Caught My Attention, Ed. 5: The Returns Clap Back

And why the returns math doesn't math

Today I am unpacking all my feelings about returns. I have lots of them. Over $750B worth of goods every year in the US alone are returned, and most people do not know that a good portion of those items end up in landfills, full stop. It’s depressing; one of the most visible markers of American gluttony and unfettered consumerism.

Who hasn’t seen (or been that person themself) someone at WholeFoods or Kohl’s or UPS with an IKEA bag full of inexpensive items to scan back for an Amazon return? This fall, I stood behind a twenty-something while she unloaded no less than sixteen stretchy Halloween costumes, ripped out of their packaging, back to the UPS guy who was lethargically rescanning and packing them with a podcast in his earbuds. And who knows the amount of lace onesies that Amazon instructed her to just keep instead, quietly implying “here - YOU throw these in the trash.” She turned to the line behind her. apologized, but I don’t think my admonishing stare created a lasting effect on her purchasing behavior.

This story is all too familiar and it’s got a thorny set of issues in the way of a solution. Why would a retailer accept so many returns? Why would they tell you to keep them instead of taking them back? Can this continue ad infinitum?

It likely cannot; when I speak to executives at large retailers, returns are one of the top issues they face, given that 30% of e-commerce purchases and 17% of in-store buys are sent back, and often, those items if open-boxed or out of season, run the risk of sitting in warehouses and on balance sheets without a good course of disposition. You see, the problem compounds itself; the longer something takes to get returned, graded, refurbished, and restocked, the harder it is to dispose of. Let’s follow an example of a return journey:

A $450 Balenciaga hat gets returned from an online purchaser back to a retailer like Nordstrom. That hat needs a shipping label printed back to the DC it came from, which Nordstrom pays for ($4-7 on average - and that is not counting some of the new at-home courier pickup options like Veho or Returnmates, that charge an additional $5-10). Depending on the condition of that item (let’s say the tag was ripped off, there is a mark on the brim, and the plastic polybag it came in is gone), the item needs to be graded and refurbed, which can cost up to $18 all in. Then the item has to be resorted and re-stocked back at the DC, which costs on average about $0.50-1.50. If the items is still in season, it can be resold for full price, but if it comes back late, the item will need to be price matched on sale, call that $270. At this point, Nordstrom is breaking even on the item’s cost but already at loss from a profit standpoint! But now, let’s say that item doesn’t sell through after 90 days on sale, then the item is resold via liquidation, where the retailer will keep somewhere around 10-20% the value of the good (while accumulating implied warehousing fees). The math on that looks like this:

And this hat is still far more salvageable than other items, because it is luxury, sizeless, and high margin. What happens to the goods that are not so name brand, or expensive? Like a Halloween costume from Amazon (whose wholesale cost is likely less than all these fees above)? That answer is, just like Oscar the Grouch, it is destined for life in the trash can.

So what can brands and retailers do about all these returns?

For one, retailers are clapping back. The Cut published a story last week, highlighting how some retailers are beginning to track and ban bad actors from returns, in an attempt to curb bracketing (buying 3 sizes and keeping one) and wearing/styling items with tags before returning. In the future, brands will be able to look at customer behavior and generate a tailored return policy for each shopper, to reward good behavior and curb the sinful (startups like Orita are doing this).

Retailers like Zara are also beginning to charge for returns and restocking, in an attempt to bring transparency back and acknowledge there is a cost to all this convenience.

Mostly, though, we are seeing an enormous swell in liquidation. New startups are cropping up in every major consumer category to deal with excess liquidation stock, largely caused by returns. We see it in luxury (YaySay, ShopThing), mass apparel (BinStar, Ghst), food (Martie), electronics (B-Stock) and even industrials (Amplio).

Sadly, I do not see an end to the gluttony, and so I don’t see an end to the need for returns reform or the continued need for liquidation solutions. It will be interesting to see if retailers can start reward customers for keeping items, and it will also be interesting to see if MSRP pricing will have flexiblity and tailoring as as a means to ensure a satisfied sell through. For now, we should all think about the real solution to this problem: how do we buy less stuff?