The final quarter of the retailing year is when the industry takes account of the damage inflicted on bottom lines by the stubborn problem of returns. This fiscal year (ending Jan. 31 for most retail companies and brands) will by all accounts be a record, estimated by the National Retail Federation to exceed $816 billion worth of merchandise.
That’s about 16% of total retail sales for the year being returns, up from about 10% two years ago.
Numbers are one-dimensional, so it seemed a useful exercise to put this one in context.
- $816 billion is roughly equal to the combined sum of all US retail sales in 2021 for Walmart, Amazon, and Costco, according to the National Retail Federation.
- $816 billion is more than the combined annual total of all public school budgets in the United States.
- $816 billion is about equal to the GDP of Turkey and just behind that of Saudi Arabia, the world’s 18th largest economy, according to the World Bank.
Returns are a nightmare.
Companies can outsource the job of processing returns, but those who don’t have to hire staff, rent warehouses, pay for transportation and figure out how to identify merchandise that can be resold are at a great advantage.
Most of the returns that cannot be resold are apparel that will likely end up on top of a mountain of burning rags somewhere in India or a landfill in Ghana. A recent Bloomberg report ripped the band-aid off this problem recently with a searing expose of the gap between the promise of sustainability by brands (“We recycle into new textiles!”) and the devastating reality (only 1% is reused).
Returns are insanely costly when general retailers' average net profit margin is less than 2.5%.
Every year, handwringing begins, but good solutions have been few and far between. This year we saw an explosion of interest in a curious side gig, a version of dumpster diving. People pay hundreds or thousands of dollars for mixed pallets of returned goods. There are dozens of YouTube videos of people unwrapping pallets and adding up how much they think they can make reselling what’s salvageable. One company, Woot, ran a special: $10 for a sight-unseen “bag o’ crap.”
One of the more thoughtful ideas popped up at Christmas in a column in The Wall Street Journal. Two University of Tennessee academics looked at this issue, wondering, “Why haven’t retailers taken significant steps to improve the returns process and stop it from imploding their profitability?” They concluded that most retailers “underestimate the true cost of returns.” As a result, it doesn’t get the C-suite attention it deserves.
The authors, Alan Maling and Thomas Goldsby propose something like a chief returns officer. “The first step in solving the problem is to appoint an executive responsible for the end-to-end returns process. And then a company needs to measure both customer satisfaction and the detailed cost of returns.”
More good ideas: find ways to “limit returns before they happen, in the pre-sale process;” improve product descriptions “so customers have a better sense of what they are buying.”
Here’s my contribution: ask customers what they think, what they want, and what they expect from the brands that seek their business and loyalty.
If nothing else, today’s consumer deserves the truth about what happens to returns and maybe that knowledge will influence behavior.
Either way, something’s got to give.
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