Welcome to the sustainability column that takes a look at what retailing is doing to address the issues in its industry. Much of the ongoing focus will be on fashion but not exclusively.
This month’s column takes look at that perennial problem for retailers – returns. Making this service stack-up financially and more sustainable has been a long standing headache, so what can companies do about it.
We are very pleased to bring this series of columns to you with the much appreciated support of our new sponsor Prolog Fulfilment.
Let’s start with the magnitude of the returns situation. In the UK they hit record levels in 2022 coming in at 26% higher than the previous year and this was against a backdrop of online sales falling by 11.5%. Customers return around £7 billion of internet purchases each year and for an idea of the impact to businesses it costs £11 to deal with the return of an £89 item, according to the Product Returns Research Group at the University of Southampton.
The overall cost to retailers – financially and environmentally – is enormous and what makes the situation even worse is the level of fraud associated with returns. Across the Atlantic in the US it is calculated that for every $100 in returned goods retailers lose $10.40 to return fraud, according to the NRF (National Retail Federation).
Clearly this returns pandemic has been fuelled by the growth of the online channel and the ease with which retailers have made it for shoppers to return unwanted goods. There is no doubt everybody values seamless – and ideally free – returns very highly indeed and it can be an important factor in the retailers people choose to buy from, according to various surveys.
Of course Retailers have been trying to address the situation. But at the same time not wanting to deter shoppers from transacting with them by placing obstacles in the way. The obvious solution is to charge a fee for returns and as many as 25% of the UK’s leading brands are now charging for the return of online purchases, which reflects year-on-year growth of 14%. Zara is one of many brands to make this move for items returned through the post, although it remains free if shoppers return them to a store or third-party pick-up point.
The problem with this is that it is a rather blunt instrument and can be very off putting to many consumers. As many as 26% of UK adults have switched from a brand that introduced returns charges, according to SAP Emarsys, and another 18% have described the introduction of charges as being unfair. Another 13% have actually thrown away unwanted items after failing to return them. This suggests they are unlikely to shop again with that particular retailer. Against this backdrop it is shocking to find that 49% of shoppers have already left a brand they were once loyal to because of the cost considerations.
Thankfully there are some other smarter moves that can be considered by retailers. A shift in mind-set could present opportunities to decrease return rates by leveraging data, increasing communication with manufacturers and consumers, and also bringing sustainability more forcefully into the mix. Using data it can be determined why shoppers are returning products and this can be used to help reduce rates. This insight could then be shared collaboratively with suppliers and manufacturers.
One interesting move comes from Amazon that has added a warning on the listings of certain products that have high levels of returns. It therefore recommends shoppers check the product details and customer reviews to learn more about the item to ensure they order the relevant product.
The online giant has also been proactively nudging shoppers down certain return channels that are less costly for it to process and can be more sustainable. It has instituted a fee on customers returning goods to UPS Stores when there are other return options available nearby at its own Whole Foods stores.
Meanwhile at Rent the Runway the company has recently introduced what it calls ‘live swaps’ whereby home deliveries and returns happen simultaneously. This eliminates costs by consolidating a returns pick-up and delivery and is also obviously much more sustainable. This is clearly an initiative suited to frequent customers and those recognising the environmental upsides of such an option.
The other big sustainability gain from returns, and one which clearly has serious financial benefits, is to use resale channels to get these unwanted products back into the marketplace. Returns have to a large extent been seen as a lost sale and a margin killer but with the circular economy the economics of returns could be redefined.
The headache of returns is not going away any day soon but there are smarter ways to handle this growing part of the retail industry and integral to these can be sustainability and the environment.
Glynn Davis, editor, Retail Insider