Returns get a rethink as ecommerce booms

Faced with rising returns from buoyant online buying, retailers are looking afresh at ways to keep customers happy while keeping costs in check in dealing with an age-old foe
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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.