Reverse logistics, or more specifically “returns,” are finally getting the attention they deserve. While product returns have long been a thorn in the side of online sellers, low volumes simply did not warrant policy and procedural changes. According to the US Census Bureau, 2013 e-commerce sales accounted for 5.8 percent of total sales, or $263.3B. As stated by eMarketer, e-commerce sales in the US jumped more than 400% from 2013, reaching a staggering $1.137 trillion in 2023. eMarketer also expects double-digit, year-over-year growth for e-commerce sales through 2027.

Similarly, e-commerce sales as a percentage of total retail jumped from 5.8 percent in 2013 to nearly 20 percent in 2023, according to Oberlo. Of course, with more sales comes more returns. eMarketer places the returns volume for 2023 at $211.76B — nearly the equivalent of all e-commerce sales in 2013.

Returns — now a $212B issue for brands, e-tailers and omnichannel retailers — have become a focal point for 2024. Many retailers, including Abercrombie, H&M, J. Crew, Macy’s and Zara, have already implemented some type of return fee. While this is a simple approach for curbing returns, it could prove to be a slippery slope considering a recent Inmar survey revealed that 30 percent of shoppers said they would no longer buy from a retailer that charged a return or restocking fee. This is one of the greatest dilemmas in digital commerce, considering shoppers with the highest return rates are often a retailer’s best customers.

Dan Nevin, general manager of Inmar Post-Purchase Solutions, believes charging for returns is not the optimal solution. Mr. Nevin said, “Charging for returns serves as a bandage and fails to address the root causes of returns.” He believes online merchants should “lean into” returns and leverage them as a competitive advantage.

His point is spot on considering digital sellers are asking shoppers to take a giant leap of faith by purchasing a product based on pictures, a few words and maybe some reviews. Exacerbating this leap of faith is that retailers may be charging customers with very high lifetime values for their returns. That being said, it’s clear that online sellers need to stop the bleeding before they can take care of the wound.

Returns Come with the Turf

Product returns are ingrained in the e-commerce landscape – just as they should be. However, a previous Inmar survey revealed that nearly 60 percent of a retailer’s returns can be avoided, as evidenced by the three leading causes of returns:

• Shipped the wrong product
• Inaccurate site content (poor product descriptions, inaccurate sizing, limited pictures, etc.)
• Product arrived damaged

These three issues – all on the retailer’s side – can be easily addressed through quality control and contextual adjustments to product listings. Augmented reality (AR) can be added to give shoppers realistic views of products before they purchase. Burrow, a direct-to-consumer furniture merchant, recently introduced an AR app that allows shoppers to place furniture in true-to-scale models of their own living rooms. Similarly, many social media platforms have introduced AR apps that allow the user to apply personalized filters. For example, Christian Dior used Snapchat and Instagram filters in a campaign called “Virtual Word of Mouth.” The campaign encouraged viewers to try on (via AR) different shades of lipstick. According to Shopify, the campaign generated more than one million impressions.

Data Mining is Essential

Data should be collected at every touchpoint throughout the returns journey. This helps retailers address root causes, especially for products that arrived damaged. For example, the data might reveal that a certain carrier has a disproportionate number of damages. Similarly, if a specific SKU has a disproportionate amount of damages or returns, the manufacturer should be alerted. This may lead to improved packaging or may help to identify a product defect.

Addressing these three key causes can prevent returns while improving customer satisfaction.

Leaning into Returns

As mentioned previously, returns done right can actually improve customer loyalty, provided the shopper receives a frictionless returns experience. In some cases, a product return can actually boost loyalty thanks to the service recovery paradox. This paradox occurs when a customer thinks more highly of a company after the company has corrected a problem with their service (a return, in this case) compared to how they would regard the company if an issue had not occurred.

Another way to “lean into returns” is to offer the customer unrivaled convenience. Providing package-free and label-free returns at convenient drop-off locations is among the most preferred return methods. Retailers like Kohl’s, with nearly 1200 stores, enable participating e-commerce merchants to offer their customers the convenience of a nationwide network of drop-off locations. With 85 percent of the US population living 15 miles or less from a Kohl’s store, this is a highly viable return method.

Self-service, in-store return kiosks – like the Amazon kiosks in Whole Foods stores – provide a similar customer experience while making returns more sustainable. In addition to eliminating the need for repackaging and preprinted labels, these types of returns are often worked into a shopper’s existing schedule – a practice known as “trip chaining” – versus making a destination trip to a carrier, like UPS.

Returns dropped off at retail locations can be aggregated, which results in fewer transportation costs and reduces the consumption of fossil fuels and carbon emissions. Additionally, returns made in-store are also less likely to incur fraudulent activity, a practice that cost retailers more than $100B in 2023, according to the NRF and Appriss Retail Report. In other words, retailers will lose $13.70 for every $100 in returns to fraudulent activity.

Artificial Intelligence will Improve Value Recovery and Reduce Costs

Artificial intelligence (AI) is changing the rules of engagement across the commercial landscape. It’s likely AI will become even more prominent in retail due to the complexities involved – from demand signaling, fulfillment and inventory management to supply chains and returns. For example, last year pymnts.com stated that Amazon was deploying an AI-powered solution trained to identify damaged goods prior to shipping.

In a related story, the Wall Street Journal stated that Amazon expects the technology to cut the number of damaged items sent out, speed up picking and packing and eventually play a critical role in the company’s efforts to automate more of its fulfillment operations. While less than one in 1,000 items is damaged; this single AI application could provide significant savings considering Amazon handles 8 billion packages annually.

Returns will benefit greatly from AI in other ways, such as optimizing value recovery from returned goods. These systems will determine the best disposition method while adhering to client-specific rules. While some of this exists today, value recovery AI will become even more intelligent. When linked to other systems, like inventory management, products may avoid being returned to stock by fulfilling forward orders from returned merchandise in “good-as-new” condition. These expanded systems will also streamline routing so that goods move in and out of extended value chains based on optimal outcomes.

AI will play a pivotal role in personalization as well. This will end the “one-size-fits-all” approach to returns management, returns processing and the returns experience. AI will help retailers identify tier one customers as well as bad actors. This will reduce returns-related fraud while offering unique rewards, like extended return windows, to your most loyal customer base. Collectively, returns will take a giant leap forward in 2024.

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Thomas Borders
Thomas Borders is the vice president and general manager of Product Lifecycle Solutions at Inmar Intelligence. He is a proven leader of diverse teams across a variety of industries and functional areas with experience leading revenue operations teams and supporting the growth of sales teams in financial technology, supply chain and media businesses. Thomas is passionate about delivering the best end-to-end post-purchase solutions for customers that optimize the customer experience and minimize the environmental impact of evolving supply chains. Thomas has been a leading spokesperson in the returns space and has been featured for his expertise in The Washington Post, The Wall Street Journal, Business Insider, USA Today, and Forbes Advisor, among other publications.