The True Cost Of "Free Returns" in eCommerce (And How To Offset Them)

By:
Rakuten Super Logistics
Feb 6, 2020

The holiday returns season may be behind us, but the aftermath is still very much in the present. Returns season– generally running from around Thanksgiving to the end of January– is when everyone returns their holiday gifts. This year, that amounted to around $90-$100 billion. That number is part of an upward trend that shows no signs of stopping or even slowing down.  

That's a lot of money, yet that only accounts for two months worth of returns. With store return policies getting more and more generous and free return shipping becoming the new normal, year-round returns are also on the rise. Most consumers just assume that since the products are returned they'll all be resold for the original value. That's not always the case though.

The True Cost Of "Free Returns"

When discussing the real toll of a so-called "free return" the price to be paid is two-fold.

Economic Impact

Despite the name, having a free returns policy comes with quite a hefty price tag. One-third of business revenue is lost to returns. In fact, return delivery costs in the US alone are projected to reach $550 billion this year. When you add in the cost of restocking the shelves and the price of all the inventory that needs to be discounted, sold through secondary channels, or cannot be resold, it becomes an unmanageable amount. The clothing industry sees the worst of it.

Environmental Impact

The consequences aren't limited to financial damage either. Every year, just in the United States, returns add 5 billion pounds of trash to landfills and create carbon emissions amounting to 15 million tons. While online shopping and free returns are very convenient, they're doing a lot of damage.

The Serial Returner

People who chronically return clothes as part of a plan are a large part of this problem. Often referred to as "wardrobers", these are customers who buy clothes with the intention of wearing them just once or twice and then sending them back for a refund.

Another type of customer contributing to this problem is the one who orders multiple sizes and colors of the same item to try on at home. Then they return the ones they don't want, basically making their own homes the new fitting room.   In many cases, these people likely have no idea that they're leaving so much chaos in the wake of their decisions.

Solutions

There are things you can do to offset the unseen costs of a free returns policy, from reverse logistics to cracking down on the returners themselves.

Optimizing Reverse Logistics

Reverse logistics is the term used to describe the process of taking back returned items and getting them where they need to go. Being able to deal with those reverse logistics challenges efficiently can make or break a business. If the process can't move smoothly, profits can be cut by as much as 30%-50%. During delivery, try to ensure that trucks are always full to reduce trips. Properly managing this part of the supply chain can have a huge impact on your business.

In-Person Return Options

Returns can cut into profits unless you find a way to recoup your losses. One study showed that around 80% of shoppers prefer handling their returns and exchanges at the store and nearly 75% of those say they're likely to make a purchase in the process. Allowing in-store returns can not only make customers much more likely to shop with you and increase profits but also, lower costs and hasten the process.  

Ecommerce companies that have no physical locations are looking to other options. Some are partnering with brick-and-mortar stores to have their returns accepted there while others turn to returns-management systems (RMS) for help. Some use technology to streamline the process while others provide return kiosks and handle sorting.

Serial Return Management

One important step is to standardize your sizes, have clear size charts, and offer sizing assistance to cut down on the need for returns.

As for serial returners, wardrobers can be prevented by flagging this customer behavior and charging them for shipping and returns to mitigate their cost. Companies like Stitch Fix has had success with fitting roomers by offering subscription clothing boxes with custom items that can be returned within a short window to avoid being charged.

Conclusion

Remember...

Returns can seem like a headache, and they do have financial and environmental costs, but we aren't powerless to help. Raise awareness with your customers and encourage responsible shopping and shipping practices. If done right, our actions can maximize profits, minimize waste, and save a lot of frustration. It may take time and effort, but once you strike the right balance of solutions for your business, it will be completely worth the wait.

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