Returns Are Broken. Let’s Fix Them.
The holiday shopping season is nearly upon us. Though expectations for a strong showing are muted this year due to consumers reducing spending as a result of increased prices, experts still expect holiday retail sales to grow 4% to 6% and e-commerce holiday sales to grow 12% to 14% over last year.
A large portion of those sales will end up being returned. For this year’s holiday season, U.S. retailers expect about 18%, or $158 billion, of purchases to be returned. In 2021, about 16.6%, or $761 billion, of all U.S. retail sales were returned, according to the National Retail Federation. The same National Retail Federation found that online sales fared even worse that year with nearly 21%, or $218 billion, of online purchases being returned.
Why are we returning so much stuff?
To answer that question, we need to first look at how we got here. Returns are a relatively new phenomenon. Early examples of return policies can be found in late 1890s. It was then that the Sears, Roebuck, and Co. first launched its catalog business. Sears had to convince shoppers that shopping through a catalog was as safe as shopping locally, and more convenient (as an early advertisement stated “Shop the modern way…from the convenience of your each chair”). To make its argument compelling, it offered a money-back guarantee on its products. It worked.
Over time, other retailers followed suit as a way to remain competitive. Some, most notably, Nordstrom, went as far as to offer lifetime, no-questions-asked returns. But it wasn’t until the arrival of e-commerce (or more correctly, Amazon) that returns became ubiquitous. In much the same way that Sears convinced shoppers to shop through a catalog with its “Satisfaction guaranteed or your money back” pledge 100 years earlier, e-commerce retailers overcame the same hesitation with free returns.
Today, free returns have become table stakes for e-commerce. Shoppers have been conditioned to buy first, and return later. This is particularly true in fashion where shoppers buy multiple sizes of the same item, keep the one that fits, and return the rest — a practice called “bracketing”. The expectation of free, no-questions-asked returns has become so ingrained in online purchase habits that a majority of shoppers check a retailer’s return policy before deciding to buy. So, to answer our earlier question, we return so much stuff because it’s easy and it’s free.
Why does allowing free returns create a problem?
It may seem that allowing shoppers to return items easily is good for business. Keeping customers happy is a good thing after all. However, the reality is that free returns are causing a commercial and environmental catastrophe.
On the commercial front, returns are expensive. Never mind the fact that a return is a lost sale, managing the return itself is expensive. By one estimate, it costs a retailer 66% of the price of the product to process the return. Another study found that a return can cost a retailer between $10 and $20, not including the cost of the return shipping, which is also paid by the retailer. Seeing that returns are pure loss for a retailer, it should come as no surprise that some retailers, including Amazon and Target, have begun letting shoppers keep returned items — it’s cheaper for them to do so.
On the environmental front, returns generate tremendous waste. The amount of carbon dioxide generated by returns each year equals the amount of carbon dioxide generated by 3 million cars. A returned product is first shipped to the retailer, then shipped to another warehouse for sorting and repacking, then again to a shopper. If the item can’t be resold as new, it is shipped shipped to a liquidator instead who then ships it around the world for sale, usually in a developing country (lots more can be said about the impacts of such practices on the local economies of these countries). Even after all of resources expended in managing the return, the sad truth is that most returned products end up in a landfill (5 billion pounds of waste, to be precise) or getting destroyed.
What can be done to solve this problem?
Retailers face a dilemma when it comes to returns. On the one hand, shoppers expect free and easy returns. On the other, returns hurt the business and the planet. Doing nothing is not an option. What’s a retailer to do? Well, there are several options.
The first thing that has to change is the return policy itself. Return policies should clearly outline a limit on when returns can be accepted (30 days is common), what condition the returned item has to be in (so that it can be sold again as new or as “like new” in re-commerce marketplaces), and under what circumstances abuse of the return policy could lead to a termination of the relationship. If the policy is reasonable, fair, and simple to navigate, it should not have any impact on shoppers (except those shoppers who were looking to abuse returns in the first place). These kinds of changes are possible — even Nordstrom did it.
In addition, the days of free return shipping must end. There is a substantial economic and environmental cost to processing returns, as we discussed earlier. Shoppers should be held accountable for their portion of that cost. Putting a price on returns, even a nominal restocking fee, will create the right incentive for shoppers to be more selective in terms of what they purchase, and make them more accountable for bracketing and similar practices. This approach is gaining traction with companies including Zara, J.Crew, and JCPenny, all of which have recently implemented a return fee. Charging a return fee is also a great way to manage the rising costs associated with shipping and inflation generally, and would likely be viewed more positively overall than a broad price increase to achieve the same effect.
Lastly, the way returns are managed has to improve. Rather than discarding or destroying returned inventory, retailers should strive for a zero-waste process that sees those products resold, repurposed, or recycled. Channeling returns through a re-commerce marketplace allows brands to recoup a large portion of an item’s original value. The proceeds from the resale combined with a fee on returns can turn what used to be a significant loss into a profit, and ensure that fewer items end up in landfills. If the brand offers its own re-commerce marketplace, it can maximize the value of that returned product while also having greater visibility into what its customers’ preferences and interests. And although Amazon is largely to blame for creation of this problem in the first place, its recent efforts to achieve a zero-waste system are a step in the right direction, and should be encouraged and adopted more broadly by retailers.