Returns Are a Headache for Retailers

Whether through my capacity as a strategic advisor at Koba, LLC, which owns the e-commerce platform Koba Roots, or being a long-time shareholder of Amazon.com, I have learned that returns are a significant problem online retailers face which can negatively impact their financial performance. Therefore, it was with great interest to read an article by The Economist that notes 21% of online orders in the United States, "worth some $218bn, were returned in 2021, according to the National Retail Federation, up from 18% in 2020. For clothing and shoes it can reach around 40%. It is a headache for retailers."

The article adds that online shopping in the U.S. "now makes up 15% of retail sales by value, up from 10% at the start of 2019." What is more, "only 5% of returned goods can be resold immediately by retailers. Most go to liquidators at knock-down prices or are thrown away. Retailers typically recoup about a third on a $50 item, says Optoro, a firm that helps with returns." Interestingly, "Over half of items are returned because they are the wrong size."

Some companies like Japan-based Uniqlo, or Zara, a global retailer based in Spain, are levying "a small fee for posted returns." The article point out that "Other firms, including Amazon, are selling more refurbished goods as a way to cut loses."

Online retailers are starting to use artificial intelligence (AI), virtual reality (VR), and augmented reality (AR) to simplify the ordering process for the costumer and reduce returns. According to The Economist, "Using artificial intelligence to help retailers decide what to do with the returned goods, taking into account factors such as price trends in second-hand markets is the brainchild of goTRG," a Florida-based startup which helps retailers sort returns. The article adds that Walmart, through its planned acquisition of AR startup Memoni, will let "shoppers virtually try on glasses. Walmart also offers ways to try on clothes and arrange furniture in rooms using AR. Amazon recently launched a VR feature that lets users try on shoes." The article concludes that "Retailers will now try virtually anything to cut down on returns."

In a CNBC article, Mehmet Sekip Altug, associate business professor at George Mason University, said: "In the past, retailers tended to overlook what happened after the sale. But 'as online sales increase, the return rate has also increased significantly, and I don't think it's a secondary problem anymore.'"

What are your recommendations for how retailers can reduce their return rate?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

Sustainable Product Index: Will Walmart's Initiative Create a New Industry Standard?

On a couple of occasions in this blog, I have discussed how multinational corporations are developing corporate responsibility programs in an effort to become better global citizens and increase value of their products purchased by customers. During a meeting with 1,500 of its suppliers, associates and sustainability leaders on July 16, 2009, Bentonville, Arkansas-based Wal-Mart Stores, Inc. announced a new initiative that will address the sustainability of their products.

According to the company's press release, the worldwide sustainable product index "will establish a single source of data for evaluating the sustainability of products." Speaking at the Sustainability Milestone Meeting, Mike Duke, Walmart's President and Chief Executive Officer, said, "The index will bring about a more transparent supply chain, drive product innovation and, ultimately, provide consumers the information they need to assess the sustainability of products. If we work together, we can create a new retail standard for the 21st century."

Walmart created a fact sheet (PDF) that provides details of the Sustainable Product Index including three reasons for creating the index:

• The world's population is increasing. It is estimated that the global population will reach nine billion by 2050;
• The world’s natural resources are decreasing. Natural resources for everything we grow, eat, drink, make, package, buy, transport and throw away is outpacing the earth's capacity to sustain it; and
• Customers want more efficient, longer lasting, better performing products. They want to know the materials in the product are safe, that it is made well, and the product was produced in a responsible way.

As explained in its press release, "Walmart will introduce the initiative in three phases beginning with a survey of its more than 100,000 suppliers around the world. The survey includes 15 questions (PDF) that will serve as a tool for Walmart's suppliers to evaluate their own sustainability efforts." The questions will focus on four areas: energy and climate (reducing energy costs and greenhouse gas emissions); material efficiency (reducing waste and enhancing quality); natural resources (producing high quality, responsibly sourced raw materials); and people and community (ensuring responsible and ethical production).

During his presentation at the Sustainability Milestone Meeting, John Fleming, Executive Vice President and Chief Merchandising Officer for Walmart U.S. said, "The survey will include simple but powerful questions covering familiar territory, such as the location of our suppliers' factories, along with new areas like water use and solid waste. The questions aren't complicated but we've never before systematically asked for this kind of information. The survey is a key first step toward establishing real transparency in our supply chain."

As a second step, outlined in the company's fact sheet, Walmart "is helping create a consortium of universities that will collaborate with suppliers, retailers, NGOs and government to develop a global database of information on the lifecycle of products -- from raw materials to disposal. Walmart has provided the initial funding for the Sustainability Index Consortium, and invited all retailers and suppliers to contribute. The company will also partner with one or more leading technology companies to create an open platform that will power the index."

The final step consists of creating a tool for customers. This tool will "provide customers with product information in a simple, convenient, easy to understand rating, so they can make choices and consume in a more sustainable way. How that information is delivered to consumers is still undetermined, but could take the form of a numeric score, color code or some other type of label. The sustainability consortium will help determine the scoring process in the coming months and years."

Mr. Fleming also made an excellent statement saying "the merchant of the future will be focused on the entire product life-cycle management." Other retailers should take note of the buying trends that goes beyond price consideration. Customers will consider the raw materials, transportation, and people behind the manufacturing, shipping, distributing and selling of the merchandise.