Policies Aren't Solutions: The True Cost of Returns

A global influx of e-commerce sales, mixed with the hyperfocus on getting orders faster to consumers spotlights a growing problem: returns. Online returns have always been a challenge, but with the expectation that they will exceed $1T by 2024, retailers need more than new policies, they need solutions.

The rapid evolution of the online shopping experience has come leaps and bounds to make it as easy as possible for consumers to buy online, with options like “buy now, pay later” or “same- or next-day” delivery, which makes it essentially inexcusable for customers to not click the buy button. Orders fly out the door from storefronts, warehouses and micro-fulfilment centers to meet the demands of online shopping. Now that online orders have a higher return probability, this means that more goods are being returned.

But let’s clarify: the real problem that e-tailers face isn't that shoppers return too many items; it's that the reverse logistics process is too slow and traps working capital rather than putting those dollars to work. In fact, it’s an inventory problem as trapped working capital is placed under the return cost line. Ignoring this rising challenge of reverse logistics will be the fall of today’s retail industry if this isn't solved.

Where Retail Has Failed

Sustaining outdated return policies rather than implementing solutions that complement today’s current retail environment is the issue. The return policy of “free” with 30 days, 60 days or even 90 days is outdated and serves no real purpose in today's fast-moving world. After being around for more than 20 years, these policies are no longer helping retailers differentiate themselves or sell more goods. Instead, they simply slow down the process of getting unwanted items back into the retailer's supply chain.

The repercussions have proven to be expensive, with retailers tying up excessive working capital to meet the demand and expectations of consumers with no way of controlling when items are coming back for re-induction. The result is a $761 billion loss in 2021 due to excessive overstocking, unfathomable amounts of liquidations, and an insane amount of waste.

Overcoming Operational Challenges

The challenge is complex, but the solution is simple: command returned inventory while still maintaining or even exceeding customer expectations. Offering exceptional service is what modern-day shoppers expect, but to work hand-in-hand with a sustainable infrastructure means leveraging new technology is a must in order to faster re-inject returns to inventory when items are relevant and sellable.

By knowing when items are coming back, retailers can predict and adapt to inventory needs utilizing the speed of return to their advantage. Looking at the reverse supply chain while using a strategic thought process is the ticket in order to drive enhanced customer experience to incentivize behavior and free trapped capital as well as minimize waste.

As the world continues to adapt, so do options in technology that make returns strategically purposeful and even more cost-friendly. What's clear is that reverse logistics can no longer be left to policies which place retailers at the mercy of their customers.

Retailers will need to start leveraging solutions that make reverse logistics smoother, cheaper and have the capabilities to handle higher volumes of returns coming their way. To further increase the chance of success, the same solutions that maximize customer convenience while allowing the retailer to maintain control over the return process will reduce waste and lower its working capital.

Spencer Kieboom is the CEO and co-founder of Pollen Returns, a pickup service and parcel return service that specializes in return logistics for e-commerce businesses.