Going circular: The future of retail returns and reverse logistics

Retailers find ways to optimize returns, reducing costs and creating new opportunities
VP, CSR & Sustainability; Executive Director, Center for Retail Sustainability

Retail executives are paying closer attention to retail returns, the products that consumers return to retailers when those products do not meet their needs. While retail returns are as old as retail itself, returns have grown from 8.8% in 2012 to 14.5% in 2023 as ecommerce gained a larger share of retail sales.

According to NRF and Appriss Retail, 2023 return rates for online purchases were 17.3% versus 10% for purchases made in-store. Returns now represent $743 billion of the $5.13 trillion of retail sales (14.5%).

Member Benefit

NRF and RLA members can order a free copy of Rich Bulger’s “Going Circular” eBook on the RLA website. Bulger will also be speaking at the upcoming RLA events in Amsterdam (June 18 – 19) and Atlanta (Sept. 4 – 5).

Every one of those returns creates financial and environmental costs.

The financial costs are driven by the need to take back the product, evaluate it, issue a refund, and then restock, repair, liquidate, donate, recycle or properly dispose of it. Transporting the product throughout the process generates additional financial and environmental costs, as does the repackaging and shipping of the product to a new consumer.

Even more significantly, there are costs associated with the raw materials, energy and other resources originally needed to manufacture the product. Those financial and environmental costs are particularly wasteful if that product is never used for its intended purpose.

To reduce the adverse financial and environmental impacts, retail executives are prioritizing ways to reduce those costs and turn them into new opportunities. They are focusing on ways to improve both the returns management process and reverse logistics operations.

Returns management

“Returns management is the art of optimizing retail returns,” according to Tony Sciarrotta, executive director of the Reverse Logistics Association, which was acquired by NRF late last year. Returns cannot be avoided. They are a necessary part of retail because they provide consumers with the confidence that retailers stand behind the value and quality of the products they sell. It is one of the ways retailers build trust with their customers.

The challenge for retailers is that some consumers knowingly or unknowingly abuse overly generous return policies. When a consumer buys a pair of shoes, a nice outfit, or a tool or piece of lawn equipment with the intent of using and then immediately returning them, it creates significant financial and environmental costs. Those returned products can no longer be sold as new and are instead managed through the reverse logistics process.

“The trick,” Sciarrotta says, “is minimizing ‘bad’ returns and encouraging ‘good’ returns.” “Bad” returns include any products with visible wear and tear, missing parts or damage to product packaging. Any appliance or consumer electronic product with a plug, for example, can no longer be sold as new to some customers once it has been plugged into an electrical outlet, making those “bad” returns from a retailer’s perspective.

To reduce these kinds of returns, retailers are working with manufacturers to ensure consumers have an accurate and detailed understanding of what the product can and cannot do and making it even easier to set up and operate the devices to minimize any frustrations that lead consumers to return fully functional products to the retailer.

Another retailer concern is consumers who consistently buy three sizes of the same branded apparel or footwear product with the intent of returning two of them.

This practice, known as “bracketing,” becomes egregious when the consumer consistently keeps the same size, always returning the other two sizes. It is even more challenging for seasonal items like sandals that become more difficult to resell as summer turns to fall.

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Check out NRF’s industry hub designed to support retailers’ efforts to generate economic value while creating net positive environmental, social and community benefits.

To reduce these returns, retailers are making it easier for consumers to know exactly what size fits them best before making online purchases. Some are also now charging fees for some online returns and shrinking return windows to further reduce the number of “bad” returns.

Good returns, on the other hand, are products that are returned in pristine condition shortly after their purchase, making them much easier to sell to a new consumer. Consumers who return products less frequently, in a timelier manner and in pristine condition more than the average consumer are likely to be rewarded with more generous return policies including free returns, at-home pickup and longer return windows.

Other “good” returns include items that retailers solicit from consumers for resale as “gently used” or “pre-loved.” Retailers encourage “good” returns by rewarding consumers with gift cards, discounts on new purchases or, in the case of nonprofit retailers like Goodwill, with tax benefits.

Optimizing the ratio between good and bad returns, according to Sciarrotta, is “more of an art than a science at this point but the rise of new technologies, including artificial intelligence, can make it easier.”

Reverse logistics

Once a consumer decides they do not want to keep a purchase, the reverse logistics process kicks into gear. According to RLA, everything a retailer does after the sale of a product is an aspect of reverse logistics. It includes three key steps that Rich Bulger, a former RLA advisory board member, outlines in his book “Going Circular.”

  1. Asset recovery: Collecting the product from the consumer.
  2. Reverse operations: Transporting the product to a retailer’s reverse distribution center, evaluating and grading the product, erasing any consumer data from electronic products, repairing, repackaging and preparing the product for shipping while recording and tracking every step of the process.
  3. Value generation: Determining whether the individual product can be resold as new or used or whether it needs to be sorted and bundled to be returned to the manufacturer, donated, sold for parts, composted, recycled or properly disposed of.

A more circular future

Retailers are improving both their returns management and reverse logistics procedures as part of their efforts to create a more circular economy. They are focusing on ways to reduce waste and pollution, keep products and materials circulating at their highest and best use, reduce retailer costs and create a better experience for consumers.

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