The rise of eCommerce has transformed the way we shop, propelling U.S. eCommerce sales to a staggering $1.03 trillion in 2022. Offering unparalleled convenience for consumers, online shopping has undeniably revolutionized the retail landscape. However, beneath this facade of seamless transactions lies a hidden truth—an ugly reality that remains concealed from most consumers: the exorbitant costs and unsustainable nature of returns. Returns, once a taboo subject, have now emerged as a critical focal point for investment opportunities. Silicon Valley's most sophisticated venture capital firms have poured millions of dollars into reverse logistics companies offering returns management software and services, recognizing the pressing need to address this issue. Retailers, too, have acknowledged the urgency by making substantial investments to enhance their supply chains, as revealed in a recent survey by goTRG where 72% of them confirmed their commitment to this cause. Over the past five years, returns have shifted from being an afterthought to a prominent challenge, magnifying the significant hurdles and expenses associated with product returns management.
Returns have evolved into a mounting burden for retailers, with a striking 73% of retailer respondents from the retail sector ranking them as a "moderate-to-severe" issue for their businesses. While consumers may revel in the convenience of free returns, they come at a hefty financial and environmental price. Globally, a staggering 17 billion items are returned each year, contributing to a yearly emission of approximately 4.7 million metric tons of CO2. In 2022 alone, retailers in the United States received a staggering $816 billion worth of returns, with processing costs devouring up to 55% of the value of each item. To put this into perspective, the GDP of Turkey is $819 billion, making returns nearly equal to the economic output of one of Asia's largest countries. In order to improve the state of returns, it is critical to unravel the components that make returns management such a costly endeavor in the first place.
In the past, customers were often responsible for covering the costs of returning items by mail. However, the era of free returns emerged with Amazon's introduction of this policy, coupled with the convenience of drop-off locations at UPS or Kohl's stores. Other retailers followed suit, viewing free returns to retain customers. Yet, the tide may be turning, as an increasing percentage of retailers now charge return shipping. This shift indicates that the era of free returns might not last indefinitely.
Returns processing leaves a wasteful wake
Returns start with transportation, as consumers send their unwanted items back to retailers. Whether it's dropping off the package at a designated location or arranging for a pickup, this step creates significant expenses for the retailer. In fact, it has been estimated that return transportation accounts for at least $350 billion in annual costs. Furthermore, the transportation process emits carbon dioxide as trucks and planes carry returned items over long distances. Excessive packaging, driven by the desire for an appealing unboxing experience or product safety, leads to unnecessary use of materials. Additionally, the practice of discarding original packaging during returns and replacing it with new packaging generates significant waste. The lack of standardized packaging requirements across platforms and retailers further contributes to inefficiency in existing returns management solutions. Non-recyclable or difficult-to-recycle materials commonly used in e-commerce packaging worsen the environmental impact. Addressing these issues through sustainable packaging practices and promoting recycling initiatives is crucial to reduce the wastefulness associated with e-commerce packaging.
Once returned items reach the retailer's dedicated warehouses for processing, the costs continue to mount. Processing a return can take two to three times longer than the initial shipping of the item. It involves unpacking, inspecting, testing, sorting, repairing, repackaging, reselling and rerouting an item. Retailers recognize the inefficiencies in the process as 54% told goTRG in a recent survey that they touch their returns at least 6 times before reaching their final destination. This extended process adds significant costs, especially when manual labor is required.
There are instances where repair costs exceed the potential resale value of a product. In such cases, it becomes more cost-effective for the retailer to discard the item. Some are liquidated in bulk to discount stores, but unfortunately, many returned products find their ultimate destination in landfills. The scale of this issue is alarming, almost 40% of retail returns get liquidated, tossed away, or donated. Total returns across the globe equates to approximately 5 billion pounds of waste worldwide per year.
How Returns Management Solutions Turn Waste Into Opportunity
To mitigate the high return rates, waste, and losses that ultimately impact consumers through higher prices, retailers are exploring various reverse logistics strategies. Some have shortened the returns window, limited frequent returns, implemented restocking fees, or ceased offering free returns altogether. Additional tactics include implementing virtual dressing rooms and providing clearer fitting guides, which help reduce clothing returns. High-quality photos and videos that accurately reflect size and color also contribute to minimizing returns. By leveraging these returns management strategies and tools and paying attention to sizing, consumers can play a part in reducing the growing waste and carbon footprint of the retail industry.
Understanding the impact of eCommerce not only references a more conventional shopping method for consumers but its contributions to the ensuing issue of the ecological impact of return management. The staggering costs, carbon emissions, and waste generated by returns present significant sustainability challenges. As the topic of returns management gains prominence in the investment landscape, it becomes crucial for retailers to find innovative reverse logistics solutions that strike a balance between customer satisfaction and the financial and environmental implications of returns management.
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