Waste Not: The Staggering Business, Societal and Environmental Cost of Returned Goods
By: Jeff Swystun
Tags: Ecommerce, Consumers, Shopping, Retail Industry, Waste

Did you know that in 2018, luxury purveyor Burberry admitted it had destroyed £90 million worth of clothing and accessories over the previous five years. After a public outcry, the company stopped burning returned and leftover merchandise. Now they focus on recycling and donating.

Unfortunately, that is just a drop in the bucket. You see, it is cheaper for businesses to throw away returns rather than go through the process of reselling. So much focus is put on our supply chains…getting something to market, it seems there is very little focus on the “remarket”. It is incredible in this time of tech, how retailers mismanage inventory and promote returns.

Thanks to the CBC program, The Current, for investigating this astounding issue in our society. They call out consumers who order two or three different sizes of clothing, knowing they can return the one that doesn’t fit (this is called “bracketing”). That return, more often than not, is sent straight to landfill. With about half of U.S. customers engaging in bracketing, the returns built into the sales cycle are staggering. More so in Germany, where 72% of consumers bracket clothing orders.

According to the program, “the increase of the volume of returns has exploded by 95% over the last five years. And in Canada alone, we are returning $46 billion worth of goods every year. And you think, OK, what’s the big deal? Well, the problem is that — especially when we’re returning online — a lot of these products end up going in landfills.”

Companies abhor the expense of examining the condition of returns and their packaging. Adding it back to inventory along with marketing and selling it, again, is a cost and pain. So, incinerating and dumping has been the answer. This isn’t all about logistics. It is also the impact to the brand and to pricing. They don’t want to discount and most brands fear seeing indigent people wearing their labels. Last year, H&M reported it was sitting on a pile of unsold clothes worth $4.3 billion.

Patagonia has started something that may catch on. The Current reports, “an online and a physical store for products that are maybe slightly damaged that they have repaired. You’re seeing some brands actually do the repairing, encourage the repairing, so that they can get packages and goods back on shelves.”

Online shopping conversion rates are low—about 1% to 2% of visitors actually purchase something, so retailers need to entice browsers to buy. Free returns are big part of that enticement. Yet, retailers nearly always lose money on goods that come back. Even with restocking fees or return shipping, they won’t fully recoup the costs of inspecting and refurbishing products. When a men’s dress shirt is unfolded and tried on, it can cost up to $3 per shirt to restore the pins, cardboard collar, and plastic clips to make it salable.

There is also a big hit to the environment from returns. This December, Americans will return over 1.5 million packages to e-commerce retailers each day. This peaks on January 2, when returns will hit 2 million packages, which UPS calls “National Returns Day.” Returns are rising, as these numbers reflect a 26% increase from last year. The 1.5 million packages a day add 5 billion pounds to landfills and put 15 million tons of carbon into the atmosphere.

One would think that retailers would want to tighten up their return policies. That is not the case. Recent studies suggest that lenient return policies correlate with an increase in purchases. In a 2018 report, B2B marketing agency Walker Sands found that 54% of shoppers cited free returns as an incentive to shop, up from 43% in 2017. As far back as 2010, Zappos.com, the shoe retailer, stated that its best customers were the ones who returned the most products. Strange when, apparel and footwear are the most-commonly returned categories, and both decrease in value the longer they sit around.

Bloomberg has reported on this issue, “The problem is that consumers are returning more and more every year. In 2018, Americans sent back 10% of their purchases, valued at $369 billion, up from 8% two years earlier. Younger shoppers, in particular, are more inclined to treat online purchases as rentals or to buy clothing to try on, then return what doesn’t fit or look good. It’s a global trend: In Sweden, return rates are as high as 60% for some products.”

The logistical nightmare of returns has created a cottage industry to deal with rejected merchandise. In 2017, Optoro Inc., a company that helps retailers manage returns, estimated that only 10% of the merchandise it handles is remarketed, “the high cost of transporting, sorting, and repackaging those goods also ensures that billions of pounds of returns end up in landfills and incinerators.”

This is a carbon-heavy process. E-commerce products are returned at a much higher rate than traditional ones, so emissions exceed brick-and-mortar outlets. Bloomberg reports, “165 billion packages were shipped in the U.S. last year — using about 1 billion trees worth of cardboard. Even as companies like Amazon.com Inc. transition to more sustainable packaging, returns will continue adding to their resource usage.”

Retailers and consumers will be slow to change. Short of banning free returns, behavior will not be meaningfully altered. Some ideas floated include adopting carbon-emission labeling on return packages, stop providing ready-made return labels, offering “returnless refunds” for products that can’t be sold again (e.g., under-garments, cosmetics, and packaged foods), and leverage technologies, such as, digital dressing rooms.

Some change is happening. Kayla Marci, analyst for London-based retail data firm Edited, found “free returns” promotions are down by 4% this year. And she noted that “retailers were promoting easy-fit categories, such as t-shirts and oversized knits, more heavily during the holiday lead up this year.” Fortune reports that, “Lululemon’s “Black Friday” pieces were marked as “final sale.” The retailer, which does not discount often, seemed to be using the weekend to do some housecleaning on styles that had less favorable reviews.” That is better than sending it to landfill.

Purchases, impulse or researched, often lead to regret-and-return. A handful of chains including Walgreens, CVS, Nordstrom, Kohl’s and Michael’s have begun serving as collection spots for online returns. This is not a solution, it is an enabler. According to Fortune, “That’s more than 20,000 new spots this year alone where consumers can drop boxes, making it just about as easy to return an item than to shove it in the closet.”

The first step to changing behaviour is awareness. I have had my eyes opened. There is an incredible impact to company bottom-lines and to the environment that there must be a solution or solutions. In other words, this is no-brainer, let’s fix this. Unfortunately, it has to start with consumers and that is the sad part. Consumers have been trained and expect choice, not only choice of product, but the choice to return it at no cost. Now we know, that cost is far too high.

I am a fan of particular type of solution embodied in soaring startup, thredUP, that “is reinventing resale with a mission to inspire a new generation of shoppers to think secondhand first.” Their site goes on to state, “Forget everything you know about used clothing and join us in a resale revolution. thredUP is the world’s largest fashion resale marketplace with over 35k brands—from Gap to Gucci—at up to 90% off retail prices.” The company nails it with this frank statement:

Fashion is the second most polluting industry in the world behind oil. That’s a lot of dirt on our backs. If fashion helps us express who we are and what we stand for, then our clothing choices matter. It matters that we throw 26 billion pounds of clothing into global landfill every year. It matters that fashion will drain a quarter of the world’s carbon budget by 2050. It matters that a single T-shirt takes 700 gallons of water to produce. The choices we make matter.

On a recent visit to their site, one could buy a Coach scarf for US$30.00 that was first retailed at US$143. Old Navy sandals for US$7.99 that were US$25.00. The company has redistributed 65 million garments to date.

It may seem I am beating up on apparel but there is a reason. As thredUP points out, it is the biggest retail return problem. But all of this applies to everything else we buy, from toys to tech, appliances to cosmetics. We have a problem people.

And with every problem, there is opportunity. Instead of e-commerce business and retailers handling their returns individually, why not have one venture take in all the returns? Liquidators have been around for a long time. This venture, I suggest, takes on the transport, sorting, and repackaging of returned goods and resells them (you may be thinking of Overstock, once a big liquidator. Now they sell new stuff, contributing to the problem).

It is not ideal, I know. There are still environmental issues with all this bouncing back and forth of goods. But it is better than burying or incinerating billions of pounds of new stuff every year. There is the expression, waste not, want not. Short of consumers becoming instantly and wonderfully rational, and consuming only what they need, not what the covet, my idea is better than the status quo.