Returns are the logistics challenge no retailer wants to deal with. Recently, many companies such as Zara, H&M, and even Amazon changed their return policies to be far less lenient by charging for returns or shortening return windows.
What’s worse, many sellers of larger goods, like furniture, are nixing the option to return altogether, instead giving consumers a refund and leaving them with the job of discarding the item.
A recent survey shows this new strategy isn’t going to cut it this holiday season: 40% of consumers say they’ll be returning at least one gift this year–and 38% explicitly say they are relying on returns as part of their shopping strategy by purchasing more gifts than they need with the plan to return later. There is a clear disconnect between retailers’ capacity for reverse logistics and consumers’ expectations of quick and easy returns–and retailers are going to pay the price.
The returns problem up close
Even though businesses are aware of growing consumer expectations, they’ve yet to hack a process that makes returns streamlined, or even feasible. The result? Billions in unnecessary costs. In 2022, the cost of retail returns in the U.S. reached a staggering $817 billion, with a quarter of it stemming from e-commerce.
First, there’s obvious profit loss of profit. Let’s say you sell a product worth $100 at a 20% margin. When a customer returns that item, that $20 profit is unrealized (and in some cases, you lose that customer you likely paid to attract in the first place).
Then, there’s the cost of warehousing and equipment, and the labor costs associated with managing the return like restocking, reselling, or recycling an item. Most online shoppers assume that items they return go back into regular inventory to be sold again at full price. This seldom happens. In many cases, shipping alone often costs more than the items can be resold for. A survey of logistics experts specifically for large goods found that 68% say they recover less than 50% of the original sale price from the large items that are returned.
Free returns are the new free shipping
The number of consumers who have come to expect free and easy returns is increasing. Some 32% of Americans said they plan to only purchase from retailers who offer free shipping and free returns this holiday season.
It started with the pandemic. When going in-store to carefully inspect an item before purchasing wasn’t an option, retailers implemented lax returns policies. Now, three years later, customers have grown accustomed to those more lenient policies. Regardless of if it takes over a month to restock an item, it’s all the same to consumers, who only care about their own wallet.
Now, consumers are making more careful purchasing decisions with return policies in mind. Many will take more time to carefully read through a vendor’s terms and conditions. They’ll even spend more for a return guarantee. However, customers’ willingness to spend a little more to ensure an easy return doesn’t even put a dent in the aforementioned myriad of costs associated with returning an item–in fact, it fuels the idea that returns should be guaranteed.
Retailers are getting creative
The chances that the industry will be able to crack the reverse logistics conundrum before the holiday season are extremely slim–but there are some measures retailers can take to make the returns process easier.
Retailers can consider investing in technologies like AI and other digital tools to streamline their processes. Automation of logistics can greatly enhance end-to-end visibility, improve item quality checks, and optimize fleet scheduling. They can also invest in a delivery and logistics solution. This will allow them to reduce the costs associated with reverse logistics, such as pricing, low-cost packaging, and conditions under which reverse logistics is chargeable.
While these are evolving solutions, an immediate solution to save on or curb returns may simply be greater transparency with consumers. For example, some online retailers have started adding “frequently returned item” labels to listings of problematic items and encourage potential purchasers to double-check customer reviews before ordering. This is a tactic vendors of all sizes can employ to make returns somewhat more predictable.
Other companies are working to better gather customer data that will help them more accurately predict returns patterns. For example, if a frequent customer returns 50% of her purchases, the vendor can leverage that data to better prepare on the back end. Perhaps the retailer caps that customer’s returns at a certain percentage to discourage the behavior.
Returns will continue to be an issue well beyond the holiday season, but the hope is that the more insights retailers have on how consumers are thinking about returns, the more prepared they will become this holiday season.
Heather Hoover-Salomon is CEO of uShip.
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