Attention Holiday Shoppers: The Myth Behind “Free Returns”
By Brian Miranda, Fall 2016 Fellow
Another holiday season has just passed us by. A round of gift-giving, likely followed by a round of giving gifts back to the store. If your friends or relatives are like mine, they kindly left you with a receipt - just in case you wanted something else for Christmas. After all, it’s just the thought that counts, right?
Today, however, it may be time to start thinking hard not only about the products we buy, but also about those we return. As we give back unwanted goods, we become the starting point of their very long, complex and environmentally-costly journey to a second home.
Last year, Americans returned more than $260 billion worth of goods, amounting to nearly 10% of national retail spending. By some estimates, this translates to 3.5 billion units of retail inventory returned annually. We can only expect this number to climb higher, as e-commerce grows more popular and completing returns becomes easier for consumers. Many online retailers, for instance, see return rates as high as 30%.
Much of what we return does not simply get added back to store shelves. Unlike new inventory that retailers specialize in bringing to market, returned goods can be messy and cost-prohibitive to process. They arrive unexpectedly in stores and returns centers in a myriad of conditions and packaging, ranging from broken to brand new. There, an unevenly trained workforce sorts these products without the resources they need to receive, test and re-merchandise them for a secondary market. Unsurprisingly, retailers choose to liquidate returned inventory from their facilities to clear both warehouse space and their balance sheets for newer, more saleable products.
The returned products that retailers can’t efficiently sell then travel through a network of resellers, distributor warehouses and heavy truck shipping routes. Let’s take as an example the new Samsung tablet your neighbor buys from OfficeMax during his Cyber Monday shopping binge. He opens the box and plays around with the tablet for a few days before realizing he would prefer instead to have the Dell computer his wife purchased. Your neighbor then places the tablet back into its box and ships it out to OfficeMax for a refund minus a re-stocking fee.
While your neighbor’s transaction ends there, the Samsung tablet is just beginning its journey into the secondary market. Traveling by truck from New York, the tablet first lands at OfficeMax’s distribution center in Indiana where it undergoes a light testing and grading process. The graders decide that even though the Samsung box has been opened, the tablet is still in good condition and can be sold elsewhere. So, OfficeMax packs it with a dozen other pallets of consumer electronics and ships it out by truck to a partner refurbisher in the next city over. The refurbisher wipes all personally identifiable information from the tablet and repackages it to ship back, again by truck. OfficeMax, after receiving the refurbished shipment of consumer electronics, re-palletizes all of its tablets into a smaller shipment for a discount electronics store in Minneapolis, which specializes in selling to small businesses in the state. After getting re-listed for sale online, a mom-and-pop store purchases the tablet for 40% of the wholesale cost OfficeMax paid and the tablet is shipped to its final destination – all after traveling thousands of miles from your neighbor’s home in New York.
This circuitous route is quite typical in a massive reverse logistics network that processes billions of returned retail products each year. Optoro, a reverse logistics technology firm, conducted a study to quantify this system’s environmental impact, which was subsequently verified by the US EPA. The study’s conclusion: “free returns” aren’t exactly free. On average, returned units ship three to five times through secondary market pathways, with each touchpoint resulting in increased product damage, disposal to landfills, and cost to retailers. Some high-end manufacturers, selling products ranging from vacuum cleaners to beverage machines, even go so far to protect their brands as to require retailers to physically destroy all of their products that consumers return.
Optoro estimates the environmental burden of handling these returns every year: 4 billion pounds of waste in landfills, 1.2 billion gallons of diesel fuel for heavy truck shipping, and 12 million metric tons of CO2 emissions into the atmosphere. This is the greenhouse gas equivalent of cutting down about 12 million acres of the average US forest, or burning 12.8 billion pounds of coal.
If we are to optimize the way we buy and sell goods, retailers and consumers will need to take a hard look at minimizing the quantity and maximizing the value of returned inventory. A few recent innovations in the marketplace could help us do just that.
One approach is to make it less likely for customers to return their purchases in the first place. Nowadays, “e-tailers” are transforming the virtual buying experience and promising customers a higher satisfaction than they would find with actual in-store purchases. For instance, the mobile app company MTailor allows men to capture their body size dimensions with their smartphones and order custom-fitted dress clothing. By leveraging 3D models and fitting algorithms, MTailor promises results that are 20% better than a human tailor. These more personalized products reduce the number of unwanted products and ultimately minimize the environmental costs of handling returns.
Another approach is to invest in smarter reverse logistics programs, which minimize the number of touchpoints needed to re-route returned goods to their next best home. Some large retailers are employing software to advise warehouse workers where and how to sell goods by analyzing their cost, condition, negotiated supplier agreements, and recovery potential across various selling channels, like Amazon and eBay. Ultimately, these technologies create more efficient marketplaces by connecting buyers more directly with available inventory and cutting out unnecessary shipping routes and re-sellers in the process.
While these new technologies represent progress, there is still much work to be done to keep pace with the drones that may soon help us receive and return products faster than ever before. Companies are only beginning to act on the opportunity to reclaim value from returned products. In the meantime, we as consumers should be mindful of the hidden environmental costs and inefficiencies of a retail system that processes over $3 trillion each year. The next time you see “free returns” while shopping, you might want to think twice about the truth behind that promise. Oftentimes, even the things we don’t think about can really count.
Brian Miranda is a Fall 2016 Fellow with the Clean Energy Leadership Institute, and a Product Manager with Optoro.