- Some retailers have found it can make more sense to let customers keep items after issuing refunds.
- The approach is an expensive way to solve a problem that ecommerce is making worse.
- Rising supply-chain costs are forcing companies to take “reverse logistics” more seriously.
In traditional brick-and-mortar retail, if you buy something and decide you don’t want it shortly after, you can simply bring it back to the store for a refund or an exchange.
But the rise of ecommerce has thrown a wrench into this decades-old retail practice, ramping up both the percentage of purchases that need to be returned, as well as the cost of dealing with those returns.
Of the $4 trillion worth of merchandise that US shoppers bought in 2020, they returned just over 10%, and the rate of ecommerce returns was almost twice that, according to research from Appriss Retail, a service that helps companies manage returns.
Shoppers have a bevy of reasons for buying stuff they aren’t sure they’ll keep, from taking a closer look at colors, materials, and construction, to “bracketing” sizes to find the right fit.
Customers trying out different options in a store has negligible costs for a retailer, but providing that experience at home begins to introduce some significant expenses — especially at a time when supply chains are being stretched to their breaking points.
Indeed, ecommerce returns can cost a company roughly $10 to $20 per item on average, the CEO of a returns-automation firm told The Wall Street Journal. Shipping charges typically make up the largest portion (15% to 20%) of that expense.
For low-dollar items, the cost of returns can obviate the value to the seller of getting the product back, so they may just tell the customer to keep or donate it. Indeed, several major brands like Amazon, Walmart, and Target have done just that.
“When companies tell customers to keep a product, that’s the most expensive way of handling returns,” Cathy Roberson, research manager for the Reverse Logistics Association, told Insider.
As shipping and warehousing rates tick ever higher, there might not be much of a choice at this very moment, but Roberson said 2022 will likely bring a reckoning for how retailers handle returns and refunds.
Roberson also said that even some higher-dollar items like electronics or clothing can lose some of their financial luster when they have to be subjected to a process called “disposition,” which is the individual inspection of a returned item to determine whether it should be resold, refurbished, or recycled.
According to RLA’s returns calculator, the cost of returns can quietly gnaw roughly 6% off of total sales — a number that can put a serious dent in a company’s profitability.
In recent earnings calls, companies like Target and Home Depot have touted the growing role of their physical stores in fulfilling ecommerce orders, and Roberson agreed that physical stores could begin to play a larger role in handling returns.
In other words, just as companies like Macy’s subtly nudge customers to absorb the last-mile expense with free shipping to a nearby store, companies could begin requiring shoppers to bring their returns there too.
“Retailers are not going to keep this up,” Roberson said regarding no-return refunds. “They simply can’t afford to.”