The coronavirus pandemic has posed many challenges for both online and brick-and-mortar retailers alike, but managing the impending extended and potentially excessive holiday returns season will likely be a challenge that continues well beyond a virus’s temporary turmoil. This could be a chance for the retail sector to prioritize an often overlooked and very wasteful part of the e-commerce business: Reverse logistics.
Holiday Returns Expected to Surge
While online shopping has skyrocketed throughout the pandemic, this has been especially true leading up to the holidays this year as supply chain woes caused stock shortages on local shelves and increased online demand. Consumers likely overbought this holiday season out of fear that gifts would not arrive on time. Additionally, retailers incentivized shoppers by launching Christmas promotions as early as September, according to Reuters, and offering extended return policies up to 60 or even 90 days on holiday purchases. The results in the United States—as measured by the financial services company, Mastercard, in a report released last week—are an overall uptick in retail sales by 8.5 percent during the traditional holiday period of November 1 through December 24, while e-commerce sales rose 11 percent during that time. Apparel purchases were the leading category.
But despite the rosy sales picture, the frenetic buying of products untested and untouched until they arrive on the porch is set to initiate an onslaught of returns that will hit retailers’ bottom lines like never before. Some of the same inflationary shipping costs incurred while importing merchandise from manufacturers this year due to overwhelmed transport hubs and labor shortages in key areas, like trucking and warehousing, will also make returns 59 percent more expensive to process than last year. This metric is estimated by the reverse logistics technology company, Optoro, which helps to manage and resell returned merchandise, and also projects 120 billion dollars in goods sold from Thanksgiving through the end of January will be returned. While the transportation backlogs are hopefully temporary, (although expected to last for another year), poor management of returns by retailers is what will continue to impact profitability long term.
Why Mismanaged Returns Affect Fashion Retailers More
Pointing to understaffed stores and messy dressing rooms driving consumers to shop from the comfort of home well before the pandemic, reporting by The Atlantic estimates that one-third to one-half of all clothing bought in the US this past year was done so online. Return rates are higher for e-commerce over brick-and-mortar purchases in general but for clothing in particular, they are even higher due to a practice called “bracketing,” where multiple sizes are ordered at once in anticipation of fit issues. If those items are not mailed back in pristine condition, if they were tried on one too many times or more obviously worn, the odds of them being resold at the original retail price or even at all are pretty low.
By the time a dress makes its way back to a warehouse and is checked against the receipt to make sure it is the correct item, determined to be clean and sellable, and maybe re-polybagged, it could already face markdowns—especially if it is a seasonal item. Not only is there the loss of a full-priced sale but the store is often out the cost of transportation to and from the customer, as offering free shipping has become almost a requirement of doing online business. If the dress came from a mid to luxury level brand it might be diverted to an off-price reseller, but if it is from a fast fashion brand, the chances of it going straight to a landfill are high, as it is not worth the operational expense of reprocessing and relisting such a cheap item. The environmental impacts of shipping all of these orders back and forth, wasting resources to produce items that are never sold and used, and adding to the plastic waste of the world is not only irresponsible but goes against growing consumer concern that brands be more sustainable, and is more reason to cleanup inefficiencies around managing returns.
Ways to Address Return Management Neglect
In an extensive report published by the global management consulting firm, McKinsey, the company predicts that the acceleration of omnichannel shopping and the associated returns will lead to unsustainable financial impacts for many apparel companies. According to their research, dealing with returns is viewed as a necessity to appease customers, but managing those returns efficiently is not even a top five priority for a third of retailers. Some key challenges are the piecemeal way that returns are retrieved, the unpredictability of the timing and volume of returns, the varying reasons for return by product category, and of course the additional costs of investing in technology and staff to try to optimize the profitability of returns. While McKinsey acknowledges the complex nature of these challenges, they do propose methods for improvement:
For fashion companies, about 70 percent of returns are initiated because of poor fit or style and so expanding advanced shopping tools to better demonstrate fit and reduce the number of returns to begin with is a good way to start. Offering on-model product videos where a customer can view the shape and movement of a style on a variety of body shapes and skin colors is one example. Live chat assistance with stylists or listing customer reviews specific to size on the product pages can also help. Augmented reality tools are in nascent stages, but last year Gap Inc. announced it acquired Drapr, an e-commerce startup intent on helping customers reduce the need to order multiple sizes by allowing them to create 3D avatars of their body type to virtually try on clothing.
Collecting more specific data from customers about reasons for returns can allow design and development departments to make adjustments to future styles based on frequently returned items. Mckinsey gives the example of a sweater style that is often returned because of pilling, which can then be addressed in the choice of fiber or fabric going forward.
When possible, nudging consumers to return items in-store can save up to two weeks of processing time and improves the chance that an item will be resold at full price.
Partnering with third-party drop-off locations, the way that Amazon orders can be returned at Whole Foods, can help streamline the timing and flow of returns. In 2020, return logistics company, Narvar, collaborated with shipping company, United Parcel Service (UPS), to utilize UPS Stores in a new way by facilitating boxless returns. Starting with purchases made at footwear brand Cole Haan, the customer is given a QR code to present at the UPS dropoff location. UPS will take the item, box-free and label-free, and instead use a recyclable polybag to send the item back to the merchant through the closest distribution center, saving shipping costs for the retailer, time for the customer, and reducing packaging waste.
McKinsey also suggests appointing one person to oversee returns and be responsible for streamlining the often fragmented, cross-functional process end-to-end.