“Staggering” return costs. What are retailers and logistics operators doing to cope with this madness?

Returns are so important for e-commerce nowadays that they even have their own holiday. They are on the increase too, not least due to the growing popularity of online shopping. The global value of the returns logistics market is expected to exceed USD 954 billion by 2029. Last year, it was estimated at almost 665 billion.

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In 2016, UPS revealed that American consumers returned one million packages in just one day alone. Then the slogan ‘National Returns Day’ was coined, which quickly became part of the media vocabulary. One year later, on National Returns Day itself, the total number of returned parcels handled by UPS reached 1.3 million.

Over the years, National Returns Day has become a litmus test of what’s happening in e-commerce logistics. Its date has become clear – January 2nd. This is the day when Americans, nursing a hangover from their shopping sprees, send back unwanted gifts and purchases made during the consumer holiday leading up to Christmas.

In 2020, UPS estimated that it would return 1.9 million packages to retailers. A year later, one National Returns Day was no longer enough to show the scale of this logistical madness. During the five days of the seasonal peak, UPS expected to handle approximately 1.75 million packages per day. In total, that’s almost 8.75 million. This is a volume increase of approximately 23% according to Yahoo estimates.

Data from Statista shows that in 2022, goods worth $817 billion were returned in the United States. The figure, which has been described as “staggering”, is 7% more than in 2021. Online shopping accounted for almost 25% of this sum.

Although the numbers might be eye-opening, there is nothing overly unusual about them. Americans like to return things; in 2022, 16.5% of online shopping ended with purchases being returned to the seller.

Free returns have led to the phenomenon of bracketing, i.e. the practice of buying many different products in excessive amounts, with the intention of trying them out, usually by trying them on at home. The scale of this phenomenon is huge. Last year, 60% of Americans employed this tactic (63% compared with 58% in the previous year).

Why are we returning our purchases? Quite simply, because we can.

Free returns are the second most important reason, after free delivery, in encouraging consumers to buy online, according to GeoPost’s global analysis “Delivering change. Barometer e-shopper.”

Overseas, as many as eight out of ten buyers return goods because they are damaged or defective; 75% of buyers state that this is because their purchases did not suit them, and just over 50% because the description of the product did not match reality, according to research conducted by Statista.

Interestingly, the reasons for returning purchases are significantly different in Poland. Receiving a damaged product, as so often observed by Americans, is only the motivation for a return among only 12% of Poland-based shoppers. The most common cause is the wrong size or dimension of the product (as much as 56%). In second place is non-compliance with the description (12%), says Santander Consumer Bank in its report “Poles on e-shopping 2021”.

Consumers in the UK and Germany most likely in Europe to return online purchases

Naturally, it’s not just the United States where online consumers have a strong appetite for returns.

The growing interest in online shopping and the resulting increase in the volume of returns is a global phenomenon. A GXO Logistics study conducted in 2021 showed that as many as 35% of goods purchased online are returned, 36% of retailers noticed that the level of returns had increased, and 37% said that this had resulted in a negative impact on their operating costs.

Europe is moving in the same direction as the rest of the world.

“The convenience of online shopping, combined with a wide selection of products, has captivated consumers across the continent. But as they embark on a digital shopping revolution, rising expectations have made returns commonplace,” says Statista.

Fashion is the driving force behind these returns. Products from this category are the most frequently returned, including in Great Britain (30% of respondents in the 2023 Statista survey admitted to returning clothing). In Germany, the equivalent figure was 32%. Consumers in the latter country have become European leaders when it comes to returning clothing items purchased online, exceeding almost twice the European average.

“In the German market, the high rate of returns is a cultural phenomenon. Germans have been buying and returning for years. Long before online sales appeared, Germans would return catalogue orders,” Doctor Arkadiusz Kawa-Łukasiewicz, Director of the Poznań Institute of Technology, tells Trans.INFO. “Customers from countries such as Poland, the Czech Republic and Slovakia buy less online, and the phenomenon of returns is not as clear there,” he adds.

Longer return windows do not necessarily mean more returns

When analysing the above data, however, it must be remembered that the numerically increasing returns are a result of the boom in online shopping.

“Observing the percentage of purchases that are returned shows that the situation has normalised. Retailers have invested in solutions that minimise the scale of returns. They use applications that make it easier to adjust the size, and it is clearly visible that product descriptions are much more thorough”, states Doctor Kawa-Łukasziewicz.

Even strategies that seem likely to lead to a disruption in the ratio between purchases and the level of returns do not necessarily result in such an outcome. This mainly concerns extending the time within which a customer can return unwanted goods.

Recently, there has been a lot of talk, among other things, about Amazon, which announced that “anyone who buys products in the period from November 1st to December 31st can return them until January 31st 2024. In the case of items purchased at the beginning of November, this means a two-month return period”, the Spożywczy Portal mentions. The condition that has arisen (i.e. that the purchased products must be unused, complete and new) does not seem to be difficult to satisfy.

According to Doctor Kawa-Łukasziewicz, such activities can only be classified as marketing activities.

“Research shows that extending the period in which one can return goods does not increase the number of returned items. In practice, customers return the goods immediately when they see that they are not satisfied with them. They later forget about it. On the other hand, the consumer’s level of satisfaction and the feeling towards the company that has used such a strategy are clearly improving”, the expert tells Trans.INFO.

Seeking a healthy balance between customer satisfaction and savings, shippers are increasingly willing to offer free returns to PUDO or parcel machines, instead of collecting them by courier from the buyer’s home.

“Every saving, even the smallest, is very important for the retailer. Ultimately, it is the retailer which bears the costs of logistics handling of goods, and in the case of return they are higher than in the case of delivery itself. After all, it is not enough to simply send the goods back, they undergo many additional activities, including verifying their condition, cleaning or repacking”, says Doctor Kawa-Łukasziewicz.

Retailers’ investments in returns management processes

Popular strategies for reducing the impact of returns include:

  • automated returns management systems: facilitating quick processing and decisions regarding further handling of products,
  • flexible returns options: such as in-store returns, home collection, return points,
  • data analysis: to identify the causes of returns and optimise processes,
  • introduction of automation in software: RPA (Robot Process Automation), DMS (Document Management System), CMS (Claim Management System).

The logistics of returns in practice

Depending on the type of returns, there are different logistical requirements.

“Returns of damaged products require special attention in terms of quality control and repairs. This process may include segregation, assessment of any damage and the decision to repair, process or dispose of it. When returning due to an error in ordering, it is crucial that the return is processed quickly and that the correct product is present. This requires an effective order and inventory management system. Returns due to a change in the customer’s decision often require placing the product back in stock and may be less urgent than other types of returns,” says Piotr Susz, CEO and senior consultant at Locura, a logistics advisory and consulting company.

There are also returns that are undeclared, unmarked, or where there is no documentation. “Such situations are a challenge and may result from errors in the ordering, packaging or delivery process”, explains the expert, recalling that in such cases, returns handling includes:

  • product verification: determining its origin and condition;
  • tracking and identification systems enabling the assignment of products to specific orders;
  • and clearly defined procedures, including the possibility of contacting the client to obtain information.

Effective logistics handling of returns requires appropriate management of the warehouse space and constant monitoring of inventory levels. As Piotr Susz explains, we are talking primarily about Warehouse Management Systems (WMS), which enable the effective management of warehouse space, including the handling of returns, and tools for optimising warehouse space, such as dynamic shelves, which enable flexible adaptation of the space to changing needs.

The expert also mentions low stock-level alarms, i.e. automatic notifications that help maintain optimal stock levels. Data analysis and reporting are also essential to monitor return trends and adjust the inventory strategy.

Photo by Handy Wicaksono on Unsplash