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An estimated $66.7 billion in rejected holiday gifts will make their way back to retailers this year, a 30% increase over 2020, and retailers are exploring some creative ways to cut those costs.
To see retailing at its ecological worst, look no further than the return line after the holidays are over.
More fuel will be guzzled trucking merchandise back to warehouses than was consumed speeding it to consumers’ front doors. More packaging will be wasted, not to mention employee time trying to sort and determine whether goods were damaged or defective.
Worst of all, much of what was returned — usually cheaper items and apparel — will never be resold and will go straight to landfills.
Returns accounted for 5.8 billion pounds of waste and 16 million metric tons of CO2 emissions last year, says reverse logistics firm Optoro.
“The sad thing here is when you speak to younger people, they will say they really care about the environment,” said Gad Allon, a professor at the Wharton School of Business. “But if you look at who is returning more things, it is those younger shoppers.”
It’s a problem that the retailing industry is trying to confront. Supply chains were designed to move goods from factories to consumers in the most expeditious manner possible. But when the holiday is over and returns pile up, trying to reverse the process can be fraught with waste and inefficiency.
Some $66.7 billion worth of rejected holiday purchases is expected to slog back through the supply chain, estimates a new report from commercial real estate giant CBRE and Optoro. If the prediction comes to pass, it would mark a 30 percent increase over last year.
Of course, returns have been a dark holiday tradition for decades. But experts say the online retailing revolution has supercharged the amount of merchandise that brings disappointment instead of joy.
The biggest problem is that consumers have to make their buying decision from pictures and descriptions online, not being able to touch, feel and experience merchandise in stores. They may buy multiple items online to see which one has the nicest color or fits best, then return the rest.
Retailers, hoping to juice online sales amid massive competition, have tried to make returns as easy as possible. But since many shoppers no longer return items to the stores where they bought them, returned items can’t go right back on the shelves. Online sellers have to find a place for them in already bulging warehouses.
“Warehouse space is one of the biggest concerns,” said Sean Henry, co-founder and CEO of logistics tech company Stord.
Optoro found a returns warehouse requires 20 percent more space and labor capacity than a forward logistics facility.
Returns involve higher transportation costs because there are fewer warehouses to handle them than the fulfillment centers from which they were delivered to customers’ homes. The return centers are typically farther away, he said.
The retail industry doesn’t look at returns as being all bad since they reflect higher online sales, expect to increase 13 percent this year, according to the National Retail Federation.
“Returns are actually a byproduct of growth. You don’t get returns if you aren’t selling stuff,” said Marcus Shen, chief operating officer of B-Stock, a company specializing in auctioning off or otherwise finding a home for overstocked or returned merchandise.
But CBRE estimates at least 30 percent of holiday purchases will be returned, a costly prospect.
Optoro says that it will cost a retailer an average $33 to handle the return of a $50 item, an increase of 59 percent over last year. Fuel prices are high this year and labor is hard to find, bucking up wages. Consumers may use a new box for a return rather than its original packaging.
Faced with these troubles, retailers and logistics professionals are searching for solutions.
“They are trying to get ahead of the problem, but we need new solutions,” said Anisa Kumar, chief customer officer for Narvar, a company that assists retailers when it comes tracking, delivery notifications, returns and exchanges.
Retailers, Kumar said, are trying out strategies like trying to get the return process moving faster by offering 14-day free returns and encouraging online buyers to bring online purchases to stores. To help the environment, some retailers are experimenting with “boxless returns,” in which goods are put in recyclable bags for the trip back.
Wharton Prof. Allon lauds the fresh thinking around returns.
One Israeli fashion company has tried having deliverers wait at the doors of online purchasers while they open boxes and see if they want to keep the item inside. If they are rejected, they can simply be brought back on the spot, Allon said.
In the end, the answer may be that more companies give full or partial refunds on items to consumers — and tell them just to keep or donate the stuff.
“You can’t shame them into not returning, but you can offer them a discount,” Allon said.
A good deal for the consumer and the retailer — not to mention the environment.