Free returns are a standard when it comes to online retail. But lots of those returns won’t end up back on the shelf, and processing them can be costly for retail companies.
“Some retailers are better situated to do this than others,” said Amanda Mull, staff writer at The Atlantic. “For some of them, it depends on the particular goods that’s been sold. Electronics, for instance, if those have your personal information on it, usually those are going to be stripped for parts.”
Mull wrote about the industry that processes returns, called reverse logistics. She found that sifting through our returns can be a pretty big financial loss for companies — but they may not have a choice.
“We’re in a retail environment in which a couple of very large companies, and none of them larger than Amazon, pretty much set the terms of retail sales,” she said. “But if you’re a small business and you’ve got fewer people trying to process returns, there’s just not enough scale to absorb some of these costs.”
The following is a transcript of Mull’s conversation with “Marketplace” host Kai Ryssdal.
Kai Ryssdal: When you return something to FedEx or UPS, it’s not just scanned and put back on the shelf to be picked over, right?
Amanda Mull: That is not what happens at all. I think that that’s what most people assume because you don’t think about the process of figuring out if someone is lying to get their money back. And about 5% to 10% of returns from online shopping are fraud.
Ryssdal: I’m surprised. I’m surprised it’s that low, to be honest with you.
Mull: Honestly, so was I, but 5% to10% of hundreds of billions of dollars of merchandise is still a pretty big amount.
Ryssdal: So let me ask you this, though: Once they figure out what’s fraudulent, do they actually stick it back on the shelves and wait for the next picker to come along?
Mull: It sort of depends. Some retailers are better situated to do this than others. For some of them, it depends on the particular goods that’s been sold. Electronics, for instance, if those have your personal information on it, or if they might have it, usually those are going to be stripped for parts. If it has usable parts, likely part of it gets resold.
Ryssdal: What if it’s like a like a blouse or a pair of pants or something?
Mull: That depends on how nice the blouse or pair of pants is.
Ryssdal: OK, it’s an average blouse and an average pair of pants.
Mull: If it’s an average blouse or a pair of pants, and it’s coming back brand new and in packaging, it might get put back into the new sales stream, or it might get offloaded to an outlet. But a lot of stuff does just get thrown away. About 25% is the estimate that I got.
Ryssdal: That’s crazy. Twenty five percent of returns?
Mull: As everyone emphasized to me, and as I feel compelled to keep saying, it really depends based on product category. But overall, the estimate is about about a quarter.
Ryssdal: So that speaks ill of us as a consuming public. But anyway, this has all, I’m sure, been exacerbated by the fact that we all bought so much more stuff than usual online during the pandemic and have continued to do that.
Mull: Yes, online shopping has grown an enormous amount during the pandemic, so you get a lot of people ordering a lot of stuff online that they’re either unfamiliar with, or stuff that they’re familiar with, but they would have gotten it in stores before. Not only does that add to [to the amount of] online shopping, which has a higher overall return rate [than in-person shopping], but it’s going to spike that return rate up above normal because it’s pushing people into the shopping circumstances they’re not used to or comfortable with.
Ryssdal: Yeah, and the other part is companies are pushing their customers into online sales in an attempt to compete, however vainly, with the Amazons. The challenge, of course, is that the Amazons have the scale to be able to handle the returns, and maybe your fledgling e-retailer just doesn’t.
Mull: Right. We’re in a retail environment in which a couple of very, very large companies, and none of them larger than Amazon, pretty much set the terms of retail sales and set the expectations.
Ryssdal: One of which, by the way, is free returns.
Mull: Right. Free returns are a huge thing, especially when you’re trying to encourage people who might be unfamiliar with your business to trust you. But if you’re a small business and you’ve got a much lower number of people trying to process returns and process refunds, there’s just not enough scale to absorb some of these costs.
Ryssdal: Since reporting this out, have your shopping and return habits changed?
Mull: Yes. You know, I have written about consumerism for years, but learning about all of this has really made me think twice almost every time I go to order something.