As the world turns new attention to supply chains, much of the focus has been on delays in the delivery of products to stores and consumers. What is called the forward-looking supply chain, the path from raw material to customer, is scrutinized.
But the other side of the supply chain – the process of returning a product – also plays a significant role. Many items that companies work hard to bring to the United States will be returned shortly after delivery. Across all e-commerce, about 30% of purchases are returned, and about half of all clothing is returned.
While the forward-looking supply chain enjoys economies of scale at all stages, the reverse supply chain – the complicated act of retrieving a product from a customer – is expensive and inefficient.
A 2019 survey brought transparency into the return process. It was performed by the Canadian Broadcasting Co.’s watchdog program Marketplace and the Basel Action Network, an environmental advocate group. They bought a dozen products from Amazon Canada and returned them, storing a GPS tracker in each one.
They found that many returnees took a detour route that often covered hundreds of miles – sometimes even thousands – before reaching their final destinations. Toy blocks traveled 590 miles before being delivered to a new customer in Quebec, and a printer was pulled 620 miles while circulating around southern Ontario.
Of the 12 returned items, only four had been resold when the story was published. The rest were still in transit months after they had been returned. At least one, a new backpack, was found at a landfill. To the report, Amazon did not respond to questions about what percentage of its returns are sent to landfills. Shortly after the report was sent, Amazon introduced a program in the United States and the United Kingdom dedicated to helping sellers send returns directly to charities instead of landfills.
In addition, a journalistic study published in 2019 in France also showed that many products, over-stocked or returned, have been thrown out of Amazon.
Amazon has lots of company. A quarter of the online products returned end up being discarded, according to ReturnGo, a company I recommend that tries to help retailers improve their return processes.
Why are companies so wasted managing returns? One of the reasons has to do with health and safety regulations. For example, it is considered unhygienic to resell certain items, such as beauty products and swimwear. H&M, for example, will not accept swimwear if the hygiene seal has been opened. But the more prevalent reason is reverse logistics, the side of the supply chain that moves goods from customers back to sellers or manufacturers.
Less than 10% of the products are returned to physical stores. In the early days of e-commerce, people were reluctant to buy clothes and shoes online because of concerns about size and fit. After Zappos disrupted the shoe and apparel industry by offering long return windows without any restrictions on product terms, most other retailers were quick to follow – except that the lenient policy caused customers to change their buying behavior.
Products are returned by customers at random times and in small batches. They are shipped to different locations based on product type, sorted and stored until a decision is made as to whether or not to resell them. It is a time consuming process that has little value. Accepting a product and getting it ready to be returned is perceived as a nuisance, so not much thought has been given to making the process more efficient. Yet most companies still offer generous return policies to get their customers to return.
In a recent survey of 1,000 adults, more than 50% of online shoppers said they avoid retailers with strict return policies, while nearly 55% reported making online purchases knowing they would likely return at least some of the purchased items.
Several companies are trying to help companies manage their return process. ReturnGo uses an analytics-driven solution so companies can make return decisions based on logistical costs and the customer’s lifetime value. For certain products, for example, the advice would be to let a loyal customer keep the product and get a refund if the shipping cost is higher than its resale value.
Another solution is to mix the online and offline retail experience. For example, 44% of respondents in the online shopping survey said that they still prefer to return an item in person, which can help companies reduce shipping costs. The same survey showed that 57% of customers who returned an item would still shop at the same retailer even if they had to pay shipping costs to return. And with the pandemic less likely to disrupt personal shopping, traditional stores can serve as a return center and as they were originally intended: a place where one can try to find the most suitable products in person.
Running an omnichannel operation where companies integrate the various sales channels that include online and physical stores requires a certain scale, but the benefits can be significant as the trend of favorable and flexible return policies will not disappear.
The current supply chain crisis reveals more and more inefficiencies – such as long delays in ports and massive shortages of some products, including toilet paper and kettlebells. Given the uncertainty surrounding shipping dates and product availability, people may overbook and return more than usual after the holidays. So during your holiday shopping, do your part to curb the return culture by choosing carefully – and aiming to buy for containers.
Gad Allon is the Faculty Director of the Jerome Fisher Program in Management and Technology at the University of Pennsylvania. He wrote this piece for the Los Angeles Times.