Remedies for the High Cost of Free Returns

While online buying has increased, so have returns, and that represents a huge cost for retailers. Online orders in the U.S. for the 2021 holiday season hit a record US$222 billion. Out of those, 30% or at least US$66.7 billion worth of merchandise, will be returned per CBRE Supply Chain. That’s a 13% year-over-year increase for returns and a 45.6% increase over the previous five-year average. 

The Free Return Imperative 

With the standard of free return shipping set by the likes of Amazon, Walmart, Target, and Gap, e-commerce sellers are compelled to bear the cost of return shipping themselves or risk losing customers. Power Reviews surveyed 7,668 shoppers and found that, while free shipping stills ranked as the top consideration for an online purchase for 96% of shoppers, free returns came in second and was cited by 79%.

The Rising Cost of Free Returns  

But the free returns are far from free for the sellers. Due to steep increases in transport costs, the price of reverse logistics is substantially higher than it was a couple of years ago. In 2021, Optoro estimated that processing a return on a $50 item would cost retailers $33. That's 66% of the item cost, a significant increase over the 59% it would have cost in 2020. That’s why retailers sometimes issue a refund for returns on cheaper products without taking them back via shipping; it just doesn’t pay to incur those reverse logistics costs on such items.  

Proactive Measures 

Applying an ounce of prevention ahead of the purchase can alleviate pounds of returned packages. In light of the fact that clothes make up 88% of returns and that 70% of those returns are made because they don’t fit, finding a way to solve that problem could reduce the need for many returns.  

One of the tools that can help retailers is Artificial Intelligence (AI), which can be used to offer predictions of what will suit the customer with a high level of confidence. A large number of direct-to-consumer (D2C) clothing labels now use solutions from companies like MySize to provide their customers with apps that enable them to determine their own best fit.  

Think Outside the Box 

Another area of focus in reducing the cost of returned packages is the packaging itself. Brands with their own stores have generally offered a return-in-store option. Amazon has attempted to replicate that by partnering with some stores like Kohl’s for package-free returns. Some customers prefer these return options because they don’t need to bother with shipping labels and boxes, and they appreciate the assurance that their return will not be lost in transit. Eliminating the need for paper and plastic also allows customers to make a more sustainable choice, an increasingly important consideration for consumers.  

Smart Channeling 

Solutions for cross-channel returns can also reduce shipping costs by routing the returned merchandise to the nearest store location that can put it on the shelf for sale again quickly. Shortening the cycle time of returns reduces costs and can also ameliorate the effects of some supply chain shortages. American Eagle reaped the rewards of such investments last year, shortening the return cycle from around two weeks to just six days or even less with a 50% savings on cost. 

While returns will always need to be accommodated to some extent, their costs can be contained with some planning. Retailers that embrace a proactive approach that capitalizes on evolving technologies will be able to reduce the number of returns and their costs. These points are drawn from Susan Beardslee’s analysis, The Post-Holiday Return Cycle is Setting Records.