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As returns pile up, retailers are seeking solutions to help them manage all of the items coming back. While it’s paramount that returns continue to be treated as a customer-facing proposition, it’s possible that the answer lies at least in part in the retailer’s own operations.
Retailers have long struggled with returns, but the customer-friendly and flexible (read: free) policies of ecommerce are only making the issue more acute. The return rate spiked to 16.6% in 2021 as online shopping surged, according to the National Retail Federation. While the return rate was roughly flat in 2022, this still sustained the marked growth from pre-pandemic times.
There's new evidence that the numbers may be even higher. New results of a study from SML RFID that analyzed responses from 500 senior business leaders indicated that 30% of the items retailers sell are eventually returned.
Along with increasing use of the supply chain, this trend puts particular pressure on the bottom line. The survey found that 42% of returned items are sold at a discount, while 12% aren’t even resold.
For business leaders, it may be natural to think about solving returns as a matter of changing customer behavior. After all, shoppers initiate the returns, so introducing new ways to influence the decision to send an item back is a logical next step. That's why new ecommerce initiatives, such as charging for returns and encouraging exchanges, are designed to nudge shoppers in the right direction with carrots and sticks.
Improvement will also require making changes to the customer experience in the store. It's an area where retailers struggle, in part because of a lack of available staff. According to SML, 42% of retailers say they lack ample staff on the floor, while 30% agree that the staff they do have spend too much time on mundane tasks.
Further, internal processes are also outdated and slow. In all, 32% of retailers state they spend too much time manually processing returned items.
“When a product is returned, it goes through several stages of the reverse supply chain before it can be resold – taking weeks or even months before heading back to the shop floor from transport, cleaning, re-packaging, and re-stocking,” the report states. “The eventual resale price continues to drop as items spend more time away from the shop floor.”
In some ways, this is an old problem. Returns have been a feature of retail for a long time. With ecommerce practices that aim to make it easy for a customer to send back an item that they may not match the expectations they have, it doesn’t appear to be going anywhere, either.
So it's also worth remembering that change can come from within. Retail executives can look internally to examine how their own returns systems and workflows can become more efficient, especially in areas where they are still relying on manual processes. It’s a place where technology can play a role. Item-level RFID, which enables tracking of items throughout the supply chain, can be a particularly valuable tool, says SML. The study found that 21% of retailers said item-level RFID would help to improve their returns processes, which is above market penetration of 15%.
“By investing in Item-level RFID technology, retailers can have instant visibility and access to reverse supply chains, enabling them to streamline back-end operations and send items back to the shop floor much quicker,” said Dean Frew, CTO and SVP of RFID Solutions at SML. “It also significantly reduces time spent on manual inventory-related tasks enabling staff to aid customers and improve their experience. Investing in technology and processes that enable improved customer experience should be a top priority in an increasingly competitive landscape.”
- To retailers rethinking return policies: Stay flexible ›
- Loop and Happy Returns partner on in-person ecommerce exchanges ›
- H&M could start charging customers for making returns | CNN Business ›
- Holiday sales outlook ups demand to reduce returns | PYMNTS ›
- Ecommerce return rate set to fall to 16.5% in 2022, says NRF ›
- Retail Returns: How to Manage Returns and Exchanges (2023) ›
- Returns are the new growth strategy | Retail Dive ›
- Improving returns management for apparel companies | McKinsey ›
- Why Retailers Send Your Like-New Returns to Rot in Landfills ›
- Free returns may be over as retailers introduce stricter policies ›
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Amazon's $1 return fee at UPS stores poses more risk to the company's brand than return rates.
You just bought a shirt online, but decided you didn’t want it because it wasn’t the right color. So you opt to send it back.
Returning an item requires putting it back into the same logistics network that just delivered the package, so the service that sent it to you is charging a small fee – one that is a fraction of most shipping charges across the industry. Plus, the fee only applies if certain other locations in the service’s network are closer, and those locations still offer free returns.
That sounds like a pretty good deal, right?
If you’ve just landed on Earth from Mars, maybe. But not in this world, where ecommerce was built by Amazon.
The ecommerce platform made a change to its returns policy that creates just such a system last week, and it is being treated as a bellwether moment for the industry.
As first reported by The Information, Amazon started charging a $1 fee to some customers who make returns through a UPS store. The fee only applies if a Whole Foods, Amazon Fresh or Kohl’s is closer to a customer’s delivery address than UPS.
The policy-level move that applied to a single returns location seemed like the kind of limited test that Amazon often runs en route to figuring out what works, but this was greeted with the fanfare that announces a turning point. Axios wrote that it “calls into question the era of free online returns.” Inc.’s Jason Atem called it a “surprising change” that breaks Amazon’s “most important rule.” “Retail's 'laissez faire' era fades,” blared Yahoo! Finance.
Why all of the hubbub over a buck?
As Nina Simone once said, “This is the world you have made yourself, now you have to live in it.”
Let's take a quick look at how we got here:
As the market leader and pioneering force in ecommerce, Amazon tends to set the standards for the entire space. With a relentless focus on the customer – that rule Atem referenced – the company was at the vanguard of online retailers offering free returns to customers in order to make shopping over the internet as easy as possible. After years of shopping online with these policies in place, customers now expect the flexible return policies of Amazon to be the norm across the web.
But in the process of building that customer-first experience, Amazon also helped to create a mountain of a problem behind the scenes: Free and easy returns are overwhelming logistics networks. This came into the greatest relief when online shopping was at its height during the pandemic. In 2021, one in five items sold by retailers were sent back, according to the National Retail Federation.
Customers liked flexible return policies so much that they stretched the boundaries of home try-on to their limits. Some bought items in a panoply of cuts and colors, only to keep one. It even led to a content opportunity, as Try-On Hauls went viral on TikTok. Returns became just another part of shopping.
But for Amazon, this only created headaches. For one, the company had to figure out what to do with the returned merchandise (Burn it, in some cases, it turned out). Plus, the costs associated with shipping an item back through the supply chain were substantial.
By 2022, the pandemic ecommerce boom was over. The return rate fell somewhat to 16.5% in 2022, according to NRF, but that was still well above 2019 levels and cost retailers $816 billion in sales. Meanwhile, Amazon was seeking to cut costs in its logistics network as it faced down higher fuel prices and the reality that it had overbuilt fulfillment centers for an ecommerce growth trajectory that didn’t last beyond reopening.
Into this walks the $1 return fee. It may appear that the need to rein in costs is finally crashing into founder Jeff Bezos’ longtime refrain to put the customer first. After all, it is hitting on the very real issue of the returns pileup.
But a dollar isn’t going to change curb returns– at least not yet.
What seems more likely is that this fee is designed as test to determine how customers will respond to a change in the return policy, and hone Amazon’s logistics network in the process.
Consider what the policy says, and it appears to be fairly limited in its ability to bring change on its own.
For one, it’s worth noting that the fee is small. Amazon has built a business on tiny changes made at scale that bring outsize returns without anyone noticing. But will customers really blink at a $1 fee? It’s not that much to pay. And even if they do balk, they’re not likely going to jump ship from Amazon. While they may be frustrated by the fee, behind it they will find that they still receive free shipping and fast delivery through Prime. Amazon wired online shoppers’ brains to want what it offers, and it’s unlikely that one fee will short-circuit them.
Closer to the heart of the issue, this policy doesn’t actually seem designed to reduce returns. It’s still very easy to return an Amazon item. After going to a UPS store, a customer may find that they don’t want to pay the fee. But even if they end up keeping that item, they will discover they can go to another location and drop off the next item, and even do so without having to box it up. That's still easy and convenient.
If there is any change, which is not yet determined, the result will only be to push customers to Amazon’s existing network. It owns Whole Foods and Fresh stores, and has a partnership with Kohl’s. As Roger Dooley writes in Forbes, this appears to be a bit of friction engineering.
In fact, the fee seems most likely to be a jab at UPS. The carrier has long considered Amazon’s free returns an existential threat and Amazon has long sought to disentangle from it as it built out its own logistics network.
A more apt test of behavioral change is the introduction of a new badge that labels items as “Frequently Returned.” Also first flagged by The Information, the move to place a label within the shopping experience seems more likely to at least prompt shoppers to think twice about buying an item, if not deterring a purchase altogether. That catches a shopper before they’ve already decided they want to return an item.
The experience is the brand
Still, it’s clear from the headlines surrounding this fee that there is risk to the perception of Amazon as it introduces new policies during this era of belt-tightening.
If a small change isn’t well received, that could have a big impact. As Atem notes, “Amazon built its brand as the easiest place to order things online, and that includes being the easiest place to return things.”
Amazon’s public relations department seems well aware of this, as they trotted out a blog post last week in the wake of The Information report offering the reminder that “Yes, you can still get free returns on Amazon.”
Even as it seeks to rein in costs, Amazon must carefully consider its relationship with customers with each new update. Thanks to years of focus on ease and flexibility that Amazon made the standard, return policies are now very important to consumers. Data released by Loop last August found that 96% of US consumers believe that a retailer’s return policies directly reflect how much the brand cares about its shoppers, while 54% of consumers said they won’t make a purchase from an online retailer that doesn’t offer free returns. It shows that the language around returns is just as important as behavior. Returns are part of what influences a sale, not just what happens in the post-purchase.
There's also the market to think about. If the Amazon brand is tarnished, it could provide ammunition for others to deliver messaging broadsides against the company with their own and potentially more flexible policies. That could be especially challenging at this time. Amazon is seeking to continue to grow Prime membership. It wants to attract more third-party sellers who are being courted by marketplaces from retailers using Amazon's playbook like Walmart. It is also seeking to build out the Buy With Prime service that expands Prime delivery and – yes – returns to websites beyond the Amazon marketplace. In each of these cases, brand matters. As headwinds stiffen, competition in ecommerce is getting more fierce. Amazon has a big lead, but execution is important.
In that sense, Amazon has a lot to learn from the fee test. A dollar may not actually make Amazon returns harder, but it could say a lot about whether people believe Amazon returns are harder to make. At a retailer where the customer experience is the brand, that’s important. A small change can have a big impact on customer perceptions and expectations, even if it's ultimately the best move for the bottom line.
That's the world Amazon has made for itself, and all of ecommerce. Now it has to live in it.