Evaluating The Cost Of Returns In Ecommerce

"In 2022, returns cost retailers about $816 billion in lost sales. That’s nearly as much as the U.S. spent on public schools and almost twice the cost of returns in 2020. The return process, with transportation and packaging, also generated about 24 million metric tons of planet-warming carbon dioxide emissions in 2022. "Returns are often free for the consumer. But managing those returns can get costly for retailers, so much so that many returned items are simply thrown out. "Returns start with miles of transportation to get items to retailers' warehouses dedicated to processing returns. This step of the process costs the retailer money – 66% of the cost of a $50 item by one estimate – and emits carbon dioxide as trucks and planes carry items hundreds of miles. The plastic, paper or cardboard from the return package becomes waste. Processing a return takes two to three times longer than initially shipping the item – it has to be unpacked, inspected, repacked and rerouted. That is a manual process, requiring hiring employees in a tight labor market. "Although in-store returns can significantly cut warehouse and transportation costs, only about a quarter of online purchases are returned in person to the store. "If the item is defective  the warehouse worker might flag it to be sent out for fixing and refurbishing. It would be repackaged and loaded on a truck and possibly a plane to get to the repair location, leading to more carbon dioxide emissions. "When it is more expensive to restock or refurbish a product, it may be cheaper for the retailer to dispose of the item. Some are sold in bulk to discount stores. Often, however,  returned products simply end up in landfills, sometimes overseas. In 2019, about 5 billion pounds of waste from returns were sent to landfills, according to an estimate by the return technology platform Optoro. By 2022, the estimated waste had nearly doubled to about 9.5 billion pounds. [2023 data not yet available, but the upward trend has probably continued.] "Era of free returns might not last. The percentage of retailers charging to ship returns increased from 33% to 41% in 2022. Retailers are also trying several other techniques to lower the return rate: shortened the return window, limited frequented returns or stopped offering free returns. Other strategies include virtual dressing rooms and clearer fitting guides, which can help reduce clothing returns, as can high-quality photos and videos that reflect size and color accurately. Above excerpts from June 2023 article by Simone Peinkofer,  Assistant Professor of Supply Chain Management, Michigan State University. https://lnkd.in/eakHVPHS

🎁 The Hidden Cost of Holiday Cheer: Transforming Retail's Return Reality The holiday season brings a familiar scene to online shoppers: the anticipation of opening a package, followed all too often by the disappointment of an imperfect fit. That sweater for Mom? A size too large. Those pants you selected for Dad? Too snug. This isn't just my frustration—it's part of a growing challenge reshaping how retailers approach the holiday season. 🏷️ The Real Price Tag of Returns I recently read an article in The Wall Street Journal by Suzanne Kapner, which highlights an escalating challenge in retail: the rise of online returns. According to Narvar, online return rates have increased by 15% since 2019, costing retailers $21 to $46 per return 🤯 - as estimated by McKinsey & Company. This surge has pushed brands like Abercrombie & Fitch Co. & Zara to tighten policies, introducing fees and shorter return windows. While these measures aim to offset losses, they risk alienating consumers, with more than 2/3s of shoppers stating these new stricter return policies deter their purchases. The inconsistency in sizing—the most common driver of apparel returns—remains an issue that technology like personalized sizing solutions can address. As we enter the peak holiday season, it’s clear that reactive policies like return fees treat the symptoms- not the cause. Retailers have a unique opportunity to shift the narrative by proactively solving for fit, reducing bracketing behaviors, & enhancing customer trust. 📏 Why Sizing Matters More Than Ever As e-commerce grows, so does the challenge of getting sizing right. The holiday season amplifies this struggle, particularly when shopping for others. It's no longer just about personal purchases—it's about confidently selecting gifts for friends & family online. This uncertainty leads to a cascade of issues: 1️⃣ The increase of “bracketing”- Consumers purchase multiple sizes of the same item, planning to return the ones that don't fit  2️⃣ Brands face increasing logistics costs and inventory management challenges 3️⃣ The environmental impact grows with each return shipment 4️⃣ Customer satisfaction suffers, affecting brand loyalty ⏩ A Better Way Forward The solution lies in prevention rather than damage control. AI-powered sizing technology is transforming how brands approach fit accuracy. With just four simple inputs, platforms like Bold Metrics Inc. can provide precise size recommendations, whether shopping for yourself or selecting a gift for a loved one. This technology is more than just reducing returns—it's about building confidence in every purchase. For brands, the benefits extend beyond reduced return rates. When customers trust their sizing recommendations, they're more likely to complete their purchase & return for future shopping. This translates to higher conversion rates & increased average order values- crucial metrics during the competitive holiday season. Happy Holidays + Happy Shopping 🎄🎁

What’s the fastest way to increase ecomm revenue by 5% without increasing orders, traffic, AOV, or conversion? My vote: Fix your returns Here’s how… Let’s look at a brand doing $10M in DTC sales, with: –> Average product price = $100 –> Orders = 100,000 –> Return rate = 25% (25,000 returns) –> Return cost = $20 per return ($500K total return cost) Let’s compare two scenarios: Scenario A: Status Quo –> 80% Restock rate: 20,000 items restocked & resold at full price (20,000 × $100 = $2M rev) –> B-grade items liquidated at 10% of MSRP (5,000 × $10 = $50K rev) –> $500K in return processing costs 💰 Realized Revenue = $2M + $50K - $500K = $9.05M Scenario B: Returns, fixed –> Return rate drops to 20% (20,000 returns) –> Restock rate increases to 85% (17,000 × $100 = $1.7M rev) –> B-grade items sold at 70% w/ branded resale (3,000 × $70 = $210K rev) –> $400K in return costs 💰 Realized Revenue = $1.7M + $210K - $400K = $9.51M That's a $460,000 lift in realized revenue — without increasing orders or traffic.