Ecommerce has become a fact of daily life. Annual online sales are poised to surpass $6 trillion by 2023, and the continued growth of ecommerce has created profound benefits for consumers.
However, while ecommerce generally uses less energy (resulting in fewer carbon emissions) than bricks-and-mortar shopping, one aspect of the industry is not so green: product returns.
As the co-founder and managing director of Accel Club – a tech consumer goods platform which buys, operates, and scales ecommerce businesses – I have experienced all of its aspects. The good, the bad, and the ugly.. And ugliest of all is the returns crisis. The enormous environmental impact, with 15 million tons of carbon emissions generated by US product returns every year. Just to demonstrate the size of the problem, the average footprint of a person per year is 4 tonnes.
The good news? Ecommerce space and players like us are leading the way in developing and applying the technological solutions to fix it.
A returning issue
Thanks largely to Amazon, online shoppers have come to expect free and fast returns everywhere. With this in mind, many shoppers use ecommerce orders as a discovery option for new products. This is particularly prominent in the fashion industry, with Asos reporting that 25% of UK women’s orders are returned. Other studies, meanwhile, have estimated that a third of shoppers consciously over-buy online, planning to return items before they have even arrived. All this (plus the fact that shoppers can’t see or try-out online products in person) is why the average ecommerce return rate in the US has gone up to nearly 21% in 2021, up from 18% in 2020.
Ecommerce returns are an expensive logistical headache for sellers. UPS estimates that returns cost twice as much for online retailers as they do for bricks-and-mortar stores. But there is another hidden cost behind every return.
The planet pays
News of Amazon’s carbon output increasing in 2021 due to the pandemic recently broke – an 18% increase. The impact of the rise in deliveries and returns are clear for all to see.
Every stage of the returns process carries a negative environmental impact: from packaging, to shipping, to warehousing. Some products, when returned, are simply destroyed – which can be more cost effective for the retailer than storing and re-selling the unwanted purchase. But this is an enormously wasteful practice.
Many sellers are trying to make the shipping process more environmentally friendly. Zara, for example, now uses 100%-recycled cardboard for packaging. This is obviously a welcome step, but the true solution to reducing the environmental (and financial) cost of ecommerce returns lies in reducing how many products are returned in the first place.
A paradigm shift for sellers
Returns are often an afterthought for ecommerce retailers. Naturally, no seller wants to spend too long thinking about what happens if their customers aren’t satisfied. But here is where a paradigm shift is needed.
The truth is that smart returns management can be an area of competitive advantage. By overhauling existing processes and drawing on technological solutions to the returns problem, ecommerce retailers can reduce their return rate, saving money while also doing their bit for the environment.
Some firms may conclude that the solution is to drop the lenient returns policies, disincentivising returns altogether. But this is no solution at all; in fact, it will serve only to drive customers elsewhere. As McKinsey & Company found in a recent industry survey, 86% of online apparel companies agree that a lenient returns policy is critical to increasing revenue. This is backed up by a 2019 report by the Boston Consulting Group, which found that an easy returns policy was the most pressing consumer need for 40% of online shoppers.
The simple things
Research has shown that the actions of sellers can reduce returns by 73%. And recent innovations in tech and consumer psychology are already having a huge impact.
The process of reducing returns starts, often, with the simplest solutions and the understanding that the more information customers have before a purchase, the less likely they are to return anything. Retailers should therefore ensure that product descriptions, sizes, and photographs are as accurate as possible at all points of sale. Encouraging customer reviews can also help.
Some online retailers have also taken steps to reduce ‘bracketing.’ This is the increasingly common practice of buying multiple versions of the same item to try at home, with the intention of returning all but one. To counter this, some online retailers have introduced pop-up messages to nudge customers if their basket contains the same product in multiple sizes.
Quality is another key piece of the returns puzzle. Defective products are the most common reason for ecommerce returns. Sellers who invest in higher quality products will intuitively end up with fewer returns.
The role of technology
These steps are important, but brands can – and should – go further. For one thing, they should make an effort to understand the reason behind every return. Patterns may then become apparent, allowing for adaptation and mitigation in the future.
Brands should also take a data-driven approach to customer profiling, generating a deeper understanding of who their customers are and what they want. This way, products can be better tailored to customer needs. Not only does this make returns less likely, it also makes it easier for firms to forecast demand, thereby reducing overproduction and wastage. As ever, investing in analytics today can save money tomorrow.
Many brands, meanwhile, are using new technologies to give their customers more information about what they are buying – before they buy it. Ikea has developed an app which uses Alternate Reality technology to show customers exactly how products would look in their homes. Walmart, meanwhile, recently announced it is acquiring Zeekit, a startup that uses shopper’s selfies to show which clothes would suit them best. Nike has launched a foot-scanning technology to recommend shoes and sizes, while Sephora has developed a Virtual Artist tool that lets customers use AR to digitally ‘try on’ make-up before they buy it. All these innovations contribute to better informed customers and smarter buying decisions. That means fewer returns and less waste.
Clearly, this problem isn’t going to be solved overnight. But the solutions are there to reduce the ecommerce returns rate – lessening the environmental impact of our industry at the same time as improving the customer experience. While these solutions will require an initial investment, sellers willing to back thoughtful ecommerce technology will reap the benefit in the long-run. All that means fewer returns, more profits, and a healthier planet.
Nick Tuzenko is co-founder, Accel Club