Are Returns a Nightmare in Disguise: Alexis Asks

Managing editor Alexis Mizell-Pleasant asks industry experts about various topics developing in the supply chain field. Remaining proactive in the planning and management of inventory can be a foundation to optimize returns.

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It's been told that retailers might consider returns a nightmare in disguise. We're not talking the kind of disguise that gets you into a 'R' rated movie when you're too young, but the one that comes in the form of free shipping. 

According to a report from CBRE, returns in 2024 could total as much as $82.1 billion in the U.S. CBRE partnered with Optoro, who estimates that the cost of returns in the U.S. has increased by 50% or $149 billion since 2018. The cost to return a purchase averages 27% of the purchase price, potentially erasing as much as 50% of the sales margin — hiding the cost in the hidden price of its return, from reverse logistics to resale markdowns.

In 2023, nearly 59% of retailers offered so-called "returnless" or "keep it" policies for unwanted products whose returns costs exceed their value, according to returns services firm goTRG. Reuters reports that sellers of underwear, bedding and food were among the first adopters of keep it returns due to hygiene concerns or health safety rules, with the practice going mainstream during the pandemic during the e-commerce boom when shipping costs skyrocketed, and warehouses were full.

Today's retailers are mindful of the practice. Jessica Grisolia, director of retail industry solutions at Scandit, says that, while the "keep it" policy on the surface might seem like a customer-centric sacrifice, there are several benefits for retailers and last-mile companies to consider too — the most obvious being margins. 

"Total returns accounted for $816 billion in lost sales for U.S. retailers in 2022, so the more ways companies can reduce this hefty potential loss, the better. However, this generosity isn't for everyone. Larger retailers with low margins benefit most, explaining why giants like Walmart and Amazon have hopped on board," says Grisolia. "But regardless of the new “keep it” policy retailers are establishing, there will still be the need to improve the efficiency of return management, especially given the complexity of omnichannel operations. Improving item sorting across stores and warehouses is key, as stores may receive online exclusive items or off-season items that will need to be heavily discounted to be reinserted in the shop floor, further impacting profitability. In essence, "keep it" policies are a promising step, but return management optimization remains vital for a healthy retail ecosystem. 

So, regardless of what policies or steps retailers take to mitigate risks associated with returns — and keep consumers happy — the costs will always be there. It seems that remaining proactive in the planning and management of inventory can be a foundation to optimize returns processes across the board, amplifying the effects of policies and practices of the future.