Amazon’s Free Returns Expansion, What Retailers Need to Know
Amazon created an online shopping culture where consumers expect free and convenient returns. In the past few years, the e-commerce giant has introduced in-person returns at more than 18,000 physical drop-offs such as Kohl’s and UPS — 5,800 of which are package-free. And recently the retailer expanded its popular free returns policy to include millions of products not previously eligible.
This policy change comes at the peak holiday time with an estimated $100 billion in merchandise to be returned between Thanksgiving and the end of January. While the expansion of free returns on Amazon will undoubtedly lead to an increase in returns volume, the retailer has amassed unmatched logistics prowess. Instead of being overwhelmed by returns, Amazon further elevates the customer experience.
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This is good news for Amazon — and consumers. Because of its scale and sophistication, Amazon can handle a high volume of returns. But for other retailers trying to keep up, it’s not a simple matter of flipping a free returns switch: Retailers need to weigh the benefit of an enhanced customer experience with the cost of managing free returns.
Returns Can Close the Sale
Following Amazon’s lead, retailers can look to free returns as a way to build customer loyalty. Eighty-nine percent of consumers are less likely to shop at a retailer or brand if they had a bad experience with the return. As e-commerce continues to dominate, online retailers can offer free returns so consumers can shop risk-free, while buying sight unseen.
But free returns are only one piece of the puzzle. The actual consumer experience must be as frictionless as possible if shoppers are going to walk away with a positive impression. Consumers want immediate refunds and convenient return locations — or package free or pre-printed labels. And because 80 percent of shoppers prefer to return in-store, according to the National Retail Federation, retailers with a physical retail presence, such as Target, have an automatic edge in a seamless returns experience. Returns bring customers back into the store where they can potentially buy something new as they return.
The Hidden Problem of Returns
While free returns create opportunities for retailers, they can rack up huge costs if not managed well on the back-end. Surprisingly, many retailers don’t have systems and processes to swiftly and efficiently manage and resell returned goods. Items are often piled up in warehouses or back rooms at stores, depreciating in value. Then, items are often shipped around to wholesalers and liquidators trying to find a buyer. Or, they’re donated or sent to landfills. By ensuring that products will not sit in a back room, retailers have a better chance at minimizing financial loss per item.
Beyond financial risks, many retailers are not equipped to efficiently handle returns in a way that mitigates environmental waste. And, a growing volume of returns puts pressure on an already fragile system. Five billion pounds of returns are sent to landfills in the U.S. alone each year. Not to mention, 15 million metric tons of carbon dioxide are emitted by heavy trucks transporting returns each year.
Amazon is able to keep up with an influx of returns given its network and sophisticated online presence. Traditional retailers or smaller direct-to-consumer companies could easily end up with more returns than they can handle, especially around the holidays.
The Bottom Line, and the Long Game
Returns can pose a revenue threat, if not managed properly. On the flip side, if retailers take the proper steps, returns and even free returns can be a differentiator. When offering free returns, retailers need to make sure they invest in the proper technology and infrastructure to handle them in an economically and environmentally conscious way.
While Amazon may have one of the top individual reverse logistics solutions in the industry, smaller retailers can keep up by tapping into shared networks and brick-and-mortar retailers can leverage their unique storefront footprints to improve customer experience and minimize costs.
Across the board, retailers invest heavily in acquiring customers on the front end: free shipping, competitive pricing, retail pop-ups, Instagram ads, the works, all focused on getting the customer into the funnel. But in today’s competitive retail landscape, it’s not just acquisition. Retention makes the difference. In order to keep customers coming back long term, online and brick-and-mortar retailers need to consider the full customer experience – even when shoppers send goods back.
Tobin Moore is the chief executive officer of Optoro.
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