Why getting returns right is so hard for retailers

The return of unwanted goods is becoming a thorny issue for etailers. How they tackle it will affect not only their profits but also the planet
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There’s a simple truth about online shopping that’s been largely overlooked during the ecommerce boom: the more goods that people buy, the more goods they will need to return. It may be obvious, but it is important, because the issue presents both a commercial cost and an environmental concern.

Shopping online inevitably has a higher average returns rate than shopping in a physical store: about 20% versus 9%, according to research published by US real-estate investor CBRE. As consumers lean more heavily towards ecommerce – which accounted for 32.8% of UK retail sales in March 2021 compared with 22.1% before the first lockdown in March 2020 – it’s only natural that they are sending back more online products. 

Sustainability is a huge issue for returns. I’m not sure anyone has really got a handle on this yet

The growth in online returns seems to be outstripping that of online shopping itself. Reverse-logistics specialist ReBound Returns reports that its clients, which include Asos, Clarks and Gymshark, recorded 79% more ecommerce returns in April 2021 than they had during April 2020. 

Challenging finances and sustainability 

Handling such a high volume of rejected goods is expensive. An unwanted product must be brought back, inspected and then either cleaned and repackaged or discarded, all of which will typically costs between £5 and £15 per item. For low-value goods, this represents a loss on the transaction. Some companies, including Amazon, now even calculate whether it’s worth accepting a return or simply refunding the customer and writing off the lower loss. 

“There’s a very good reason why a company such as Primark doesn’t sell online: it knows that it can’t make the margins work,” says Dr Jonathan Gorst, an expert in reverse logistics at Sheffield Hallam University. 

This isn’t the only challenge with returns. Each time a product is sent back, its carbon footprint grows. If it can’t be resold, it will often be tossed away, still in its packaging. In 2018, the US Postal Service estimated that 2.3 million tonnes of returned purchases were ending up in landfills around the country every year.

“Sustainability is a huge issue for returns,” Gorst says. “I’m not sure anyone has really got a handle on this yet.” 

At the heart of the problem is the tension between the demand for cheap and convenient returns and the growing imperative to consider the environment. According to one recent study, 67% of online shoppers will read a given supplier’s returns policy before making a purchase, with 79% expecting free return shipping. Despite this, UPS has found that 75% of UK shoppers cite sustainability as a factor in their purchasing decisions. 

“It’s a tough balance,” Gorst says. “You want the process to be easy for customers who need to send something back, but not so easy that people can simply order what they want without considering what they return.” 

Can free returns ever really work?

He remains sceptical about the sustainability of the free returns model. “The problem is: who’s going to blink first? It’s a bit like Russian roulette. I think there are plenty of companies that would like to move away from it, but they daren’t because it’s become so standard.”

ReBound’s co-founder and CEO, Graham Best, takes a more positive view of the situation, but he says that companies need to be selective. “We have customers that offer free returns in some countries but not others, or for certain product groups only. The process has to be carefully planned and controlled throughout the business.”

Hiring a third-party specialist in reverse logistics offers significant advantages. As Gorst notes, many of the retailers that manage returns well have outsourced the function. 

This isn’t to say that they simply wash their hands of it, says Best, who stresses that they need to stay fully engaged in the returns process at all levels. “Five or 10 years ago, you might have had one person responsible for returns, but it’s now a multiple stakeholder model,” he says. 

Reducing the need to retu

To get returns right, retailers need to consider more than the post-purchase process; they need to make it easier in the first place for customers to keep their purchases. 

Online used-car retailer Cazoo has delivered more than 20,000 vehicles over the past 12 months, with a return rate of less than 5%. That’s even lower than the company was expecting, according to its founder and CEO, Alex Chesterman. Cazoo’s provision of detailed information to potential buyers has, he believes, been a key factor in this achievement. 

“We use 360-degree photography, which provides dozens of images of each car, for instance. In fact, consumers get a far more detailed view and description online than they would typically receive in person at a dealership,” Chesterman says.

There’s a very good reason why a company such as Primark doesn’t sell online: it knows that it can’t make the margins work

Peter Leatherland is online sales manager at Spark Etail, which owns the Ethical Superstore, a specialist in Fairtrade, organic, vegan and eco-friendly wares. He reports that product reviews written by customers are crucial for the business, which sells everything from groceries to garden accessories online. 

“Real reviews can offer a different perspective and help other customers to make more confident, informed decisions,” Leatherland says. “We place these alongside a Q&A section for each product. Shoppers are able to ask us questions about any item, which we will then answer and publish the exchange on the relevant page.”

And to help online clothing retailers to reduce the number of items that are rejected by customers for being the wrong size, German start-up Presize has even developed an AI-powered tool in the shape of a body-scanning app that customers can use to find the best-fitting apparel. The firm has already worked with big sportswear brands including Adidas and Nike. 

Returns no longer just an afterthought

The pandemic-fuelled acceleration of ecommerce and the growing importance of sustainability are turning returns into a dynamic, fast-changing environment, says Best, who warns that there are “no set-and-forget options anymore. This requires constant monitoring and adjustment.” 

And, with cross-border ecommerce currently growing at twice the rate of domestic online shopping, the situation will only become more complex.

“Returns used to be the dirty end of the business – almost an afterthought,” Gorst says. “But they can affect sales, service and customer satisfaction. This issue really does permeate the whole business. And, in reality, every penny that you save on returns will probably go straight to profit.”