It’s no secret that returns create an extraordinary amount of waste. While the financial cost is significant - $500 billion annually - returns also devastate the planet. To start, a substantial chunk of returned items get tossed in landfills creating approximately 5 billion pounds of unnecessary trash, and that’s in an average year. 2020 saw the number of returns double due to the rapid increase in the Coronavirus disease (COVID-19)-fueled online shopping. Despite the vaccine and the reopening of businesses with optional mask policies, most consumers say they will stick with their new online shopping habits. So, where do we go from here?
What makes returns so wasteful
Returns lead to significant financial and environmental waste because most organizations have not cracked the formula for optimizing their reverse logistics strategy. As a result, retailers sacrifice profits to unnecessary transportation costs, labor costs and shipping fees.
When retailers receive returned items, they generally ship them from the back of the store, around the country to a series of consolidation centers and maybe, eventually, back to the original manufacturer. Often, the products make multiple stops along the way. When you factor in the cost per mile, including driver compensation, fuel and maintenance fees, you get approximately $1.15 for every mile traveled. Multiply that by a cross-country trip spanning 3,000 or more miles, and you have a multi-thousand-dollar bill for one truckload, and that’s just the starting point. With the higher number of forward-product and returns congesting the supply chain in recent years, accelerated by COVID-19, transportation carrier costs have surged, adding an additional burden to retailers. goTRG’s 2021 data shows that carrier networks are charging roughly $2-5 more per item than they were in 2019.
Once the return finally arrives at the warehouse in question, the product enters into a whole new phase of waste fueled by unnecessary labor costs. At a typical consolidation center, workers must determine if the products should head back to store shelves, get liquidated or thrown away, be sent back to the vendor per their contract agreement, be centralized in the returns center or re-sold on the secondary marketplace. Warehouse staff members don’t always have visibility to vendor contracts or market conditions to make the most profitable returns decisions. For example, they may decide to liquidate an item that could have been re-shelved for a high re-sale value, or may send a product back to shelves without applying for the vendor credit. As a result of this downstream manual decision-making process, retailers can experience a 10% margin of error.
The environmental cost
Retailers throw away or liquidate approximately 40% of returns, according to goTRG’s estimation, totaling about 5 billion pounds of waste every year. As a result, items that may be in perfect condition end up clogging up landfills. Electronic waste is especially harmful because it contains hazardous chemicals that can leak into the soil and groundwater, causing damage to the environment and human health.
Along with product waste, returns harm the environment due to the transportation emissions they require. As a byproduct of inefficient reverse logistics, returned items cross multiple state lines, warehouses and returns centers before making it to their final destination. Every truck carrying returns also carries a significant carbon footprint in the form of greenhouse gases. In fact, the average commercial truck drives about 120,000 miles per year, according to the Environmental Protection Agency (EPA), yielding approximately 223 tons of carbon dioxide into the atmosphere.
Now let’s factor packaging waste into the mix. As returns travel nationwide, multiple people touch the items and repackage them in new boxes and non-renewable plastic wrap along the way. That means one product could end up residing in three or more boxes before finally making it to a store, a new home or a landfill.
Sustainable returns strategies
Retailers, especially the global giants, are acutely aware that returns inefficiencies are unacceptable. Several innovative companies have begun implementing solutions to support the planet and their bottom line throughout the last few years.
Ten years ago, retailers feared that affiliating their products with secondary sites might tarnish their brand value and reputation. Today, the secondary market is expected to grow by 69% by the end of 2021, and retailers understand they will forfeit significant profits if they don’t get on board.
That’s why major brands partner with certified partners to help re-sell returns through secondary channels, known as re-commerce marketplaces. Still, secondary strategies require a lot of maintenance. Retailers who get the most back from these channels partner with resellers who understand how to handle returns, help with refurbishment, avoid fraud, understand pricing structure, stay competitive and market to their audience. When a retailer has a trusted partner to manage their secondary market strategy, they can re-sell everything, including lower value returns rather than tossing them in landfills.
Retailers struggle to reduce transportation emissions because they don’t have a sound reverse logistics strategy backed by technology. Fortunately, software exists that can help take the thinking, or manual process, out of shipping and logistics planning. These systems can factor in dimensions and weight for transportation expenses, repair and remarketing costs, sales velocity, seasonality and ever-changing pricing trends. Armed with this knowledge, organizations can ensure a high-quality returned product doesn’t accidentally leave the store and head to a returns center when it should have been re-shelved and re-sold. If the item does need to be shipped out, such technology will route the item to its final destination in the most efficient manner.
Advertising dollars spent on educating consumers about the cost of returns might turn into a positive ROI for retailers, especially when it comes to online purchases.
To educated customers about the environmental cost of return shipping, retailers could create carbon-emission labeling on return packages that visually displays the greenhouse gas emissions required to send items back. It could also reduce bracketing behavior, which is the act of purchasing multiple versions of the same item, with the intent of returning the ones that don’t fit. To further prevent consumer bracketing, retailers might follow the lead of influencers to make shopping online for easier and more precise.
Retailers can also empower consumers to be part of the solution by offering green shipping options, such as consolidating multi-item orders into a single shipment to reduce packaging and shipping requirements.
Returns have a significant impact on the environment and on retail profits. Returns will always exist, but now retailers have multiple options ranging from partnering with returns management providers to implementing data-driven technology to empowering consumers to help them reduce the returns volume. With the combined will of corporations and compassionate humans, there are multiple ways to reduce the cost of returns.