Hot Topic: COVID-Era Consumers Have More Than Doubled Returns
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Lenient Return Policies Backfiring With Dire Financial Consequences
Holiday Gift Returns Are Choking Retailers and Landfills

Merchants won customers’ hearts with lenient return policies.
Now the strategy is backfiring, with dire financial and environmental consequences.

One in four Americans expects to return at least one holiday gift by next weekend, according to a report by UPS. That's at least 60 million packages in a single returns season for the world's largest package shipper alone, and a 10% increase over 2020 holiday returns. As the costs of shipping and handling those returns increases, retailers and consumers are facing an expensive and unsustainable shopping future.

They knew perfectly well that unscrupulous customers could exploit no-questions-asked or receipt-optional refund policies. But the success of retailers like Nordstrom Inc. and Target Corp., both of whom have famously permissive return policies and loyal customers, highlighted the countervailing benefits. In a recent survey of apparel companies, 86% of respondents agreed that returns are a “necessary evil.”

Online retailers recognized the necessity early, adopting lenient return policies and free return shipping to build trust and loyalty with consumers new to e-commerce. Perhaps the most aggressive proponent was Zappos, the online shoe retailer now owned by Amazon.com Inc. Early on, the company encouraged customers to order shoes in multiple sizes and then return the ones that don't fit – and paid for the shipping. As far back as 2010, Zappos was happily telling reporters that its best customers are the ones who return the most products.

It's an expensive way to gain market share. In 2020, U.S. consumers returned around $428.6 billion in merchandise, or 10.6% of total retail sales. Now online retailers, buffeted by picky Covid-era consumers, face return rates between 15% and 30%.

According to a recent analysis from companies involved in the returns industry, it costs $33 for retailers to process a $50 return item in 2021, a 59% increase over the previous year.

Rising costs during the Covid era, especially for e-commerce retailers; Rising transportation costs have made it more expensive to move returned goods to specialized processing centers and then to their final destinations. Rising labor costs have pressured retailers in need of employees to open, assess and route returned products.

But the biggest costs, by far, are related to write-downs and liquidation of returns (on average, between $6.50 and $35.25 per $50 product).

To manage the volume, retailers rely on a byzantine network of brokers, resellers, liquidators and - sometimes - themselves to wring value out of returns. But there's no guarantee that everything will work (it's a return, after all), and thus the reseller also takes on the burden of disposal.

In 2020, retail returns produced nearly 6 billion pounds of waste. Some of that is packaging. But much of it is returned product that can’t be resold. Some of that is packaging. But much of it is returned product that can’t be resold. In those cases, resellers and retailers, faced with an unmanageable flood of returns, are known to incinerate returned inventory or dump it in landfills. Retailers who fail to address the problem not only bear responsibility for the waste, but risk alienating customers (Like Burberry's burning of millions of dollars of returned clothes that made the news media and caused a huge out cry in 2020).

The financial burdens are just as serious. Last month, the U.K. online fashion retailer boohoo Group PLC cut its sales forecast due, in part, to a ruinous 12.5% surge in returns over December 2020.

So-called “free” returns are being scaled back and consumers are being encouraged to deliver unwanted products to brick-and-mortar locations.

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 are keen to burnish their sustainability credentials, an honest acknowledgement of what happens when consumers buy more than they need (or want) could benefit everyone.

How retailers can keep customers happy while not losing money has become a perennial question. Some retailers have tried charging a fee for returns after a certain period, only allowing returns in exchange for store credit and tying free returns to tiered loyalty programs. bloomberg.com retailwire.com

Are retailers’ returns concerns coming to a holiday head?