Online Returns Hurt the Planet and Bottom Lines. Retailers Are Changing That
When Toronto-based clothing brand Good For Sunday introduced a new return policy in July, it wasn’t just driven by a smoother process for customers—it was thinking about the planet. The sustainable company’s model, EcoDrop, is a peer-to-peer initiative intended to minimize the cost and environmental impacts of retail returns. It works like this: When a customer wants to make a return, instead of sending items back to Good For Sunday, they can ship them to the next customer. The brand sends them a prepaid label with the address of the person who wants to buy the garment, and the customer receiving the item—which must be in brand new condition with tags—also gets a 15 per cent discount on their purchase. By eliminating items being sent back through a distribution centre, the company says the new process results in 57 per cent fewer kilometres travelled, less packaging used and 60 per cent fewer CO2 emissions compared to regular returns.
“We heard customer feedback that people would like more flexibility when shopping online—especially since they’re not able to touch and feel our product in-store,” says Anthony Kentris, co-founder of Good For Sunday.
The EcoDrop initiative is part of a larger sustainability focused shift in retail. The pandemic’s e-commerce boom highlighted an ongoing problem in fashion particularly: The cost of online returns, both for companies’ bottom lines and the environment. Toronto-based retail analyst Bruce Winder says that “online returns are about three times that of bricks-and-mortar returns.” Returns cost retailers an average 21 per cent of an order’s value, according to a 2022 survey by global shipping company Pitney Bowes. To offset the fees of processing unwanted items and to reduce the carbon footprint of shipping clothing back to warehouses—where much fashion ends up in a landfill or destroyed—more retailers are changing their return models by charging shoppers to send products back or offering alternatives, like shipping a returned item right to someone else. In fact, the survey found that 70 per cent of retailers are actively trying to lower the cost of returns by addressing transportation and/or processing costs.
In June, online clothing retailer Asos warned that higher return rates would eat into its profits in the current year. Chain retailer Zara announced this year it would start charging shoppers for some online returns, as did brands Boohoo and Uniqlo. And it’s not just big names that feel the effects of returns. “A returns-management system is really tough for a small business to put into place,” says Kentris.
The reality of returns
Online shopping is designed to be incredibly easy. A tap here, a click there, and within days—sometimes hours—clothing arrives at your door. This has allowed customers to adopt a “I’ll return this if I don’t totally like it” attitude, which has implications.
“There’s the warehousing and inspection fees to put [items] back into stock,” Kentris says. “And in some cases, garments are unsellable.” When something can be re-sold, there’s an additional cost to package it up and ship it back out.
Winder says there are myriad reasons for online returns, including the fact that many brands offer free shipping on such transactions. Consumers are also often able to benefit from incentives such as discount codes offered on purchases over a certain amount, so ordering a variety of sizes for a single product to try out at home and return what didn’t fit is a more palatable consumer practice—one that’s been dubbed “bracketing” by industry insiders.
Each year in the U.S. alone, customers return approximately 3.5 billion products. Only about 20 per cent of those are actually defective. This is a problem with material impact. Each year, five billion pounds of waste is generated through returns. Unfortunately, it’s often cheaper and more time efficient for companies to simply throw away unwanted goods than re-package, re-sell and re-ship items.
A new way of viewing retail returns
Kentris says a large part of the motivation to introduce a circular return policy was to uphold Good For Sunday’s two key brand pillars: ethical manufacturing and sustainability. These concepts tend to be well received by customers who shop from companies that have a eco-conscious bent, because reducing their carbon footprint is already something that appeals to them. For Good For Sunday, EcoDrop is an extension of other sustainable initiatives it offers, such as compostable packaging and products made with renewable materials like hemp, linen and bamboo. But Kentris notes that there is still potential to further entice first-time shoppers.
He explains that many consumers expect free shipping and returns—especially for orders over a certain dollar amount. “If you don’t have free shipping as a small business, it drastically reduces conversion rates.” He says that depending on where a customer lives in the country, shipping an item to them could cost anywhere between $12 to $15. “And then for a return, if the expectation is that it’s also free, that’s another $12 to $15,” he says. “If you’re looking at an order of $100 and the margin is 50 per cent, you’ve pretty much already wiped out a small business’ profits by requesting a return if they are expected to pay for the shipping and return.”
Consumer acceptance of a new way of returning items may take time. The Pitney Bowes survey found that three out of four consumers say their recent return experiences have been “inconvenient,” which can affect how likely a shopper is to become a returning customer. Plus, the pandemic has increased the amount of goods people are sending back. Retail returns in the U.S. jumped to an average of nearly 17 per cent in 2021 compared to 10.6 per cent in 2020, a survey by the National Retail Federation found. This adds up to more than US$761 billion of merchandise.
But Kentis is optimistic about the potential in the EcoDrop process. He points to the success of platforms like peer-to-peer social e-commerce company, Depop, and social commerce marketplace, Poshmark, which paved the way for how consumers can be more involved in the lifecycle of a garment. He suggests that ultimately, resale sites have “made consumers more comfortable” about a different way of buying clothing, as many are now well-attuned to performing transactions with people, not retailers, when it comes to getting goods they want.
Plus Winder says that he likes what Good For Sunday stands for and is impressed that it is testing a solution that’s less convoluted—and ultimately more eco-conscious—than competitors: “They are carving out a very interesting sort of niche.” And with tech companies like the Virginia-based Greenlist also pioneering the peer-to-peer return space, this may become a more common practice soon.
Addressing the issue of returns, Kentis says, should force businesses to confront the overall experience of its product offering, from sizing information right down to the textiles used. “The goal is that a customer won’t even make a request to return,” he says. A 2021 survey by McKinsey found that about 70 per cent of clothing returns made are because of sizing issues, so ameliorating how dimensions and fit are communicated to online shoppers pre-purchase is integral to improving return rates overall.
While Good For Sunday still offers a traditional return model, customers must pay the $12 processing fee to send an item back to the brand’s warehouse. Kentis says since the introduction of EcoDrop, about 50 per cent of customers have opted for the new option. “That’s pretty exciting since it is an extremely new service,” he says. “I hope that continues, because…it allows the circularity to continue.”