The Real Cost of Returns


Logistics innovations

Retailers have begun to grapple with the high cost of customer returns. By some estimates, more than 10% of all consumer purchases return to their original retailer. The result creates billions in lost revenue. A sum exacerbated by the added costs associated with the shipping and transportation expenses necessary to return goods to the retailer. 

Returns By the Numbers

Customers want the ease and comfort of purchasing products via e-commerce channels conveniently delivered to them. However, they do so without the experience of closely examining and considering the product as they might inside a brick-and-mortar retail store. 

Wharton marketing professor, Thomas S. Robertson, noted the total financial impact customer returns had on retailers. He determined that, for the year 2018, retail returns exceeded $369B. Flash forward three short years later, when the pandemic accelerated online shopping, and that number was estimated to have reached $761B for the year 2021

When retailers are managing thin margins in the first place and working quickly to adjust to seasonal fashion and home decor demands, return rates like these cause a significant hit to the bottom line. In fact, according to Pitney Bowes’ latest BOXpoll survey, online returns cost retailers approximately 21% of order value, with several brands reporting ratios considerably higher.

One Return, Many Destinations

Part of what makes the e-commerce experience so attractive for customers is the benefit of free shipping and free returns offered by many businesses. So naturally, most retailers want to provide this experience of ease and convenience. But it comes at a price – for the retailer. 

Shipping is the most apparent expense. However, retailers report stuffing warehouses full of goods destined for secondary markets at pennies on the dollar. Some returns are so damaged or visibly worn that they become a total loss. While a variety of other items may no longer fit the seasonal style demands. 

Retailers take on the burden of these expenses as customers know that they can push the responsibility of dealing with returns back onto the retailer. From the retailers’ perspective, returns have become such a problem, cash back offers up to 50% of an item’s value are being promoted to avoid the expense and hassle returns pose. In more extreme instances, full-value perks in the form of store credit are provided if a customer keeps the item. 

Increased Customer Expectations

There is a tight rope being walked by retailers as they struggle to put some burden back on consumers without alienating their customer base. Stores want to provide return policies that are fair and equitable since customer loyalty is vital to any retail transaction, and contemporary customers expect the ease of convenient returns. 

The higher expectation is even more evident as we emerge from the impacts of COVID. Consumers were often limited to the experience of e-commerce and relied upon generous return policies as they shopped from home. In fact, 67% of shoppers will check out a retailer’s returns policy before making a purchase.

Online customer demand created during the pandemic set an expectation of quick shipping, quick returns, and absolute ease of refund. Online ordering has yet to subside as consumers return to physical stores to shop, stretching staff incredibly thin in an already tight labor market. And considering 84% of consumers stated they would turn their back on a retailer after a poor returns experience, the stakes couldn’t be higher.

Unfortunately for retailers, returns that do not go smoothly or where customers perceive they are a bother or inconvenienced by the retailer will negatively impact customer loyalty in the future. Customers want a fun and easy transaction, and retailers wish for customers who will come back season after season. Therefore, the relationship must be perceived as something more than transactional.

Identifying Cost-Effective Strategies

With so many choices available in retail, customers will lean toward stores that create a seamless shopping experience. More consumers are actively seeking out retailers offering a variety of delivery methods. To make matters more complex, more shoppers order multiple products at once, only to return unwanted items to the retailers (commonly referred to as bracketing).

Retailers actively try to reduce shipping and transportation costs to improve their margins. In doing so, many operations have identified areas where customers hold some responsibility. For instance, shoppers often do not read sizing and material information before ordering. Or, with larger purchases, they may not consider dimensions for items such as furniture or large decor items. However, customers do not want to be blamed for the issues that emerge in returns. 

Customer loyalty is impacted by an overall positive experience, not just during the initial purchase. And so retailers continue to find ways to satisfy the customer while working to keep return costs down. Augmented reality and more robust product descriptions are proactive strategies beginning to make a difference. Brand discounts, partial refunds for keeping items, and even loyalty bonuses for those who shop without returning are also being explored.

Leveraging Physical Solutions

Retailers continue to focus much of their return cost efforts using technology and financial incentives. But the reality is that returns will always play a role in the consumer experience. This means companies must find ways to reduce costs associated with the physical movement of products back through their supply chain. 

One strategy beginning to take hold is the use of Smart Lockers. Safe and secure, Smart Lockers are being strategically located within steps of most consumers in trial metro areas. For the consumer, products are returned without the hassle of printing labels or repackaging. The process is contactless, typically available 24/7, and the drop-off process takes mere seconds.

From the retailers’ perspective, logistics savings of up to 50% are realized with local sorting and aggregation. Any returns heading back to the retailer are sent in bulk using the most cost-effective courier. Combined with online shopping enhancements and return disincentives, the forthcoming Smart Locker network will round out a shopping and returns experience only dreamed of a few short years ago.

To learn more about how your organization can maximize Smart Lockers to reduce cost, increase revenue, augment your brand, and delight your customers, contact the ParcelPort team online by visiting, email at or calling 1-800-818-0870.