Reverse logistics, what are the alternatives to free returns?

Being able to return a product purchased online for free is now part of consumers’ expectations. But faced with the explosion in volumes, a growing number of sites are reversing these policies, which are weighing on their turnover, logistics costs and ecological balance. Other strategies, more virtuous than free returns, exist. Do you know them?

Free returns became a staple of the e-commerce landscape when, in the wake of Amazon, major retailers became aware that it was a significant lever for conquest and loyalty, particularly in the fashion sector. Maybe consumers  weren’t asking for that much. Recent surveys show that what matters to them is not so much being able to return  products that do not suit them for free, but being able to do  so easily. But, to the extent that free returns were offered by the most powerful players in the market, customers quickly came to condition their online purchases on this facility. They now consider it to be a given, in the same way as free postage/delivery. For example, according to a 2022 study (Ifop/Quadient), 96% of respondents believe that parcel returns ‘must’ be free, meaning ‘for the customer’.

>> However, on this point, French law is very clear: unless explicitly mentioned in the general terms and conditions of sale, the return costs are the responsibility of the customer and not the merchant. Exceptions to this rule are cases of delivery damage, product defects or non-conformity.

The other side of the coin

Free returns have significantly contributed to the development of online sales. This is especially true in the fashion industry (clothing, shoes, accessories) where the impossibility of trying, the fear of getting the wrong size or simply being disappointed by the material, color or cut have long been major obstacles to purchase. Brands and retailers that have chosen to cover the cost of returns — and have made the effort to simplify the process for the customer — have unquestionably scored points in the hearts of consumers. Until the point at which the competitive advantage associated with these generous return policies was outweighed by the costs they generate.

As early as 2021, leading sites began to backtrack on free returns by noticing the increase in the quantities of returned orders and the development of abusive or even fraudulent practices on the part of some customers. In the apparel industry, two of them are particularly problematic:

• bracket buying. This practice consists of ordering the same item in several sizes/colors in order to make your choice at home, then returning everything that does not fit, without asking yourself any questions since “it costs nothing”. Returned at the e-merchant’s expense, returned items are fully refunded to the customer. Narvar, which publishes an annual report on e-commerce returns in the United States, noted in 2021 that 58% of shoppers surveyed admitted to “bracketing”. In 2022, it was 63%, including 15% systematically.

The trivialization of this behavior is fueling the increase in the return rate, which, all e-commerce sectors combined, reached 20% in 2023 in the United States (source: National Retail Federation). Europe is not to be outdone with return rates between 15% and 30% depending on the market segments and countries, driven upwards since the establishment of Chinese e-commerce platforms and fast fashion sites abundantly practicing free delivery and returns.

• Wardrobing. Unlike bracket buying , which can be considered a ‘simple’ abuse, wardrobing is a fraudulent practice. It typically consists of buying a garment online, wearing it without removing the tags so that it can be returned as if it had not been worn in order to be fully refunded. According to Narvar’s 2023 report, 13% of shoppers surveyed admit to having committed this type of fraud, which is believed to affect up to 5% of all products ordered online in the United States. Faced with the growing economic damage, it is understandable that the most coveted brands are now seeking to detect fraudsters and above all to deter them. How? Fraudsters surveyed by Narvar in 2023 provide the answer themselves: 41% admit that having to pay a return or restocking fee would be enough to make them stop these practices. Receiving only a partial refund would be a deterrent for 36% of fraudsters, while 28% would shy away from the threat of being excluded from the brand’s loyalty program.

Return shipping costs are only the tip of the iceberg of reverse logistics

Encouraging abuse and keeping customers under the unfortunate illusion that transport and logistics cost nothing, the assumption of return costs by merchant sites has become a double-edged sword. Giving it up after making it a selling point is not at all self-evident for brands. But when return rates exceed 20%, as is the case today, the bill becomes too heavy. It is all the more so because it is not limited to the costs of reshipping alone. Whether the return is free or not for the customer, any returned product is:

• a product that must be reimbursed to the customer, therefore a loss of turnover, unless the customer requests an exchange;
• a product that must somehow be picked up and transported to a company warehouse, more and more often a center dedicated to returns management;
• a product that must be received and then appraised with a view either to repackaging it and reselling it, or to direct it to a second-hand channel, recycling or outright destruction;
• a product with an increasing carbon footprint, because, whether it’s a piece of clothing, a computer or a sofa, it will have been transported and retransported.

All this has an economic and environmental cost for the company, an average cost of about 30 euros per returned product, a far cry from the 2 or 3 euros that sites that have given up on free returns usually ask their customers. To avoid these costs, some sites reimburse customers without asking them to return the product if it is of little value, which can encourage the less scrupulous to cheat, typically by declaring that the product arrived damaged.

>> Amazon’s long-held practice of destroying returned products so as not to have to manage their return to the circuit has been banned in France since January 1, 2022.

>> Since 1 January 2024, this provision of the AGEC law (anti-waste law for a circular economy) has been extended to all product categories and gives companies (producers, distributors, resellers) the obligation to recycle their unsold non-food products by respecting the following hierarchy: first reuse (donation to associations), then reuse (second-hand market after revision and repackaging) and last place of recycling.

Prevention is better than cure

The growth of returns flows is the mechanical corollary of the development of e-commerce. To keep the rising costs of this reverse logistics under control, e-tailers are putting in place policies and solutions that aim first and foremost to reduce the causes of returns at the source, while simplifying the procedure for the customer when the return of the product is truly justified. This translates into:

• Clear information on return and exchange conditions, displayed at the beginning of the purchase process. Knowing that 67% of buyers look at the return conditions before ordering (Ifop 2022), we might as well make their lives easier by making this information easily accessible and avoid those for whom the conditions are not suitable from going further. Today’s customers prefer transparency over misleading information.
• Detailed and reliable information on products/sizes/materials. Faulty, incomplete or poorly translated descriptions do not allow the customer to make an informed choice and increase the risk that he will return the product. This is true for technical products, but especially for clothing/shoes which are the most frequently returned items for size issues. Sites that seek to prevent returns include tools that allow the customer to know in a few clicks what size to order according to their morphology. This reassures the customer and reduces the temptation to resort to bracket buying.
• A simplified return procedure. According to the above-mentioned Ifop survey, 41% of French people who have already returned a parcel have encountered difficulties in doing so. In addition to the lack of transparency in the return conditions, they point in particular to difficulties with packaging and labelling (33%) and excessively long refund times (32%). Far from encouraging abuse, a pre-printed return label and, if applicable, a dedicated return packaging included in the delivered package are among the most appreciated measures. As for the refund period, customers expect it to be a maximum of one week after the package is returned. Respecting such a deadline when the refund is conditional on the actual receipt of the returned product underlines the crucial importance of efficient returns logistics.
• Differentiated return costs. Most e-merchants now promote delivery to pick-up points, automatic lockers or, for brands with a physical distribution network, in-store (click-and-collect). Less costly for the merchant and its transport providers, this option can be offered to the customer at a significantly lower price than home delivery. In the same spirit, returns to pick-up points are gaining ground and can be encouraged by advantageous pricing conditions for the customer because they effectively cost less  to the merchant and the carrier. With returned products grouped together in fixed pick-up points, carriers can set up regular and optimized collection rounds that feed returns management centers in a much more streamlined and predictable way than individually shipped packages arriving in dispersed order.

>> With Nomadia’s route planning and optimization solutions, carriers can not only optimize the frequency and order of their delivery/pick-up rounds from pick-up points, but also intelligently integrate addresses into their routes where they pick up individual packages, typically products that are too large to be returned to a pick-up point. As a result, they reduce the number of kilometres travelled, as well as empty returns and the associated CO2 emissions.

Systematic and unlimited free returns is not a sustainable strategy. To put an end to it without losing customers, e-tailers must redouble their efforts to make their return policy as simple, smooth and transparent as their delivery policy. While strategies to prevent returns are the best way to limit the explosion in the economic and environmental costs of reverse logistics, optimization technologies are central to making this logistics more efficient, less CO2-emitting and more in line with customer expectations.