Retailers – from the Small and Midsize Business (SMB) to the Fortune 500 – have significant capital invested in inventory because it is a fundamental input to metrics like revenue, profit, and consumer satisfaction. Retailers have extensive planning processes that include sophisticated mathematical models, state-of-the-art technology, and expert consultants that help them optimize inventory to ensure they have what their customers want, when they want it, without holding too much that it unnecessarily consumes capital. These processes include demand, availability, seasonality, casuals (think about a book being on The New York Times Bestseller list), supplier lead times, inbound / outbound transit times, variability for each, etc. The problem? Lack of investment in returns experiences and processes means this extensive planning does not effectively incorporate returns which happens with 20% of eCommerce sales; higher in some segments like try before you buy and apparel rentals. In effect, retailers are not utilizing 20% of their inventory.
Retailers are throwing money away. eCommerce revenue is the highest it has ever been, expected to exceed $1 trillion in the United States alone next year and continue to grow 11.2% annually through 20271. The 20% return rate has remained constant since retailers offered free returns by policy in response to Zappos’ success in the early 2000s, so the value and number of returns have increased with eCommerce but supporting functions and policies have not. The main challenge with this returns growth, in the current state, is that only about 30% of returns, a smaller percentage of returns than many consumers realize, are resold as it can be cheaper to liquidate (30%) or send the returns to a landfill which happens to as much as 40% of returns2. Retailers use a network of third-party product disposition companies to handle much of the dark side of returns but the outcome remains unchanged. For example, a retailer that had $7 billion in eCommerce in 2007 and grew to $24 billion in 2022 saw the value of their returns go from $1.4 billion to $4.8 billion with as much as $1.9 billion being sent to landfill.
Returns end up in a landfill for a variety of reasons, mainly because the returns process takes too long. (We will leave the environmental impact of returns for another time.) Consumers typically take about 90% of their allowable returns window to physically return their item once their return has been approved by the retailer which is a total of 4-6 weeks with the now standard 30–45-day return policies plus the additional 3-4 weeks it takes the retailer (or their third-party product disposition company) to process the item which includes validating the product, grading the product, and/or refurbishing the product to be resold (Grade A), liquidated (Grade B), or landfill (Grade C). This is increasingly difficult to ignore which is why retailers must do a better job of incorporating returns into their holiday planning processes by upgrading their returns processes and systems and updating their returns experience.
To effectively incorporate returns into holiday planning, retailers must rethink their returns processes, systems, and experiences by implementing the following:
The future state of returns is free to the consumer, at-home pickups for less than what retailers are paying for the current state of returns. This solves both the retailers’ expense and the consumers’ inconvenience.
The future state of returns pickups from consumers’ doorsteps offers consumers the ability to choose a convenient pickup time, like how deliveries are scheduled, which removes friction, so the items are returned faster. For the retailer, this improves control and increases visibility to
have a more efficient returns process with better data to incorporate into planning processes, the retailer will be able to plan inventory more effectively by shifting resellable returns from landfill and liquidation.
The future of returns will take a picture of the item (no box required) on the consumers’ doorstep and use Artificial Intelligence (AI) for product validation (Is it shoes or a tissue box?) which reduces fraud; grading (Can this be resold immediately or does it require additional inspection?), and to start the refund process.
While the future of returns may sound more expensive for the retailers, the overwhelming value accrues to the retailer through selling more and contributing millions to the bottom line. Consumers do not always know what they want because they do not always know what is possible – consumers did not know they wanted Amazon Prime until Amazon built something that improved their experience (and helped Amazon sell more). Returns pickups is not a novel concept but the efficient execution of it is, so retailers must innovate and deliver the future of returns for the fundamental metrics and consumer satisfaction.
1 eCommerce – United States (Statista)
2 There’s a good chance that brand-new item you returned went to a landfill (Business Insider)
3 Best Buy’s new virtual shopping experience brings expert advice to your fingertips