News / Rising costs driving online shopping merchants to the point of no returns

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Online shopping appears to be rapidly approaching a point of no return; steeply escalating costs are eroding margins, forcing merchants to look for alternative solutions to returning unwanted goods to their warehouses.

According to the National Retail Federation, in the US, merchandise worth $761bn was returned last year – about 16% of all purchases – up from 10% in 2020. For online purchases, the return rate was 20.8%, up from 18.1% in 2020.

But by some estimates, cross-border sellers were seeing a return rate of 30% last year, producing costs of around $100bn.

For retailers, free returns are a painful necessity in the online selling game, which most feel they have to offer lest consumers abandon them for competitors, but the cost is taking a toll on their margins.

A report published by shipping and mailing solutions provider Pitney Bowes on 14 April found online returns cost an average 21% of the order value.

In addition, there are repercussions on merchants’ carbon footprint and other sustainability credentials. Reverse logistics firm Optoro found retail returns created 16m tonnes of carbon emissions and 5.8bn pounds of landfill waste last year.

According to one report, Amazon has stopped shipping unwanted merchandise back to sellers. Instead, it either resells these items or destroys them. Shoppers are informed to keep rejected low-cost items as well as being sent replacements.

The e-commerce behemoth started a programme in 2020 under which returned items are re-sold on special sections of its website. The year before it launched a donation programme that allowed participating merchants to automatically donate returned goods to local charities.

Horst Manner-Romberg, principal of parcel research and consulting firm M-R-U, noted that return rates differed significantly from one industry to another. While low for computers, electronics and furniture, they can climb as high as 50% in the garment sector, where some players actively encourage shoppers to avail themselves of their free returns policy.

Increasingly, merchants are looking for solutions to tackle the high cost of returns, he said. Some clothing retailers have taken to delivering merchandise to drop-off points that include changing rooms for customers to try on purchases. German online retailer Zalando does not wait for returned items to reach its depots, but puts them up for resale as soon as customers signal their intent to return goods.

In September, Seko Logistics teamed up with start-up re-commerce specialist Reconomx to help retailers reduce cross-border returns and funnel unwanted goods into domestic resale channels. The logistics firm performs the physical handling and transport of returned items, while Reconomx develops product/brand grading plans and provides access to local resale channels, reporting, finance, administration and management services.

“Re-commerce has the potential to drive a 30% revenue recovery by significantly reducing international freight charges, cutting cycle and storage times – often by weeks – and lowering CO₂ emissions,” said Reconomx CEO Ben Whitaker.

Mr Manner-Romberg noted that local authorities had become more active in regulating e-commerce, pointing to steps in various cities to rein-in the proliferation of dark stores and micro fulfilment centres. One potential scenario would be for authorities to work together with logistics providers to set up returns depots that would consolidate this traffic, he said.

Mr Whitaker added, anticipating change on the returns scene: “Ultimately we think a combination of legislation and pressure from consumers will force retailers to change they way they handle returns.”

To hear more about e-commerce, try the The Deep Dive 2 Podcast, 2022.

Clip 1: How Covid-19 accelerated e-commerce – Tom Enright, VP, retail supply chain, Gartner