Returns get a rethink as ecommerce booms

If free ship­ping and next-day deliv­ery are the mar­quee stars of mod­ern retail, an old neme­sis lurks in the back­ground: prod­uct returns. Long a headache for cus­tomers and retail­ers alike, returns are get­ting renewed atten­tion amid a surge in online shop­ping and height­ened demand for sus­tain­able retail prac­tices. 

To stream­line the process and reduce costs as well as envi­ron­men­tal impact, retail­ers are increas­ing­ly explor­ing new approach­es to returns. That includes turn­ing to out­side tech help, offer­ing more options for returns, and try­ing to pre­vent returns in the first place through new ser­vices like vir­tu­al fit­ting rooms. 

Inspir­ing much of the rethink­ing around returns has been the online shop­ping boom sparked by the Coro­n­avirus pan­dem­ic in the last two years. E‑commerce sales reached about $1tn in 2021, up 38% from 2019, and amount­ing to 16% of US retail over­all, accord­ing to the US Com­merce Depart­ment. 

Sim­i­lar­ly, online sales in Great Britain in Decem­ber of 2021, made up 27%  of total retail, up from 20% in Feb­ru­ary 2020, accord­ing to the Office for Nation­al Sta­tis­tics. 

Cru­cial­ly, returns rates for online pur­chas­es run high­er than for in-store buys–typically two to three times high­er. As such, they are a key fac­tor dri­ving returns over­all. The return rate for online sales last year was 20.8%, com­pared to 16.6% over­all, accord­ing to a sur­vey of 57 retail­ers con­duct­ed by the Nation­al Retail Fed­er­a­tion, a US-based trade group, and retail tech­nol­o­gy provider Appriss Retail. 

The over­all returns fig­ure of 16.6% last year, was up from 10.6% in 2020, the study found. That only ratch­ets up pres­sure on retail­ers to meet cus­tomer expec­ta­tions for a smooth returns expe­ri­ence while also try­ing to min­i­mize ris­ing cost of returns. 

The Office for Nation­al Sta­tis­tics doesn’t track data on returns, but a 2020 KPMG esti­mat­ed returns dur­ing major sales peri­ods reached 18%, cost­ing British stores £7m a year. 

Everything is going in reverse 

Thwart­ing efforts to make returns more effi­cient is the so-called reverse sup­ply chain. That is, the series of steps involved in han­dling returns, which is inher­ent­ly less effi­cient than the for­ward sup­ply chain because of addi­tion­al ship­ping, inspec­tions, sort­ing, and oth­er logis­tic steps required for reselling or dis­pos­ing of unwant­ed mer­chan­dise.

“Reverse logis­tics suf­fers from two issues. One is no economies of scale, and the oth­er is no real val­ue added,” explained Gad Allon, a pro­fes­sor of oper­a­tions, infor­ma­tion and deci­sions, at the Uni­ver­si­ty of Pennsylvania’s Whar­ton School. “The com­bi­na­tion of these two results in a sit­u­a­tion no one real­ly invests mon­ey into.”

For the retail­er, it’s a bit like going the wrong way on a one-way street—a street built for sell­ing goods, not tak­ing them back. 

One way retail­ers are try­ing to route around the inef­fi­cien­cies of the reverse sup­ply chain is to offer more avenues for mak­ing returns. Allow­ing peo­ple to drop off returns at phys­i­cal stores, for instance, has the ben­e­fit of reduc­ing ship­ping or pick-up costs while help­ing cus­tomers avoid the has­sle of repack­ag­ing and mail­ing back items.

Returns here, there and everywhere

To that end, Marks & Spencer last year began rolling out a new click-and-col­lect ser­vice that lets cus­tomers make returns as well as pick up orders at 78 of its stores using self-ser­vice dig­i­tal screens and drop-off bins. The aim is to offer a more con­ve­nient option than hav­ing peo­ple wait­ing in line at a tra­di­tion­al col­lec­tions desk. 

A com­pa­ny spokesman said the cloth­ing and home prod­ucts retail­er plans to expand the new ser­vice, which has col­lect­ed about 70,000 returns so far, to 110 (of its near­ly 1,000) UK stores by April. 

Marks & Spencer also updat­ed their mobile app to allow users to choose how they want to return pur­chas­es, whether in-store, by post or pick-up, using prod­uct bar­codes and oth­er account infor­ma­tion to nav­i­gate the process. 

With half of its cloth­ing and home goods sales com­ing from online (up from 22% before the pan­dem­ic) and half of its online sales com­ing from mobile, it makes more sense than ever for a tra­di­tion­al retail­er like Marks & Spencer to inte­grate its offline and online assets. 

Lever­ag­ing phys­i­cal stores for returns is also one way depart­ment stores can bet­ter com­pete with online-only rivals. But late­ly, they’re using the same play­book. Ama­zon cus­tomers, for exam­ple, can bring returns to any of US retail chain Kohl’s 1,150 stores through a nov­el part­ner­ship between the two.

Ama­zon also accepts unboxed returns at its Whole Foods stores and at more than 4,000 UPS loca­tions. That’s in addi­tion to its long­stand­ing options for peo­ple to return pack­ages by mail or have them picked up by couri­er. 

What’s more, a report last year indi­cat­ed Ama­zon and oth­er retail behe­moths like Wal­mart and Tar­get in some cas­es tell cus­tomers to sim­ply keep an unwant­ed item when it does­n’t make eco­nom­ic sense to process a return, based on arti­fi­cial intel­li­gence. 

Ama­zon didn’t respond to a request for com­ment on the prac­tice. But it under­scores the vast inter­nal resources it has to attempt to tai­lor returns to indi­vid­ual cus­tomers to some extent despite the mas­sive amount of stuff it gets back on a dai­ly basis. 

Finding a tech-savvy friend

Oth­er com­pa­nies are look­ing out­side tech help to try to bet­ter man­age returns, or avoid them in the first place. In that vein, Gap Inc. last year acquired 3D avatar and e‑commerce start­up Drapr to pow­er vir­tu­al cloth­ing try-on so cus­tomers get the right dress or trousers before hit­ting “buy”. Saks Fifth Avenue and Lon­don-based Char­lotte Tilbury are among oth­er fash­ion sell­ers invest­ing in vir­tu­al fit­ting room tech­nol­o­gy. 

As appar­el had among the high­est return rates (12.2%) among retail cat­e­gories in 2021 (footwear was 9.1%), accord­ing to the NRF report, it makes sense for cloth­ing retail­ers to help cus­tomers get the right fit when shop­ping online. But Wharton’s Allon sug­gest­ed the vir­tu­al try-on tech isn’t quite up to speed yet. 

“Most of these things, as far as I’ve seen, they’re not at all that good yet,” he said, not­ing that fea­tures like the drap­ing and tex­ture of fab­ric are still hard to sim­u­late on screen. 

Still, a 2021 paper in the Inter­na­tion­al Jour­nal of Phys­i­cal Dis­tri­b­u­tion and Logis­tics Man­age­ment found that dig­i­tal fit­ting tech­nol­o­gy, if well cal­i­brat­ed, could cut fit-relat­ed return costs by up to 80%. 

From the runway to the landfill

One thing that’s sure­ly not vir­tu­al is the waste that returns ulti­mate­ly cre­ate. Optoro, a tech firm that spe­cial­izes in returns logis­tics, esti­mates returns gen­er­ate 5 bil­lion pounds of land­fill waste each year. That rep­re­sents about a quar­ter of all returns, accord­ing to Allon. 

Giv­en the impor­tance younger con­sumers in par­tic­u­lar place on sus­tain­able prac­tices, that’s not a good look for brands and retail­ers. Some have tak­en steps to at least raise aware­ness of the envi­ron­men­tal impact of returns. Fast-fash­ion chain H&M for sev­er­al years has allowed cus­tomers to drop off unwant­ed clothes from any brand at its stores for recy­cling or re-use. 

And more than a dozen brands includ­ing The North Face, Carhartt and New Bal­ance work with the Ellen MacArthur Foun­da­tion, which pro­motes the idea of the cir­cu­lar econ­o­my by help­ing com­pa­nies extend the life of their prod­ucts. Its Renew­able Work­shop takes repairs and refur­bish­es dam­aged or returned inven­to­ry for resale via its own online store­front or back to part­ner brands.

New spe­cial­ist firms like Optoro and Newmine, mean­while, aim to reduce land­fill waste by pro­vid­ing soft­ware meant to help retail­ers and man­u­fac­tur­ers resell returned and excess items more effi­cient­ly. The for­mer counts Ikea, Tar­get and Sta­ples among its clients.