Gad Allon: We return 30% of what we buy online. How Our Return Culture Is Changing the Supply Chain |
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 downstream supply chain, the path from the raw material to the customer, is under scrutiny.
But the other side of the supply chain – the process of returning a product – also plays an important role.
Many goods that companies strive to bring to the United States will be returned shortly after delivery. Across e-commerce, around 30% of purchases are returned and around half of all clothing is returned.
While the downstream supply chain benefits from economies of scale at every step, the reverse supply chain – the complicated act of retrieving a product from a customer – is expensive and inefficient.
A 2019 investigation brought transparency to the returns process. It was carried out by the monitoring program of the Canadian Broadcasting Co. Marketplace and the Basel Action Network, an environmental advocacy group.
They bought a dozen products from Amazon Canada and returned them, hiding a GPS tracker in each one.
They discovered that many returns took a roundabout route, often covering several hundred kilometers – sometimes even thousands – before reaching their final destination.
The toy blocks traveled 590 miles before being delivered to a new customer in Quebec, and a printer was hauled 620 miles around southern Ontario.
Of the 12 items returned, only four had been resold when the story was published.
The others were still in transit for months after their return. At least one, a new backpack, was found in a landfill.
For the report, Amazon did not respond to questions about the percentage of its returns sent to landfills.
Shortly after the report aired, Amazon launched a program in the US and UK to help sellers send returns directly to charities instead of landfills.
In addition, a journalistic investigation published in 2019 in France also showed that many products, overstocked or returned, were thrown away by Amazon.
Amazon has a lot of company. A quarter of returned online products end up being thrown away, according to ReturnGo, a company I advise that tries to help retailers improve their returns processes.
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Why do businesses waste so much on processing returns?
One of the reasons has to do with health and safety regulations. For example, it is considered unhealthy to resell certain items, such as cosmetics and swimwear.
H&M, for example, will not accept swimsuits if the hygienic seal has been opened. But the most common reason is reverse logistics, the side of the supply chain that brings goods back from customers to sellers or manufacturers.
Less than 10% of products are returned to physical stores.
In the early days of e-commerce, people were reluctant to buy clothes and shoes online due to concerns about size and fit.
After Zappos disrupted the footwear and apparel industries by offering long return windows without any restrictions on product terms, most other retailers quickly followed, except lenient policies led customers to change their buying behavior.
Products are returned by customers at random times and in small batches.
They are shipped to various locations depending on the type of product, sorted and stored until a decision is made on their resale.
It is a process that takes time and is of little value.
Accepting a product and preparing it for reshipping is considered a nuisance, so little thought has been devoted to 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 almost 55% said they shopped online knowing that they were likely to return at least some of the items purchased.
Several companies try to help businesses manage their returns process. ReturnGo uses an analytics-based solution so that businesses can make return decisions based on logistics costs and customer lifetime value.
For example, for some products, the advice would be to let a loyal customer keep the product and get a refund, if the cost of shipping is more than its resale value.
Another solution is to mix the online and offline retail experience.
For example, 44% of those polled in the online shopping survey said they always prefer to return an item in person, which can help businesses reduce shipping costs.
The same survey showed that 57% of customers returning an item would still buy from the same merchant even if they had to pay shipping fees to make a return.
And with the pandemic interfering less with in-person shopping, traditional stores can serve as a center of returns and as they were originally intended: a place to try and find the most suitable products in person.
Running an omnichannel operation, in which companies integrate the different sales channels that include online and physical stores, requires a certain scope, but the benefits can be significant as the trend towards favorable and flexible return policies will not go away. .
The current supply chain crisis is increasingly exposing inefficiencies, such as long delays at ports and massive shortages for some products, including toilet paper and kettlebells.
Due to the uncertainty surrounding shipping dates and product availability, people may over-order and return more than usual after the holidays.
So, during your holiday shopping, do your part to stem the culture of comeback by choosing wisely – and looking to buy for good.
Gad Allon is the Faculty Director of the Jerome Fisher Program in Management and Technology at the University of Pennsylvania.