As the world pays new attention to supply chains, much of the focus has been on delays in delivering products to stores and consumers. What is called the forward supply chain, the path from raw material to the customer, is being scrutinized.
But the other side of the supply chain – the process of returning a product – also plays a significant role. Many goods that firms work hard to bring to the U.S. will be sent back soon after they are delivered. Across all e-commerce, about 30% of purchases are returned and about half of all clothing is sent back.
While the forward supply chain enjoys economies of scale at every stage, the reverse supply chain – the complicated act of retrieving a product from a customer – is costly and inefficient.
A 2019 investigation brought transparency to the return process. It was conducted by the Canadian Broadcasting Co.’s watchdog program Marketplace and the Basel Action Network, an environmental advocacy group. They purchased a dozen products from Amazon Canada and returned them, hiding a GPS tracker in each one.
They found many returns took a circuitous route, often covering several hundred 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 hauled 620 miles while circling around southern Ontario.
Of the 12 items returned, only four had been resold when the story was published. The rest were still in transit months after their being returned. At least one, a new backpack, was found in a landfill. For the report, Amazon didn’t respond to questions about what percentage of its returns are sent to landfills. Soon after the report aired, Amazon introduced a program in the U.S. and the United Kingdom dedicated to helping sellers send returns directly to charities instead of landfills.
In addition, a journalistic investigation released in 2019 in France also showed that many products, overstocked or returned, have been thrown away by Amazon.
Amazon has plenty of company. A quarter of the online products returned end up being discarded, according to ReturnGo, a firm I advise that tries to help retailers improve their return processes.
Why are firms so wasteful in dealing with returns? One reason has to do with health and safety regulations. For instance, it is considered unsanitary to resell certain items, such as beauty products and swimwear. H&M, for example, will not accept swimwear if the hygienic 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 the sellers or manufacturers.
Less than 10% of products are returned to brick-and-mortar stores. In the early days of e-commerce, people were reluctant to buy clothing and shoes online given concerns about sizing and fit. After Zappos disrupted the shoe and clothing industries by offering long return windows without any restrictions on the conditions of the product, most other retailers were quick to follow – except the lenient policies led customers to change their purchasing behavior.
Products are returned by customers at random times and in small batches. They are shipped to various places based on product type, sorted and stored until a decision is made on whether to resell them. It’s a time-consuming process that has little value. Accepting a product and preparing it to be shipped back is viewed as a nuisance, so not much thought has gone into making the process more efficient. Yet most companies still offer generous return policies to keep their customers coming back.
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 were likely to return at least some of the items purchased.
Several ventures are trying to help firms manage their return process. ReturnGo uses an analytics-driven solution so firms can make return decisions informed by logistical costs and customer lifetime value. For example, for certain products, the advice would be to let a loyal customer keep the product and get a refund, if the cost of shipping it is higher than its resell value.
Another solution is mixing the online and offline retail experience. For example, 44% of respondents in the online shopping survey said they still prefer to return an item in person, which can help firms reduce shipping costs. The same survey showed that 57% of customers returning an item would still shop from the same merchant even if they had to pay shipping costs to make a return. And with the pandemic interfering less with in-person shopping, traditional stores can serve as a return center and as they were originally intended: a place to try to find the best suitable products in person.
Running an omnichannel operation, in which firms integrate the different sales channels that include online and brick-and-mortar stores, requires some scale, but the advantages can be significant, since the trend of favorable and flexible return policies is not going to go away.
The current supply chain crisis is exposing more and more inefficiencies – such as long delays at ports and massive shortages for some products, including toilet paper and kettlebells. Given the uncertainty around shipping dates and product availability, people may be overordering and returning more than usual after the holidays. So, during your holiday shopping, do your part to stem return culture by choosing carefully – and aiming to buy for keeps.
Gad Allon is faculty director of the Jerome Fisher Program in Management and Technology at the University of Pennsylvania.