When it comes to holiday shopping during a pandemic, most of us prefer to go online. And why not? Besides the obvious safety factor, nothing beats the comfort and convenience when your fingers do the shopping and someone delivers all those goodies to your front door. Black Friday specials? Cyber Monday deals?
Sign me up!
But there’s a darker side to those online purchases…or more precisely, those online returns. Let’s face it, buying online is risky— especially if you’re shopping for apparel. That risk also extends to shopping inside stores as well, where holiday return receipts are included for gift recipients.
So, the problem is returned merchandise, whether bought online or in a store. And what’s the big deal? Well, most of us would naturally assume returned merchandise would be put back on the shelves. But that’s not true.
Really? Why not just restock?
In some instances, items can be restocked and resold, but returned products are likely to be liquidated, destroyed, or sent to a landfill. In fact, more than five billion pounds of returned goods end up in a landfill each year. But that’s only a part of the negative environmental impact. The other part is the overall carbon footprint that comes from emissions, packaging, and plastic waste. Coresight Research recently reported that sixteen million metric tons of carbon dioxide were emitted from the transportation of returns last year.
Returns have always been a retail fact of life and making that return process as easy as possible has won over customer loyalty. But the pandemic more than doubled e-commerce spending from Christmas 2019 to 2020 according to the Centre for Retail Research.
As a consequence, The National Retail Federation reported that an estimated $428 billion of merchandise was returned last year. Working the math, for every $1 billion in sales, the average retailer is incurring $106 million in merchandise returns.
So far, retailers’ main focus was on streamlining the return process as part of their customers’ service initiatives. Their short-term perspective was to just take the financial hit that returns create. But their longer-term business model is telling a different story as consumers are becoming more aware of protecting the planet, preferring to do business with more eco-friendly retailers. According to a survey by AlixPartners, 71% of American consumers are now more concerned for the environment, and 28% say it is impacting their buying decisions.
So now we have two convergent trends where both retailers and customers are at a crossroads when it comes to returns. On one hand, we have shoppers who are increasingly aware of sustainability and make purchasing decisions based on a company’s green profile. What they don’t understand is how their returns could end up in a landfill. Retailers on the other can clearly see how returns are impacting their bottom line but aren’t taking any steps to account for them financially or environmentally.
Customers and returns – a big myth
Let’s take a look at the typical consumer – like you and me. Most of us assume that returned goods are reshelved and resold.
That’s a big buying myth.
“Consumers have this perspective that, I don’t want this or it’s not quite right and I send it back and it’s going to go back on the shelf for someone else to buy,” said Joel Rampoldt, a managing director in the retail practice at AlixPartners. “That actually happens very, very rarely.
The cost of inspecting that good, repackaging it, getting it back on the shelf, the reverse logistics — all of that often outweighs the value of the good from being sold the second time,” Rampoldt stated. “So, consumers have environmental concerns about the way they shop, and environmental concerns about e-commerce. But…they don’t yet understand the linkage.”
What really ends up happening to those goods? As mentioned at the top of the article, a small percentage may be put back into stock but most returned merchandise ends in discount/thrift stores, destroyed or landfilled.
Retailers and returns – “We’re stuck!”
Current customer expectation is, “Free, no hassle returns!” Let’s face it – no retailer is going to be first in line and make it more difficult for you to return those ill-fitting shoes you got online. Joel Rampoldt, stated, “So retailers are sort of stuck. Do we try to educate consumers and tell them, ‘Well, a lot of the stuff that you return actually ends up in a landfill? Well, that makes us look like idiots.’”
Why not let the customer just keep the goods and not return them – saving the company money and keeping it out of the landfill? This has become a cost-savings trend among some retailers. Most conscientious consumers would find a suitable owner by either giving it away or donating it to charity. Industry experts warn that this is a dangerous practice. “It’s not a sustainable business model,” said Tony Sciarrotta, executive director of the Reverse Logistics Association. “You’re saying that your brand doesn’t matter because that could wind up in a junk pile with your name on it, it could wind up in the flea market, it could wind up on Craigslist with somebody bad-mouthing it and saying, ‘I just want to sell it for 10% of what I paid for it.’ You’re giving up your brand.”
However, as ASSET2.0 has reported over the year, consumers are increasingly interested in how their shopping habits are driven by sustainability concerns. The Gen Z sector in particular is keen on buying brands that are sourced responsibly, eco-friendly, and supportive of social justice causes.
So, aren’t these consumers primed and ready to decrease their returns, as in rethinking if the return is really necessary or paying to return a purchase?
“You could fix the margin hit from returns tomorrow, no problem. You just don’t make them free, and you don’t make them easy,” Rampoldt said. That decision, of course, could create another problem of customers backing away from a company because they are deviating from an industry standard and expectation. “So that’s the trade-off that we’re dealing with here. And right now, everyone is looking at everyone else saying, ‘What are we going to do about this?’”
So, what are we going to do about this?
To get a handle on returns, industry experts suggest a C-suite role be created in charge of reverse logistics to streamline operations and drive environmental change. (If that sounds like Investment Recovery gets a seat in the C-suite, you’re right!)
But the obvious step would be to make the financial argument. “What would help is just making the cost of reverse logistics very, very clear, so that it just doesn’t get absorbed into an overall margin number,” Rampoldt said. Additionally, Michael Relich, interim CEO of PacSun Eddie Bauer asserted that it would require a different bottom line perspective from “What are the sales numbers from yesterday?,” to “What are the returns from yesterday?” But finding that data on returns? It’s siloed across the organization making it difficult to access and analyze.
But there is something retailers can analyze and do something about – and that’s taking a hard look at why their merchandise is returned in the first place. The top five reasons for online returns as identified by the 2021 State of Industry Report: Retail Returns are, quality issues, products not matching the description, fit, the wrong item being sent, and damaged goods. These are all fixable by the retailers.
And for consumers? They can beef up their commitment to shop with ‘green’ companies. In particular, they can look for the many retailers who are now offering packaging-free return options such as Amazon and Zara.
Many happy returns
As the New Year approaches, let’s toast to many happy returns – out of landfills and with a smaller carbon footprint.
www.cbsnews.com, “Those Holiday Returns Come with a Massive Environmental Footprint,” Dec. 4, 2020
www.retaildive.com, “Don’t Make it Free Don’t Make It Easy: How Retailers Support Sustainable Returns,” Apr. 19, 2021
www.bbcearth.com, “Your Brand-New Returns End Up in a Landfill”
www.retailtouchpoints.com, “How Returns Drag Down Sustainability Efforts and What Retailers Can Do About It,” May 11, 2021
https://www.goodhousekeeping.com/uk, “The Environmental Cost of Online Shopping Returns,” Dec.1, 2021