Commentary: Holiday gift returns are stifling retailers and landfills
As the heat of the holiday season wanes, Americans are taking a cold look at their Christmas gifts. Many don’t like what they see.
One in 4 Americans expects to return at least one holiday gift by this weekend, according to a UPS report. That’s at least 60 million packages in a single return season for the world’s only package shipper, and a 10% increase over 2020 holiday returns. these returns are increasing, retailers and consumers face an expensive and unsustainable shopping future.
For generations, savvy retailers have embraced lenient return policies as a way to project reliability and build customer loyalty. They were well aware that unscrupulous customers could exploit no-questions-asked or receipt-optional refund policies. But the success of retailers like Nordstrom and Target, both of which have permissive return policies and loyal customers, has highlighted the offsetting benefits. In a recent survey of apparel companies, 86% of respondents agreed that returns are a “necessary evil”.
Online retailers recognized the need early on, adopting lenient return policies and free return shipping to build trust and loyalty among consumers new to e-commerce. Perhaps the most aggressive promoter was Zappos, the online shoe retailer now owned by Amazon. From the start, the company encouraged customers to order shoes in multiple sizes, then return the ones that didn’t fit — and pay shipping. As early as 2010, Zappos happily told reporters that its best customers were the ones who returned the most product.
It’s an expensive way to gain market share. In 2020, US consumers brought in approximately $428.6 billion in merchandise, or 10.6% of total retail sales. Now, online retailers, rattled by difficult COVID-era consumers, are facing return rates between 15 and 30 percent.
Refunds are just the beginning of a retailer’s costs. According to a recent analysis of companies involved in the returns industry, it costs retailers $33 to process a $50 return item in 2021, a 59% increase from the previous year.
There are several familiar factors behind this rising cost in the age of COVID-19, especially for e-commerce retailers. Rising transport costs have made it more expensive to transport returned goods to specialized processing centers and then to their final destinations. Rising labor costs have prompted retailers to seek employees to open, assess and route returned products.
But the largest costs, by far, are related to write-downs and the liquidation of returns (on average, between $6.50 and $35.25 per $50 product). Few returned products are redirected to a retailer’s inventory. The flood of returns is so heavy (and growing) that it’s simply impossible for retailers to assess whether every pair of jeans, porch furniture combo or Lego set is in resalable condition.
To manage the volume, retailers rely on a byzantine network of brokers, dealers, liquidators and – sometimes – themselves to extract value from returns. For example, The Home Depot Inc. runs online liquidation auctions of returned goods with lot descriptions such as “Full Truck (18 pallets) of outdoor power equipment, vanities and more.” The winners sort and – hopefully – resell the products. But there’s no guarantee that everything will work (it’s a return, after all), and so the dealer bears the burden of disposal as well.
It can be a heavy burden. In 2020, retail returns generated nearly 6 billion pounds of waste. Part of that is the packaging. But much of it is returned products that cannot be resold. In these cases, resellers and retailers, faced with an uncontrollable flood of returns, have been known to incinerate returned inventory or dispose of it in landfills. Retailers who fail to address the issue are not only responsible for waste, but also risk alienating customers.
The financial charges are just as important. Last month, British online fashion retailer boohoo Group PLC cut its sales forecast in part because of a ruinous 12.5% increase in returns compared to December 2020.
They are not alone. In recent years, venerable retailers including Nordstrom have tightened their once-liberal return policies in the face of rising costs. So-called “free” returns are reduced and consumers are encouraged to deliver unwanted products to physical stores.
Solutions that avoid alienating consumers accustomed to free returns remain rare. For example, many online clothing retailers have invested in virtual fitting rooms to help online shoppers buy well-fitting clothes. So far, the dressing rooms don’t seem to have had much of an impact on returns.
A better approach might be a retail industry campaign that outlines the environmental and financial costs associated with product returns. At a time when consumers and retailers want to bolster their sustainability credentials, an honest acknowledgment of what happens when consumers buy more than they need (or want) could benefit everyone. .
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