judicious in their spending for discretionary items, an area where they cut their purchases last year.

"Looking ahead, we're focused on executing our long-term strategy, including continued differentiation through affordability, assortment, ease and convenience," he said in a statement. "At the same time, we're planning our business cautiously in the near term to ensure we remain agile and responsive to the current operating environment."

Target will be opening fewer stores this year, about 20 compared with 23 last year. This year's batch of stores will be a variety of sizes, and range from small-format locations to large-format stores. One of those, at 150,000 square feet, debuted in Katy, Texas, last year.

The retailer also said it plans to update roughly 175 existing stores, ranging from full remodels to the addition of Ulta Beauty at Target or Apple at Target shop-in-shop locations, or to expand capacity for same-day fulfillment services.

The Target openings last year included stores in Times Square and SoHo in Manhattan; the Silver Lake area of Los Angeles; Pittsburgh; Jackson Hole, Wyoming; Lebanon, Pennsylvania; Auburn, Maine; and Charleston, South Carolina. Target is tailoring its stores' designs to their neighborhoods. For example, the small-format site in hip Silver Lake has corrugated steel cladding on its exterior.

At its investor day, Target officials also reiterated their plans to spend $100 million to open at least six more sortation centers as part of their supply chain network, which would bring the retailer to having 15 of those facilities.