How a two-pronged approach can reduce retail returns and improve circularity
In the heat of the holiday shopping season, our minds drift to the mountain of merchandise that will be returned by consumers, come December 26. Between unwanted gifts, mistake orders, and the sweater that didn’t quite fit, consumers returned products worth $428 billion in 2020, comprising just over 10 per cent of total retail sales that year in the United States.
The problem is most acute in online sales, of which 30 per cent are returned, and clothing sales, with 88 per cent of consumers reporting that they have returned an item of clothing. The National Retail Federation estimates the cost of returns amounts to about $101 billion, most of which falls on brands and then to consumers. Unfortunately, returned merchandise can rarely be resold due to quality requirements and logistics challenges, resulting in much of the merchandise that we return ending up in waste streams and landfills.
As brands and retailers grapple with the cost, scope, and impact of returns, we’ve identified a two-pronged approach to reduce the magnitude of the returns problem. With consumers, retailers and business stakeholders increasingly calling for circular and environmentally sustainable business practices, this holiday season is the time to start considering sustainability solutions for your retail supply and logistics networks.
Using behavioral science to influence consumers’ purchasing decisions and reduce returns
The trend of free shipping and free returns has introduced important behavioral cues to consumers, telling us that purchasing another size or an item that they’re not completely sure they want is consequence-free, at least for our wallets. As we know, though, the high propensity of returns is not consequence-free for brands and for our waste management systems.
Influencing consumers to buy fewer items, about which they are more intentional can result in happier consumers and brands. While fast fashion, free shipping and returns make it easy to shop regularly and inexpensively, the goal is to get consumers to purchase fewer items that they are likelier to keep, thereby reducing the cost burden of returns. Bonobos, Purple Mattress and LEGO make it easier for consumers to find the right item before they purchase it, sometimes offering customization based on bespoke measurements and criteria to ensure the product is a perfect fit the first time. Brands can consider a retail model of try-before-you-buy and in-person retail pop-ups that allow brands to engage consumers in new ways, particularly as consumers express renewed willingness to shop in-person.
To reduce the frequency of returns, retailers could consider limiting free returns to a certain number of items or dollar value annually. After that milestone is achieved, consumers must pay to return additional items. Alternatively, retailers could charge consumers an upfront fee for shipping that can be refunded if the consumer does not return the merchandise. Sustainability-forward online retailer ThredUp charges consumers a flat $1.99 per item to return merchandise, calling the charge a “restocking fee,” clarifying its purpose to consumers. They also offer free return shipping if the consumer elects to receive their refund in the form of a merchandise credit, a model that is widely adopted across the industry.
We’ve also found that consumers are generally unaware of what happens to the merchandise that they return. Clothing retailer Everlane has embraced supply chain transparency to educate consumers about the provenance and true costs of their merchandise. Brands could replicate this approach for how returns are handled, educating consumers about waste streams and the damage that excessive returns cause.
As carbon offsets become more common across retail, apparel, travel and other industries, brands could signal to consumers that they are committed partners in sustainability, involving consumers in this activity as well. For example, many brands have partnered with CarbonFund.org to pay for carbon offsets for shipping, logistics and other carbon-intensive business activities, paying for carbon-free shipping or asking consumers to foot the bill to achieve carbon neutrality. Brands could communicate to consumers that their carbon offset covers shipping but not returns, using language like, “we’ll plant a tree for every item purchased, but if you make a return, you’ll pay to plant a tree.” Involving the consumer in non-transactional sustainability activity may also be motivating, driving brand loyalty and reducing the likelihood of returns.
Improving circularity through partnership
The second step of our approach focuses on how brands and retailers can better manage the merchandise when a return is made. Cost and time of labor is a significant challenge to reselling and re-merchandising returned products: a toaster that’s returned needs to be opened, tested and inspected, then re-packaged and put back on the shelf – and that’s if it is in perfect condition. For electronics and any other item that’s returned, it’s simply easier and less expensive to set even perfect quality merchandise aside to be donated or discarded.
Reselling partnerships are currently most mature in the apparel industry where companies like TJX (owner of brands including HomeGoods, TJ Maxx, Marshalls and others) purchase perfect quality items, sometimes including returned merchandise and sell them at reduced prices. Secondary market retailers like StockX, The RealReal and ThredUp also accept and purchase perfect and secondary quality merchandise that brands and retailers cannot or prefer not to resell and list it on their platforms. Particularly noteworthy is Rent the Runway, which has partnered with ThredUp to sell apparel that has been rented via the Rent the Runway service. ThredUp offers “resale as a service” to brands that want to resell merchandise and integrate circularity into their brand, naming brands like Wal-Mart, Madewell and Reformation as partners.
Organizations that are interested in better management of returns should seek out industry partners that have experience in this space and align to your purpose as a brand, taking sustainability commitments and ambitions into consideration. Companies like Happy Returns are also developing new ways for brands to manage the logistics of returns more effectively, though waste management and re-merchandising remains a challenge. Organizations can also consider an external broker that can take this plan forward at scale, connecting companies with unusable returns with organizations that are seeking electronics, plastics, fabrics, or other inputs to create new finished products.
By rethinking the retail process from start to finish, and including consumers in the conversation, we can reduce purchase regret and returns and make the most of returned stock.