Over the last decade, retail returns have devolved from a straightforward, standard practice to a complex maze of fraud, logistics challenges, and wasted resources.
It all started with Amazon and the expectation of free returns, which the industry had to match to compete. Larger businesses that can afford to offer returns for free have really hurt smaller businesses that have to both reimburse the customer and eat the reverse logistics costs. According to Shopify, 68% of people search for brands that offer free returns. This expectation has also led to the next reason for increasing costs: overbuying.
With the rise of e-commerce, shopping from home has become a regular feature of daily life. According to Capital One shopping, 80.4% of Americans now shop online. They are buying clothes in multiple sizes in anticipation of returning the ones that don’t fit. Unfortunately, they also send back a variety of products that aren’t what they expected and that they would not have purchased if they had seen it first in a store. Not only are returns more expensive for retailers, but they have increased exponentially with the rise in e-commerce.
The Financial Cost of Retail Returns
The financial burden of returns is very high. Today, the average cost to a business to return an item is between $25 and $35. The reverse logistics cost involves not just the shipping label but also the handling, restocking, and reselling of goods. Not to mention, the item may be damaged, unsellable, or out-of-season, so it may take up valuable space on the shelves with nowhere to go.
There are a few industries that struggle the most with costly returns:
- Big & Bulky: Returning large furniture is nearly impossible without being cost-prohibitive. Regulations in many states prohibit the resale of mattresses, and shipping them would incur very high costs.
- Foreign Imports: Brands that import into the U.S. often have only a few warehouses, so each return must travel thousands of miles to replenish stock. Usually, the price of the item is less than the cost of returning it.
- Underwear/Swimsuits: Items like these cannot be resold to others once opened, leaving the business with no way to recoup any return costs.
Due to the introduction of “Keep it Returns” by Amazon, fraud has been increasing. These programs are implemented when it’s less costly for the customer to keep the item and get reimbursed than to return it to the warehouse. As a result, millions of people are taking advantage of this policy and buying items they plan to return, only to be told to keep them. Astoundingly, 52% of consumers have participated in return fraud or abuse at least once in their lifetime, which just compounds the already high costs of returns.
The Environmental Impact of Retail Returns
The negative environmental impact of returns is astronomical. Unfortunately, 2.6 million tons of e-commerce returns end up in landfills, as it is cheaper to discard them than to process and resell them. In the U.S. alone in 2020, shipping returns from online orders generated 16 million metric tons of carbon dioxide (CO2) emissions, equivalent to the emissions produced by powering 2 million homes for a year.
Retailers have to watch their bottom lines, but the amount of waste has gotten out of control. Consumers are also increasingly concerned about sustainability, which has led to the rise of transparency and eco-friendly business practices among brands like Patagonia, J.Crew, Room & Board, Lululemon, and countless others. While these efforts are applauded, they can’t completely resolve the problem of returns.
Technology Solutions
Sustainability startup companies are working to make it cost-effective for retailers to reduce their carbon footprints and eliminate landfills as a destination for returned goods.
For example, Alternew is a post-purchase software that enables brands to offer repair and alteration options more easily. The company focuses on addressing 70% of returns due to poor fit with a network of tailors that can connect with customers to reduce reverse logistics costs. Similarly, (re)vive takes returns and deadstock, making the necessary alterations to make them sellable again.
Upselling and downselling have also offered options outside of the landfill. Refibered utilizes AI and specialized machinery to detect even trace amounts of contamination in fibers and reuse those that are clean, aiming to reduce textile waste. It Goes Forward has introduced a concept of “peer-to-peer” returns. If a customer wants to return an item, they’ll put it back on the “shelf” with a discount. Once it’s purchased, it’ll be shipped anonymously directly from the existing customer to the new customer.
The highest net-impact solution is donating unsellable or excess inventory. By donating, not only are people in need able to receive high-quality products, but the retailer can also receive a tax benefit for doing so. Because the logistics and documentation of donating can be challenging, my company, LiquiDonate, offers software that integrates with existing systems to redirect select items directly from the customer to local nonprofits or schools while also handling the necessary documentation for tax filing. We help significantly lower returns logistics costs and create a sustainable, affordable option that prevents returns from being dumped in a landfill.
There is no end in sight for the rising cost of returns on businesses. It’s essential to explore options beyond the landfill to minimize the environmental impact.
About the Author
Disney Petit is a social impact entrepreneur and CEO of LiquiDonate, software that integrates with any WMS or RMS to match unsellable returns and overstock inventory with nonprofits and schools. She was employee #15 at Postmates, where she built the Civic Labs team and won Time Magazine Invention of the Year for the food security product known as Bento.