How do you solve a problem like returns?

8 June 2023

Cast your mind back to 2020 and it may conjure up memories of queues for groceries and mountains of parcels on doorsteps as people turned to delivery services for their non-essentials during the Covid-19 pandemic.

Many were slow to resume in-store shopping after lockdowns ended. E-commerce boomed and retailers offering next-day deliveries with free returns became commonplace.

Customers soon got used to the convenience of ordering goods, perhaps even a whole wardrobe, from the comfort of their sofa without consequences. But while global attention was focused on the health crisis and retail therapy kept many in business, another issue was simmering away creating unintended implications along the supply chain.

“E-commerce has resulted in a growing wave of fashion returns, which has been exacerbated by the pandemic as consumers turned to online channels when stores were shut, and retailers extended the exchange period for products,” says Caroline Rush, CEO of the British Fashion Council (BFC).

Reverse logistics – transporting goods from customers back to the sellers or manufacturers – is most pronounced in the fashion industry. A report by the University of Bamberg into Europe’s retail returns found that 83% of returns in Germany were of fashion items.

The world of online clothing sales reflects changing consumer habits and expectations. On the extreme end are “hauls” – originally where influencers received free clothing from brands in exchange for modelling them to their followers, but this has become a popular way for shoppers to purchase large quantities of fast fashion relatively cheaply to replicate the trend on social media. A more relatable approach is “bracketing”, an e-commerce-driven trend whereby shoppers purchase one product in a variety of sizes and colours with the intention of choosing the preferred item and returning the rest.

This over-ordering results in mountains of unwanted goods going back to retailers, but these are rarely resold. Reverse logistics company Optoro estimates a staggering 2.6m tonnes of returns ended up in landfill in 2020 in the US alone, often being brand new products. A survey of 320 inventory and supply chain managers by Software Advice found 23% said they send returned items to landfill, while 15% burn them.

Rush echoes the findings, saying: “It may be much easier for brands to send returned stock to landfill or incineration rather than deal with the operational aspects of returns to be restocked and then marked down. This is due to the many labour-intensive steps required to process returns, including customer care, transportation, warehouse processing, cleaning and sanitisation, markdowns and liquidation, and disposal costs.”

The cost of returns is eye-watering. In 2021, fast fashion brand BooHoo Group announced it was slashing its profit expectations due to “significantly higher returns rates impacting net sales growth and costs”. The UK fashion industry was estimated to lose at least £7bn (€8bn) in 2022 due to returns. A BFC report found it costs a retailer around 55-75% of a product’s retail price to process each online return.

And the problem is still growing. An estimated 30% of items bought online over the holidays in the US were returned this year, representing $66.7bn worth of purchases – 46% more than the average seen throughout 2016-2020, according to CBRE, a commercial real estate investor involved in warehousing.

Anna Bryher, director of advocacy at non-profit Labour Behind the Label, warned that the rise of online platforms such as Amazon and eBay only complicates matters. For example, Amazon Marketplace returns are sent to the marketplace seller’s address, where they have to wait until there are enough returns to repackage and send back to Amazon, meaning it is often more cost-effective for sellers to throw away clothing, she says.

The non-financial costs

The problem has obvious environmental implications: UK returns are estimated to have generated 750,000 tonnes of CO2 emissions in 2022, of which 350,000 tonnes came from reverse logistics processes, according to the BFC. In Europe, the average returned item is estimated to produce 1.5kg of carbon.

Speaking of major online sellers, Bryher says: “These huge platforms take nowhere near enough responsibility for the environmental and human rights impacts of the business models they create. Amazon, Ebay and others need to make it affordable and logistically easy for sellers to put returns back into the system, with a fair cost charged to the consumer.”

And there is a human cost to increasing demand driven by changing consumer habits. “The liberalisation of fashion shopping channels is a threat to labour rights because deregulated, hidden supply practices are being masked. Consumers have no way of knowing the policies or practices of sellers, and in fashion, where good business practices cost money, undoubtedly this encourages the growth of sourcing from factories with illegal pay and poor labour rights,” Bryher explains.

Searching for solutions

Long return windows have a significant impact on the amount of returns made, according to research by the University of Bamberg. In Germany – found to have the highest return rates in Europe – a customer on average has 53.5 days to return goods, compared with 29.6 days across the rest of Europe. To reduce returns, major fashion retailers including Zara, Mango and Uniqlo have introduced fees on returning online orders.

But Wizz Selvey, strategy adviser at Wizz & Co and a former buyer at Selfridges, says retailers can go a step further. “A way to encourage stock to reenter the supply chain more quickly could be a sliding scale fee based on how long it takes a customer to return the unwanted items,” she says, adding that “brands need to understand the real drivers of returns and prevent [them] at the onset”. A BFC consumer survey found that the top reasons for returns were incorrect sizing (named by 93% of respondents), followed by unmet product quality expectations. Understanding this is key to tackling the issue, she says.

This is where technology steps in. Truefit – a tech firm that helps customers gain a more accurate idea of sizing – claims its AI can help brands reduce general returns by 5% and bracketing-related returns by 40%. ASOS has a similar tool, the Fit Assistant where customers create a body size and style preference profile helping the app recommend the best fit for each product.

H&M stores in Germany trialled in-store 3D body scanners in 2021, which created digital twins of shoppers based on their exact measurements. Shoppers were then able to use their avatar while online shopping to gain a better understanding of fit. Fashion brand Pangaia partnered with Snapchat to trial a virtual try-on AR campaign. Snapchat claimed two-thirds of shoppers said they were less likely to return products after using the feature.

Whose responsibility is it?

While reducing returns is leading to innovative solutions, “ideally we need to mitigate the need for returns from the outset”, Rush said. But does this start with brands or consumers? Rush is clear: “Accountability is with brands to ensure that their customers are equipped with the necessary information to make correct decisions in the first instance.”

However, the minefield of tackling online returns requires a societal shift outside the powers of procurement and supply chains. Tim Cooper, professor of sustainable design and consumption at the Clothing Sustainability Research Group, wrote: “Sustainable consumption demands cultural change. The throwaway culture applies to the whole economy, not merely the clothing sector. If consumers are to be encouraged to buy fewer clothes there needs to be a wider public debate on [the] future of the ‘consumer society’, including an evaluation of its benefits and costs.”

Ultimately, it is everyone’s problem. Retailers stand a better chance of tackling the scourge if they understand consumers and the psychological differences between online and in-store shopping, and the detrimental effect of impulse and mass purchases. And while there is a host of actions to consider, from correct, consistent sizing, to ending free returns altogether, it will be essential to work in partnership with supply teams to ensure the sustainability of product lifecycles, while working on shifting wider consumer patterns.

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