The Returning Season

Stephen DeAngelis

December 26, 2019

The holiday shopping season actually ends with the holiday returns season. Matt Guasco (@mattpguasco), President of INF Marketing and Logistics, explains, “With the rise in e-commerce has come an annual torrent of post-holiday returns. Millions of packages that flowed one-way through the supply chain to the consumer must now be turned and move back through the supply chain to the appropriate destination. No easy task for a logistics system largely built to deliver.”[1] In simpler times, shoppers would return items to the stores in which they were purchased — often exchanging them for other items (a win-win for both the consumer and the retailer). E-commerce has forever changed the reverse logistics formula. Guasco notes, “Reverse logistics is not only a feature of the holidays e-commerce rush but an everyday challenge to the supply chain.”

Jessica Schiffer (@jessicaschiffer) observes, “In the early days of e-commerce, deep-pocketed companies like Amazon offered free shipping and returns to juice growth and help customers overcome their misgivings about ordering online. These standards have been adopted en masse by retailers. … However, sustaining such initiatives is becoming increasingly unaffordable. E-commerce return rates have spiked 95 per cent in the last five years. Happy Returns forecasts that the value of returned goods will rise from $350 billion in 2017 to $550 billion by 2020 in the US. The new normal has set off a costly and vicious cycle that even Amazon can’t withstand.”[2] Some consumers use e-commerce more as a fitting room than a retail channel. They’re referred to as serial returners. In May 2018, Amazon announced it would institute a lifetime ban for customers that habitually return merchandise. Daphne Howland (@daphnehowland) reports, “[Amazon’s decision] is influencing retailers of all sizes to mull similar policies, in light of their own rising problem of escalating returns, according to a report from omnichannel retail management firm Brightpearl. Some 61% of U.S. retailers say they’d ban so-called ‘serial returners’ permanently, while fewer than one-quarter are not inclined to.”[3]

Returns are a growing problem

According to Howland, “Returns are expensive for retailers, representing lost sales, sometimes damaged or opened inventory and extra staff time. There are no easy solutions and the problem is only getting worse as the volume of returns escalates, leaving retailers flummoxed about what to do. More than 40% of retailers have seen an increase in ‘intentional returns’ in the past year, according to an earlier report from Brightpearl.” Returns are a larger problem for online retailers than they are for brick-and-mortar retailers. David Sobie, co-founder and CEO of Happy Returns told CNBC’s Courtney Reagan (@CourtReagan), “Shoppers return 5 to 10 percent of what they purchase in store but 15 to 40 percent of what they buy online.”[4] Valerie Metzker (@valmetzker) adds, “Last year, total merchandise returns cost U.S. retailers $351 billion in lost sales. That number will climb as online retail becomes the default choice for convenience-craving customers. Hundreds of retailers grapple with these losses. Despite growing concerns, many retailers see free and flexible return policies as an essential part of staying competitive — ignoring (for now) the risk that this billion-dollar ‘ticking time bomb’ might one day go off.”[5]

According to Metzker, “Less than half of returned items are resold at full price.” Schiffer observes the problem is even worse for fashion retailers where “10 per cent of online returns are donated or incinerated, and items that are restocked must be hand-evaluated for potential damage, and then steamed or dry cleaned before being restocked.” Schiffer adds, “US returns alone create 5 billion pounds of landfill waste and 15 million tonnes of carbon emissions annually, equivalent to the amount of trash produced by 5 million people in a year, according to one estimate.” During a September 2019 conference, Tony Sciarrotta, executive director of the Reverse Logistics Association, told the audience, “In reverse logistics, everything is a loss — everything.”[6] He added, “Common, consumer behavior like ordering multiple sizes with the intention of only keeping the best-fitting one, mean that e-commerce returns will surpass brick and mortar returns — in dollar amount — within two years.”

Making the best of a bad situation

Emma Cosgrove (@emmacos) observes, “Consumers expect returns to be free, easy and fast, so the burden is on supply chains to take the cost out of what is inherently a loss.”[7] Abe Eshkenazi (@aeshkenazi), CEO of the Association for Supply Chain Management, told Cosgrove, “Returned merchandise is becoming too large a problem to ignore, it’s also increasingly viewed as a financial opportunity that shouldn’t be squandered.” According to Cosgrove, the returns game is all about cutting your losses. She explains, “Even if supply chains understand their returns have value, organizing these products in a productive way is an operational challenge that varies in difficulty with the nature of the product in question and the complexity of the supply chain.” She goes on to explain some manufacturers prefer to have retailers handle processing and reselling. Sciarrotta told her, “Ten to 15 years ago major retailers were sending 75% of returns back to the manufacturer. Now they keep 75% and get rid of it through consolidation loads.”

Some retailers are starting to use a service vendor to standardize the cost of returns. Other retailers are handling returns themselves. Schiffer reports, “Some brands have found it useful to adapt existing stores into return hubs, which streamlines the return process, allows for early physical detection, and cuts down on the costs incurred from last mile delivery and pick-up to multiple locations.” Some retailers have gone so far as to accept returns of merchandise purchased from competitors. The idea is that getting consumers into stores will boost sales. Metzker insists by recognizing the value of returned merchandise, brands and retailers can make the best of a bad situation. She explains, “Rather than letting distressed inventory end up in waste piles, retailers stand to gain something from their billion-dollar returns reality. By implementing a strategic returns policy, retailers can quickly restock shelves, resell items at profit, and build a more loyal customer base.”

Footnotes
[1] Matt Guasco, “Holiday returns challenge supply chain flexibility,” American Journal of Transportation, 28 January 2019.
[2] Jessica Schiffer, “The unsustainable cost of free returns,” Vogue Business, 30 July 2019.
[3] Daphne Howland, “Retailers flummoxed about how to handle ‘serial returners’,” Retail Dive, 22 October 2018.
[4] Courtney Reagan, “That sweater you don’t like is a trillion-dollar problem for retailers. These companies want to fix it,” CNBC, 12 January 2019.
[5] Valerie Metzker, “Retail Combats a $351-Billion Problem,” Inbound Logistics, 28 February 2019.
[6] Emma Cosgrove, “With the right mindset, returns present opportunity — not just liability,” Supply Chain Dive, 19 September 2019.
[7] Ibid.