How To Shift Returns and Reverse Logistics From A Costly Burden To A Brand Opportunity In 2024

Every January, ecommerce retailers bear the burden of returns and reverse logistics costs following the holiday sales rush.

Did you know a staggering $743 billion worth of merchandise was returned to retailers in 2023 following a record high of $964.4 billion in retail sales? Ecommerce vendors fared the worst, according to a National Retail Federation report, experiencing a return rate of 17.6% (vs. 10.02% for pure bricks-and-mortar returns), representing $247 billion of merchandise purchased online and returned. 

Key Takeaways

• Implement a Customer-Centric Returns Policy: Crafting a clear, comprehensive returns policy that prioritizes customer convenience can transform the returns process into a positive brand touchpoint. Tools like Loop and Returnly enhance user experience by simplifying returns and exchanges, potentially converting a return into another sale​​.
• Leverage Technology and Automation: Utilizing return management software and automation, such as augmented reality (AR) for product visualization and self-service return portals, can significantly streamline the returns process, reduce manual errors, and enhance customer satisfaction​​​​.
• Focus on Sustainability: Adopting eco-friendly practices in returns and reverse logistics, such as using biodegradable packaging and offering returnless refunds, not only reduces environmental impact but also aligns with consumer values towards sustainability, enhancing brand image​​.
• Enhance Product Information and Visualization: Providing accurate and detailed product descriptions, multiple high-quality images from different angles, and storytelling in product listings can help reduce return rates by setting the right customer expectations​​.
• Encourage Customer Reviews and Feedback: Actively seeking and displaying customer reviews, including those with customer photos, can offer valuable social proof and insights into product performance, aiding potential buyers in making more informed decisions and reducing returns​​.
• Adopt Flexible and Customer-Friendly Practices: Encouraging exchanges over refunds, offering free returns where feasible, and establishing flexible return policies can increase customer loyalty and repeat business, turning the returns process into an opportunity for customer engagement and retention​​​​.

Why are returns so high?

Consumers return merchandise for a variety of reasons, including: 

• Incorrect size or fit
• Damaged or defective items
• General product dissatisfaction
• Lack of perceived value
• Discrepancy between online product description and item received 

In addition, the use of bracketing — consumers purchasing multiple sizes and colors of the same item to send back what they don’t want — is a serious and costly issue, with nearly 70% of the merchants in a recent survey reporting an increase in bracketing in the past year; a 2022 Narvar study found that 63% of consumers intentionally buy more goods online than they intend to keep.

The rising cost of returns

E-commerce returns can quickly snowball into a cost sinkhole, taking a hefty bite out of hard-earned profits. A 2022 Pitney Bowes survey of medium and large-size digital and omnichannel brands found that online returns cost retailers an average of 21% of order value, sometimes as high as 60% of the product value. A 2023 report echoed these findings, revealing that the cost to return an item averages 27% of the purchase price, potentially erasing as much as 50% of the sales margin. 

The cost of returns is wrapped up in reverse logistics and transportation (whether using carriers or your fleet), product depreciation, liquidation losses, and labor for returns processing and warehouse restocking — not to mention the environmental cost of CO2 emissions from return shipping and the quantities of damaged goods ending up in landfills.

In addition, the growing headache of bracketing increases the number of items flowing back into the warehouse and reduces capacity to hold other saleable inventory — stock you would have otherwise had on hand to fuel your ecommerce funnel.

 

Strategy to mitigate the cost

Staring down the barrel of escalating returns costs, how do you turn this pain point on its head and pivot ecommerce returns from a cost center into an opportunity for differentiating your brand, protecting margins, and keeping customers coming back for more? Here are three critical tips for mitigating the costly impact of returns on your business:

1. Remove friction to eliminate first-mile costs

Customer experience is the crux of brand loyalty and repeat business. Creating a frictionless, customer-centric returns process is an essential piece of the customer experience puzzle, equally important (or perhaps even more crucial) as the other elements of the order journey. Indeed, a streamlined and transparent returns experience is a competitive differentiator, building immense customer capital, driving repeat sales, and fostering an exceptional brand reputation that translates to the bottom line. 

Today’s consumers value convenience and choice. When it comes to return methods, they want options: in-person returns, prepaid return labels, free returns, no-label doorstep collections, 60-day vs. 7-day return windows, among others—and parcel shipping technology can help automate many returns workflows. Using shipping tech, you can keep buyers in the loop regarding the status of their return via email or text updates and minimize the need for costly calls to your customer service team.

Independent of the products you sell or the returns policies and procedures you implement, the main goal is to make the returns process as streamlined and convenient as possible for the consumer to create a differentiated experience. Using customer data to understand your customer’s expectations and preferences around returns, you can tailor your reverse logistics strategy to balance service and cost efficiency.

While offering free returns can be expensive, some customers will be willing to pay extra — or share the cost with you — for the convenience of a hassle-free returns process. This premium will help offset your overall reverse logistics costs. Customers also love the convenience of in-person returns, which is good news for your P&L statement. By enticing customers to return items to a bricks-and-mortar retail location, if your business has one, or to an aggregate location (e.g., distribution center, carrier location, local drop-off point), you can provide a frictionless experience for your customers while eliminating first-mile costs associated with returns shipping.

2. Choose a suitable carrier for reverse logistics

Whether you use large national or global carriers like UPS or FedEx, regional or small local carriers, or the United States Postal Service (USPS) or Canada Post, selecting the suitable page and postal service can have a significant impact on your reverse logistics process, from both a customer experience and an operational cost perspective. 

Consider how your carrier or national postal service manages ecommerce returns and how well they work with you to ensure customer satisfaction. Forward-thinking carriers are working with e-commerce brands to help remove friction from retailers’ return processes. This makes it as easy for consumers as going into a physical store to exchange or return an item in person. Notably, USPS and Canada Post are uniquely positioned to streamline the pick-up of return items because they come to the consumer’s door (or community mailbox) five to six days per week.

Does your preferred carrier require a label on the box of the returned item? Do they provide some form of receipt when they pick up a return from a customer? Are customers required to print their labels? Your carrier of choice may support box-less returns to mitigate the impact of dimensional (DIM) weight factor on reverse shipping costs. Keep in mind that you need to be able to depend on your carrier to meet customer expectations — and keep prices competitive — for more than just delivering packages. 

3. Leverage technology in your returns process

Manual paper-based returns processes are not only incredibly labor-intensive and expensive, but getting the refund into the customer’s hands can be lengthy, resulting in customer service complaints, poor online reviews, and a fracture in brand trust. 

Plus, inefficient manual inspection and logging of returned inventory often delay relisting items for sale, preventing your returned list from earning your business money. Indeed, every moment a returned item sits in your “returned inventory” bin waiting to be processed is a lost opportunity for a sale at the total retail price.

4. A warehouse management system shortens the return cycle

A mobile solution in the warehouse that uses barcode scanning to drive the returns process is table stakes for a successful reverse logistics model. As returned items enter the warehouse, your team can quickly scan the barcode on the product tag or order form, saving time and labor with inspection and logging of returns. 

Plus, by integrating parcel shipping and warehouse management solutions, you can often leverage customizable automation rules to set desired returns processes. For instance, you could automatically add returned items to your ERP’s (e.g., NetSuite) inventory, making them immediately available for sale on all connected ecommerce sites to help protect profits.

Establish your reverse logistics strategy before peak season 2024 

With the potential for return rates for online purchases to creep as high as 20%-30% — and post-holiday return volumes threatening to overwhelm unprepared retailers — it’s imperative that you have a robust reverse logistics strategy supported by e-commerce-enabled mobile and warehouse management technology to both curtail operating costs and improve the customer experience to drive profitability moving forward.

Author Bio: Richard McNish is General Manager for Descartes ShipRush, focused on strategically bringing people and products together to shape the future of ecommerce order fulfillment. His mission is to help businesses envision and apply technology-driven improvements that maximize ROI and secure customer retention. Richard speaks from a wealth of diverse professional experience, having worked in start-ups, been a founding member of companies, and worked in management consulting and Fortune 500 companies. Connect with Richard on LinkedIn.