The reality of returns: the high cost and long journey of return products

Product returns are often encountered when a sold item does not meet a customer’s expectations (e.g., damaged, defective, not looking as advertised, wrong size/specification received). But how does this process actually happen? Is it as simple as customers simply returning their ordered products to the seller and getting a refund? Are customers always right when it comes to this issue of product returns, and up to what extent? What are the companies doing with these returned items? And what is the impact of product returns on their businesses and our environment? We will answer all these questions in this article!

Generally speaking, customers think they have every right to jumpstart this process of returning their ordered items. After all, they paid for it, right?

However, from the company’s viewpoint, returned items equate to lost revenue and additional overhead expenses. In fact, the increasing number of product returns, particularly in e-commerce, is alarming on many levels.

Of course, you as the business owner want to prioritize your client’s satisfaction. To make your business sustainable and profitable, you need to deliver excellent after-sales service, a significant part of which is how you handle the return and refund requests of your customers. If you haven’t addressed or formulated any refund policies for your company yet, it may be a good idea to start doing so now.

It is tempting to think that return policies are easy to enforce, especially if you have a system and manpower already in place to handle this issue. Once your customers return their products, simply provide them with a new one or give them a refund. How hard can it be?

In reality, dealing with returns is not that easy. In fact, the whole process of returning products and refunding customers is much more complicated than you might think. What exactly makes returns a costly, long drawn out process?

Let us dive into it!

The Surface Issue of Returned Products

In a 2019 report by Practical Ecommerce, there is an underlying issue in this returned products conundrum. With the rising influence of digital platforms in the consumer market, only 5 to 10% of physical returns are reported, while online returns can reach as high as 40%. What about the remaining numbers? Where did they go? We can only imagine how this number increased during the height of the COVID-19 pandemic, and where these returned products ended at. Recycled? Sold to other customers? We hope so.

Customers enjoy shopping online because it offers many benefits such as the convenience and comfort of shopping whenever, wherever; vouchers; product and shipping discounts; and promos. But in their view, nothing beats the ease of returning items to their respective sellers in determining their online shopping experience (Kaplan, 2019). Online sellers, in particular, are also expected to deliver the best customer service as the e-commerce industry continues to grow exponentially in the new normal.

From 2019 to this post-pandemic era, online purchases—particularly for items in the fashion, personal care, and electronics categories—-have seen an influx of consumer returns. For instance, Zalando, a fashion company garnered over 50% of returned items, which is half of their sales in the past months (Runeberg, 2021). Having easy return policies creates a positive impact on customer loyalty because it creates the impression that your brand is prioritizing your customers’ rights. But should companies always accept customer requests for returns, with no exceptions?

Returned items or fraudulent acts?

Sellers who accept returns face the risk of being cheated or being victims of fraud. Considering that the majority of companies will do anything to maintain their customer’s loyalty, offering free and easy returns has now become the standard and the norm. Sadly, some customers take advantage of this benefit, as the table below shows. These return issues have caused a panic in many companies because of the revenue they have lost due to these cases of return fraud.

Source: Appriss Retail and National Retail Federation. (2021). Consumer Returns in the Retail Industry 2021. https://cdn.nrf.com/sites/default/files/2022-01/Customer%20Returns%20in%20the%20Retail%20Industry%202021.pdf

Appriss Retail and the National Retail Federation (2021) reported that the most returned fraudulent items are wardrobes at 68.42%, followed by stolen merchandise at 56.14%. Counterfeit receipts come in at the 7th place at 10.53%.

Now, this might be a familiar scenario to some of you. If you are thinking of that scene in Ocean’s 8, you got it right! Unfortunately, it does happen in real life. A number of companies tend to overlook the receipts and the accuracy of the item for the sole purpose of satisfying customer experience and avoiding conflict that could possibly damage the company’s reputation.

In this pie graph, we see an alarming 25.64% of retailers not requiring any proof of purchase for in-store returns. Despite being smaller in number, there is still an issue with mail-in returns as 12.82% of businesses don’t ask for receipts at all!

Given this fraudulent behavior of some customers, companies must reassess their return policies and requirements to minimize their risk for experiencing fraud and suffering losses as a result. This can also help them minimize any wastage of materials and resources, which returned items notoriously come with.

Dealing with Returned Items

Some companies with an excessive number of returned items look at their competitor’s return policies in order to strengthen their own regulations. The idea is that whoever has the easiest and most reliable refund policy must be delivering the highest quality of customer experience. But, how do companies do it? What is the process of returning items?

You might think this process all boils down to shipping. The same way a product was delivered, the same way it should be returned to the seller. Sounds pretty convenient, right? However, it is not always as easy as that.

Some consumers perceive the process of returning items as accessible and convenient on their part. But, for many companies, dealing with returns is not only a hassle but also an additional expense. In a Knowledge at Wharton Podcast, Robertson (2020) mentioned that some retailers actually ignore returns for the following reasons:

It adds to their excess inventory;
It translates to expensive shipping fees and repackaging, and;
It requires an extensive analytical process.

It is easy to see and understand why these reasons push businesses to avoid or ignore returns. After all, who wants to deal with excess inventory at their company’s cost? In that case, retailers generally opt for the easier option: loosening up their strict return policies.

In the same podcast, Robertson (2020) stated that this is both an opportunity and a curse for companies. Looking at this on the bright side, easy returns pave the way for the retailer to satisfy their customers’ demands for an exceptional customer-centric service. As a selling point, easy return policies also gives your company an opportunity to sell more of your products. However, on the other side, this is considered a curse because improperly dealing with returned items has a negative impact on your bottom line, reputation, and sustainability.

This opens an opportunity for companies to take on a more strategic approach regarding returns. The first step for retailers to progress in this aspect is for them to be willing to analyze their customers’ behavior, quality of their products and shipping processes, among others.

Need proof that this is doable? Amazon has already implemented their own strategy of dealing with returns. To avoid being a victim of fraudulent and excessive returns, they have denied accounts that have records of high returns.

To dive more into this, let us see who manages these returns. In the same report, Appriss Retail and the National Retail Federation (2021) recorded that the same department does not manage these returned items. It is mostly handled by E-commerce at 35%, followed by Merchandising at 30%. If we were to closely look at the pie graph above, we will see that 21.95% is unknown, which means that these returned items probably end up being untouched, mishandled, wasted, or thrown away, with no one to be held accountable for the manner these returns were handled upon receipt from the customer.

This creates a major problem not only for customer-seller relations but also for our environment as well.

Returned Items Harm our Environment

Practical Ecommerce (2019) reported that over 5 billion pounds of returned items end up in wastelands each year, clearly showing businesses’ lack of strategy and/or commitment for responsibly handling their returned goods. And for those products that are received back by companies, there is still a lot of room for improvement: recent data shows that only 54% of returned goods are recycled.

The actual back-and-forth movement of returned items—from their sellers, logistics providers, customers, then back to the logistics providers then sellers—is also harmful to our ecosystem. As a matter of fact, our planet is getting hotter every day compared to the past centuries because of this practice. Frequent cargo trips, whether by truck or plane, contribute to greenhouse gas emissions.

How should we resolve this issue? What solutions are available?

Sadly, most retailers are opting for the easier, cheaper but most environmentally destructive option, which is burning, destroying, and shredding their returned goods instead of recycling or liquidating them. Their primary objective is to maintain their branding and sales in the market. These brands that engage in these practices clearly have a lot to declassify in their environmental protection policies.

On the brighter side, some brands are creating innovative solutions for handling their product returns while preserving our environment. Some companies sell them to secondhand or thrift stores at a lower rate. Others partner with a liquidation company to help them recover value from their returned items.

The best way to eradicate the increasing statistics of returned items is for them – product returns – to cease to exist in the first place. Returning products is the major root of this, and the solution must also come from their foundation (Runeberg, 2021). That being said, individual consumers must also shop consciously and responsibly instead of mindlessly.

Moving Forward & Closing the Gap

There are several methods available at our disposal that can help us minimize the damage caused by returned products to our environment. Below are just three of these methods:

Use Artificial Intelligence and machines. AI and machines can help brands assess the quality of their products more effectively. Given their capability for acquiring, processing and storing large quantities of data, they can help efficiently track down which products are malfunctioning or damaged. With their help, sellers can determine if their product is still sellable or not, lowering their risk for shipping out faulty items which will most likely be returned back to them.

Being transparent. Some products end up being returned because they did not reflect what the customers saw on the product advertisement, website or online marketplace. This is a common problem that can be resolved easily. All sellers have to do to resolve this issue is to practice transparency in all their promotions and content. From the materials they have used in making the product to how it was sourced, companies that are transparent even in these details may potentially gain more benefits in the form of increased brand loyalty.

Liquidation. Most companies are not aware that even their returned items can be a hero; hence, the burning, shredding, and destruction of their products. For a company to be tagged as sustainable and generate higher profits, making use of what you have is the key. The good news is, whether it be returned or barely used items, you can still generate revenue out of them through liquidation. Partnering with a professional liquidator can help you recover your investment from your products and clearly show your concern for our environment as well.

While most companies that accept returns do it purely to maintain their competitiveness by providing superior customer experience, it would be a mistake if we think that this issue of handling returns is just a customer experience issue.

In the larger scheme of things, the way we handle returns won’t just impact our brand and how customers see us. In the long run, it will also impact our world and the generations next to come.

The reality of returns: the high cost and long journey of return products

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