Have you ever wondered what happened to the sweater you bought that turned out to be too small, or the kitchen gadget you were gifted but didn’t have use for? Few of us think about where products go after we return them, but, collectively, our unwanted goods have a massive business and environmental impact.
Processing the average return costs companies 59% of the original sales price of the item. Every year, U.S. companies spend an estimated $50 billion on product returns. At the same time, those returned goods are responsible for massive landfill waste and 27 million tons of carbon dioxide emissions annually.
Returns are an unavoidable part of the modern consumer economy, especially thanks to the growth of online shopping. Based on my experience as the founder of a product-return logistics company and a professor of supply chain management at Arizona State University’s W.P. Carey School of Business, I believe the returns process as it exists today is unnecessarily wasteful. Of the 3.5 billion returned products shipped between retailers, customers, and landfills each year, only an estimated 20% are actually beyond repair. Yet, nearly 10 billion pounds of returned items end up as landfill waste anyway.
The practice of throwing out up to a quarter of returned products, many of which are in resalable condition or could be easily fixed, makes little sense. So why are companies turning a blind eye to waste in the returns process?
By and large, retailers see the financial and environmental toll of reverse logistics—the process of shipping, processing, and reselling or disposing of returned goods—as part of the cost of doing business. Once an item is returned, it’s already seen as a loss for the business, and the priority is to get rid of it as quickly and cheaply as possible, even if there’s nothing wrong with it. Third-party logistics services handle much of the returns and disposal process, putting it out of sight and out of mind for corporate executives. Since leadership positions in reverse logistics aren’t part of most companies’ promotion tracks, these executives may know little about how the returns process works.
Companies ignore the returns process at their own peril. In addition to losing out on potential profits, a wasteful returns process reflects poorly on brand image. Retailers like H&M and Nike have angered customers by burning returned and unsold clothing rather than donating or reselling it. Most consumers don’t realize that many of the items they return end up in a landfill. But as demand for sustainable business models increases, it seems to be only a matter of time before companies with wasteful and environmentally harmful returns processes come under closer scrutiny.
To stay competitive, companies need to stop seeing profitability and sustainability as being at odds. That means thinking about reverse logistics the same way they would any other aspect of their supply chain, rather than viewing returns as an inevitable loss, and outsourcing them to third-party processors. Returns need to be a priority, and profitability and sustainability need to be approached as complementary rather than opposing goals.
To achieve this, companies can make three important changes. First, they need to gather data throughout the returns process. Right now, surprisingly few companies collect comprehensive data about the types of products returned or why they’re returned. My research analyzing one major retailer’s return process found that 53% of all returns were assigned an F grade—meaning they are not economically viable to repair or refurbish—before they were even inspected.
Without good data, it’s impossible to differentiate a shirt that simply didn’t fit from one with a huge tear in it. Collecting additional data could be as simple as requesting that customers explain in detail why they’re returning a product or share photos of the problem, rather than enabling them to create a return label with no questions asked. This data could then be used to determine which products can be repaired or resold rather than discarded. If products are beyond salvaging, customers could be instructed to throw them out rather than mailing them back. As companies amass data about their returns, they can use artificial intelligence algorithms to refine the process further.
Second, companies can make their products easier to repair. My research shows that products that receive B, C, or D grades (which signify increasing defect or damage levels) are frequently sent to third-party liquidators to be refurbished and resold, and many will find their ways to eBay, bulk liquidation sites, or exported to Latin America, Africa, or Asia. But over time, most of these products still end up being sent to a landfill because they cannot be repaired at a reasonable cost.
The simpler and cheaper it is to replace individual components, the more defective products can be saved from the landfill and resold for nearly full price. Better data can help companies identify and redesign components that are prone to failing. Sending replacement parts directly to customers’ homes, when appropriate, could save on transportation and labor costs while also making customers’ lives easier. As the “right to repair” movement gains steam, improving products’ repairability can also help companies win over customers and regulators.
Finally, businesses need to change how they measure success when it comes to product returns. Today, most companies see returns as a cost center and measure their cost per return, incentivizing managers to minimize expenses. Sending a product to the landfill is almost always cheaper than repairing it, even if a refurbished item could later be resold for a profit. Measuring the percentage of returned products that are resold, or the net profit from refurbished products, would send a signal within large companies that profitability and sustainability matter in the returns process.
Product returns are financially and environmentally costly, but they don’t have to be. Refocusing the way companies approach returns can boost revenues while simultaneously reducing waste and greenhouse gas emissions. In the future, businesses need to approach profitability and sustainability as complementary goals if they hope to appeal to a new generation of consumers. With a few thoughtful changes, companies can start to build a returns process that will be better for both profits and the planet.
Hitendra Chaturvedi is the author of Sense and Sustainability and a professor at Arizona State University’s W.P. Carey School of Business, where he teaches supply chain management. He was the founder of GreenDust, a multinational reverse logistics company whose customers included Amazon, Walmart, LG, Samsung, Whirlpool, and others.
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