Glynn Davis is one of the UK’s most knowledgeable and experienced retail journalists, founder of Retail Insider, and Ecommerce Age’s monthly columnist.
Last Christmas I placed an order with Amazon for a batch of books and music that failed to turn up despite the company’s courier systems showing the package had been successfully delivered. I was quickly sent a replacement order and told that if the original box turned up at any point that I should just keep it.
The costs of Amazon processing the return was deemed prohibitive and so it was more cost efficient for it to simply forget about the order and write off the cost of the goods. Better to leave it to the customer to keep the goods, give them to friends, or donate them to a charity shop.
Apparently my experience was not particularly unusual. In the US the total cost of goods that have been ‘left’ with the customer reached $4.4 billion in 2021, according to Alix Partners. Although this sounds like a rather high figure it is still small fry when compared with the total value of returned goods that continues to rise as online shopping numbers grow.
It is a fair assumption that a physical store has a single-digit returns rate whereas for online transactions the return rate rockets to 15-30% and for clothing, especially fast-fashion, it can be significantly higher. This pushed return rates in 2021 up 10% to $114 billion in the US. Such figures no doubt correlate with the scenario in the UK. In fact, over Black Friday the returns in the UK were off the scale – with volumes up 129% on pre-pandemic levels in 2019, which represented a a 74% jump in value terms.
The true costs of returns
Although retailers would naturally be incredibly reticent to admit to having any policy involving customers legitimately being told to keep the goods they had intended to return, I reckon such an activity could become more prevalent. This is down to the spiralling costs of dealing with returns for retailers. They are up 59% on 2020, according to Optoro, which calculates the cost to retailers in 2021 was typically $33 of the price of a $50 returned item. This is the cost to simply process the goods when taking into account all the supply chain elements, transportation and level of discounting needed for the resale.
Not only is it increasingly costly for retailers to deal with returns, and the volume figures are also rising, but there is the massive hidden headache retailers have in terms of deciding what exactly do they do with the literally billions of items that are now being returned annually.
For many people the belief is no doubt that the goods are sorted in a depot, put back into the retailers’ supply chain and then resold. There are clearly many channels through which that resale can be made – including a plethora of bulk resellers. Sadly the reality is that many of the goods that are returned are simply thrown away.
Many retailers don’t allow the resale of any items that have been opened – even if they are in pristine condition and clearly pretty much untouched. Some categories such as bathing suits and beauty products are destroyed upon return even if they are clearly unopened.
The value of the item obviously has a big impact on the likelihood of it being processed and resold. Fast fashion items, which start out with a low value and have a very short life-span of demand from customers, are much more likely to find themselves in the bin after they have been returned.
The complexity of supply chains, the myriad and shadowy routes to resale, and the lack of open discussions about return activity naturally makes it tough to calculate the amount of goods that are discarded upon their return. According to Alix Partners the estimate from sources in the retail industry is that as much as 25% of returns end up in the bin. This equates to an incredible amount of perfectly goods items that are simply wasted.
This all adds up to an incredibly sad state of affairs and where workable solutions have yet to be found. On those occasions when retailers tell you to keep an unwanted product they are clearly not making any money but at least the unwanted items are likely to be found a second home.
With returned goods it is often the case that not only does the retailer lose but the planet also takes a hit as yet more goods find their way into landfill.