Reducing the cost of free returns: how retailers are cutting back

show that about US$218 billion of online purchases (against US$905 billion is gross sales) were returned in the US from merchandise sold in 2021.  When an item is purchased online, it already has a carbon trail: from the sourcing of its materials, to manufacturing, shipping, transport, and delivery. And, for the vast majority of products we buy, that trail continues well beyond our use of the product, with most of them making it to landfill.  Aside from the physical destruction of items, data from reverse logistics technology company Optoro found that transportation of returned goods creates 15 million metric tons of carbon dioxide emissions, equivalent to 3 million vehicles per year, in the US alone.  In Australia, the statistics tell a similar story, with emissions from air and sea freight and packaging increasing the environmental cost of returns.  This is largely unknown by customers; an Optoro study completed in 2019 found that nearly 90 per cent of online shoppers incorrectly believe returns are immediately restocked.  The same study found that 25 per cent of returns aren’t suitable for restocking and are sent directly to landfill. For the remaining 75 per cent, returned goods must be manually inspected, re-packaged, re-labelled and re-set into inventory before they are available in-store for the next buyer.  Why do people return goods?  When people buy goods online, they are almost three times as likely to return them, compared with purchasing in-store. Furthermore, in Australia, data from Australia Post reveals return rates have doubled since 2019.  In 2021-22, research from e-commerce software provider PowerReviews found that the top reasons for returns included incorrect fit (70 per cent), product damage (65 per cent), poor online descriptions (49 per cent) and a simple change of mind (32 per cent).  For fashion retailers especially, online stores are now treated like virtual changing rooms; there is even a trend among Millennial consumers called ‘bracketing’, where shoppers order the same item in multiple sizes, returning the ones that don’t fit.  Cut down on buyer remorse  Retailers rely on technology to make online shopping as realistic as possible and help prevent buyer remorse.  From digital avatars to personalised sizing tools and machine learning questionnaires, creating a seamless front end is now critical for supply chains.  For example, H&M’s next-generation sizing tool uses body scanning technology to create avatars of shoppers, so they can see how a garment would realistically look without physically trying it on. When the tool was first trialled in Europe, 60 per cent of shoppers agreed it was an accurate predictor of size, helping them make purchases and reducing the likelihood of returns.  In Australia, e-commerce retailer The Iconic offers a similar universal sizing tool on its mobile app, which helps customers find their size in any given brand, using algorithms that compare a multitude of global sizes within seconds.  Within the Australian context, we know The Iconic is a global benchmark for low return rates when compared with similar businesses in the US, Europe, and Asia. This outcome is driven by its technology applications in the buying process. While it does not stop ‘bracketing’, it does assist in mitigating returns caused by incorrect sizing.  Driven by Millennial and Gen Z consumers, front-end enhancements are even helping retailers broaden their customer base. One example already in use is YooxMirror, where users dress digital avatars of themselves in virtual clothing, as well as sharing these avatars on their social media channels. Since 2018, the tool has contributed to a 70 per cent reduction in returns, while increasing customer advocacy and social commerce.  US company True Fit personalises the experience, asking customers to input details of an item from any brand they feel fits them perfectly;d then an algorithm provides personal recommendations for each item clicked on. If shoppers add multiple sizes of the same item to their cart, a pop-up appears, encouraging them to use the size fit tool instead, significantly reducing returns from bracketing.  These innovations also extend beyond fashion; even Ikea uses its augmented reality (AR) Ikea Place app, where customers can visualise furniture in their home before committing to purchase.  Removing returns altogether  Another way to reduce the cost of returns is to resell items faster. E-commerce company Shopify states that it takes 27 days, on average, for a customer to return an item, and another 24 days to process and re-stock the item. This is because returned items are often sent back to one centralised warehouse, where they are then checked, repackaged and sent out again.  When considering the average cycle for fashion or seasonal goods is around three months, retailers are often forced to discard returned items or, at best, sell them at a discounted rate.  Now, to keep costs down, many retailers are using regional distribution centres to collect returns, then shipping them in bulk to the main warehouse for sorting.  Speeding up the returns cycle can also involve manual processes, like providing a home pickup option for unwanted goods. This is a rapidly growing offering – especially in the UK.  A trend known as ‘returnless returns’ is also becoming popular, where the customer isn’t even required to return the item to be refunded.  Instead, they can keep it, donate it, or exchange it. Large retailers like Walmart, Target, and Amazon use this process to maximise return efficiencies for seasonal products, hygiene products or low-value items where the cost of the return can exceed the value of the item itself.  While this has some benefits, it also creates an offering that could lead to unconstrained product waste. Despite this being a commercially astute solution for some, it does not encourage better consumer behaviour nor deliver much value to justify the resource input used to create the now redundant product and have it delivered.  A new imperative  For e-commerce retailers, optimising the front and back end of the supply chain should be the top priority.  Finding ways to reduce returns in the first place and rethink process efficiencies is not only possible, but now becoming imperative.  By aligning smart technology and customer-centric strategies, along with creating smarter logistics solutions, the e-commerce industry can continue to flourish. As is often the case, the agile will win the day. This story first appeared in the February 2023 issue of Inside Retail Magazine.