Consumers have come to expect two basic things from retailers, particularly online eCommerce/omnichannel sellers; free and quick delivery and free returns. Those are the Holy Grail you need to offer in order to be competitive in the digital economy. In previous submissions, I addressed how free shipping isn’t always free. While retailers are savvy enough to either make up the cost of free shipping or make it worth their while, the same cannot yet be said of returns.
The whole concept of returns is a complicated one for retailers. Prior to the rise of eCommerce, many retail outlets offered exchanges only or no returns at all. Remember those “All Sales Final” signs? Even returns, back in the day had to make sense, so to speak. Most returns were “exchange only.” Electronics, large appliances, and the like might have come with a limited-time return policy. Clothes could only be returned if the label was still attached and there were no signs that the garment had been worn. Shoes simply were not returnable. Very rare was the 100% guarantee that allowed a full refund no questions asked.
Big box retailers like Walmart, Target, and Costco changed that paradigm. Before the Internet, those large companies offered liberal return policies to keep an edge over the mom and pop shops they were competing against. However, to return those items, one had to go back to the store and usually stand in a long service line and like in the confessional, had to deal with the judgemental looks of the clerk accepting the return.
eCommerce changed things up from a practical point of view. Few would chance buying a product online and risk that it didn’t fit or work properly without the assurance they could return the item. If one was already returning an item they certainly did not want to pay for shipping it back. eCommerce sellers incorporated this convenience into their business models in order to remain relevant in this very competitive space. Like the proverbial genie escaping the bottle, once out, it’s difficult to put back in.
As eCommerce grew in popularity the return aspect of the transaction grew with it. According to the National Retail Federation (NRF) online sales accounted for $1 trillion dollars of retail sales in 2021 and 22% of that was returned. That’s a whopping $218 billion. All of this return volume has created its own ecosystem but more importantly a whole set of challenges. Here are a few:
- Cost to retailers affecting bottom line
According to the same NRF report, for every $1 billion in sales retailers incur $166 million in returns. That number has gone up every year over the past few years. According to the Wall Street Journal, returns cost businesses $10-20 per item PLUS freight costs. Return shipping is known to cost more than regular shipping.
Generally, return shipping is not itemized in volume discounts offered by the major carriers and carriers generally have a surcharge for residential pickups where most returns originate from. As a result, some of the larger retailers like Walmart and Amazon often find it cheaper to refund the cost of the item and let the customer keep or donate the product rather than process the return. This is especially common in apparel where people tend to order 2 or 3 sizes of the same item to find the best fit and then return the ones that don’t. According to an eMarketer poll, 59% of internet shoppers returned an item in the past year and in another survey, 79% of consumers expect free return shipping and make purchasing choices based on that option being available.
Liberal return policies are an invitation for the dishonest to exploit the system. According to the NRF report, for every $100 in returns, over $10 is lost to fraud, that’s a little over $23 billion lost annually based on the data in the survey.
Return fraud is committed in various ways including returning a different item than purchased, returning a counterfeit item, returning an item purchased at another seller, returning depleted items or items that are obsolete.
Much of returned items end up in a landfill. As eCommerce grows and with it the rate of returning items, retailers have few options of what to do with the returned items. While some will be donated and some resold in bulk to developing countries, 80% of returns will go into a landfill according to Arizona State University professor Hitendra Chaturvedi, that translates into 5.8 billion pounds of waste each year.
The term Reverse Logistics has gained prominence in the past few years. Reverse logistics is the process of accepting returns and refunding the customer or replacing the item, basically a reversal of the transaction. Many retailers have gotten by by handling those transactions manually. Unfortunately, that is not a sustainable business model. The bigger retailers have adopted and implemented reverse logistics operations. 3PL (Third Party Logistics) providers (like SPL Group) have adapted to the returns environment by offering to manage reverse logistics for their clients.
If you are a business dealing with returns that are an operational nightmare and costing you too much, CONTACT US. One of our professionals will show you how SPL Group can help with your returns and as always, how to save you money on shipping costs.