Logistics 101

Return to Sender: Online Retail on the Quest to Solve the Returns Problem

As the high street got boarded up due to worldwide lockdowns, consumers turned to the internet in droves. But, with the incoming inertia of purchases came the proportionate and inverted momentum of returns. As one hits an all-time high, so does the other, leaving online retailers scrambling to find a solution.

What’s causing all these returns?

The US alone now finds itself at a level of 2.3 billion kg of returns ending up in landfills every year. The growing severity in terms of business and environmental repercussions means understanding the root cause better as the scale threshold for solving the issue has now clearly been crossed.

According to Narvar’s Consumer Report 2019, the main reasons for returns include the receipt of incorrect items (wrong size, fit, or color), damaged goods, and products that don’t match the description or photo. Yet, even when there is no error on the part of the vendor, almost one in five people return goods simply because they either don’t like them or experienced buyer’s remorse.

The number of clothing products returned is experiencing a particular boost due to “repeat returners”. In lieu of a physical changing room, a considerable number of shoppers –around 30%– prefer to buy extra items online, pick out their favorite, and send the rest back – an increasingly popular online shopping tactic referred to as “bracketing”. 

How severe is the problem?

In terms of lost sales for online purchases, US retailers lost $41 billion in product returns in 2019 alone. With up to 40% of shoppers intending to return at least some of their order, the severity is integral to the issue. The additional costs of handling returns find their way back into vendor pricing strategies in at least one out of five cases. 

Putting the current context of overstretched supply chains aside for the moment, there is still the issue of fraud dedicated specifically to returns. Returns fraud takes place at the intersection of struggling to make the returns process as frictionless as possible while keeping costs in check. It refers to shoppers returning stolen and counterfeit products while holding onto the originals that were ordered. The counterfeit business in returns grew 35% between 2018 and 2019. Losses reached an estimated $27 billion in fraudulent product returns for US retailers, both online and off.  

What are current approaches to a solution?

Abandoning a returns policy simply isn’t an option for online retailers. Customers expect to be offered free return shipments, and will simply look elsewhere if it’s not on offer. So, we can expect the issue to persist – or its severity to increase. So, where to from here? 

Big retailers – including Amazon, Target, and Walmart – are looking to artificial intelligence for a solution. The AI these brands have deployed calculates the value of product returns and then decides whether it’s economically feasible for a customer to send back an item at all. In several cases, vendors opt to bypass the cost of processing and restocking a return and allow customers to keep – or donate – an item. However, there is clearly a price-tag threshold above which this is not going to make sense – Nor is this a viable approach for smaller players that operate at a different scale. 

Meanwhile, startups innovating in this field include solutions such as Clear Returns that helps businesses predict which products have the highest probability to be returned, as well as the resulting cost to the business, before recommending appropriate actions to optimize cost structures. Berlin-based startup Rebolet, by contrast, helps vendors discover preferred reselling channels to maximize salvageable profits for items being returned. Finally, LA startup, Happy Returns, take an on-site approach, offering flexible return station placement at over 2,500 locations across the US. This allows for bulk shipping of return items and considerable savings for vendors. However, considering the scale of the existing problem coupled with the current trajectory of online retail, even a variety of available solutions to the returns problem will likely remain that these will lag behind the e-commerce growth curve for some time to come.