How consumers and retailers can reduce returns
Americans return about 30% of their purchases online, costing retailers billions of dollars and creating mountains of environmental waste. Gad Allon, professor of operations, information and decisions at Wharton, wants to change that.
He works with companies and looks for ways to improve the reverse supply chain. He also believes consumer awareness is key to reducing the massive return rate.
“While shopping for the holidays, do your part to stem the culture of comeback by choosing carefully and looking to buy for good,” Allon wrote in a syndicated editorial. He joined the Wharton Business Daily on SiriusXM to learn more about the issue.
The reverse supply chain is clumsy because it lacks the efficiency of scale that is achieved in the downstream supply chain, Allon explained. From manufacturing to distribution to the last mile, a whole logistics system is activated when products are sold in quantity. But the returns are processed one by one. A sweater bought in November and returned in January, for example, doesn’t have much value to the retailer. The item may be resold at a loss, liquidated or sent to landfill for disposal.
“While the upstream supply chain has improved a lot over the past 20 years, the upstream supply chain… has not improved. ” –Gad Allon
“Everyone is motivated by getting it to the customer as quickly as possible so that they get paid. All of this is not true on the way home, ”he said. “While the upstream supply chain has improved a lot over the past 20 years, the upstream supply chain, reverse logistics or what people call the circular supply chain has not. summer. “
Boom in line, return of the bust
The pandemic-linked online shopping boom is matched by an increase in returns. The National Retail Federation cited online returns, which more than doubled from 2019 to 2020, as the main driver of return growth. Each return erodes the item’s profit margin, especially if the retailer covers the return shipping costs. Amazon, Walmart and other big vendors can absorb these losses to some extent, Allon said, but small businesses just can’t afford it.
“We have to go back to the early days of Zappos,” he said, referring to the popular online shoe and clothing retailer that offers free two-way shipping and 365-day returns. “Zappos came and changed the landscape of online shopping for an item that most of us were hesitant to buy online: shoes. By the time they introduced this, everyone had to copy.
Now, he said, consumers are conditioned to receive whatever they want delivered right to their doorstep with the option of returning it, no questions asked. However, few consider the consequences on profit.
“Why do we see Amazon everywhere, but we don’t see small businesses competing? This is the reason, “he said.” We penalize small brands, we penalize small businesses without even realizing it. “
Save money and the planet
Returns also create a heavy consequence for the environment. Allon said about 25% of returned items end up in landfills, so reducing returns will help reduce the carbon footprint created by so much waste. In addition to the toxic side effects of manufacturing, greenhouse gases are emitted when traveling back and forth.
“The point is to see returns not so much as a transaction, but rather as a holistic part of the customer relationship. ” –Gad Allon
Allon advised ReturnGo, a company that tries to help retailers improve the returns process by creating economies of scale and researching alternatives. Asking customers to donate to charity or to keep the items in exchange for credit for another purchase or a small discount are two ideas that can help the planet while maximizing customer lifetime value.
“The point is to view returns not so much as a transaction, but rather as a holistic part of the customer relationship,” said Allon.
He encouraged omnichannel retailers to think about omnichannel solutions for returns, citing Amazon as an example. An item purchased from Amazon can be returned unpacked to Whole Foods, which is part of Amazon’s distribution system. This helps Amazon generate scale in its reverse supply chain.
“If you’re Amazon or Walmart, you’re seeing massive returns, but you’ve got the data to try to channel things through the organization,” he said. “The ones who really suffer from this are the small and medium-sized businesses that can’t match the same return policy, but they have to stay competitive. “
Allon expects to see a lot of innovation in the reverse supply chain in the coming years, with third-party companies developing viable solutions. He is also optimistic that buyers will realize their role in the process.
“Consumers will hopefully become more aware of the impact, both financial and in terms of the carbon footprint of this behavior,” he said.