Click, Return, Repeat: The Hidden Challenge of Returns for E-commerce Businesses

At Montonio, we talk to thousands of merchants about their requirements and lately, we've seen a new topic arise - the challenge of managing the huge burden of online store returns. Let’s imagine for a moment the journey of a small, growing online store, initially run from the confines of a living room, where a cupboard suffices as the warehouse. In this early stage, returns are easily managed and fairly infrequent. Yet, as this store begins to grow, so too does the volume of returned products.

This growth is both a blessing and a curse. On one hand, it signifies success and market penetration. On the other hand, it introduces a bunch of logistical nightmares. Returns management evolves from a simple process managed by a single individual to a complex operation requiring additional manpower, financial resources, and space. Soon, the realisation dawns that not all returned products can be restocked and resold, leading to increased operational costs and inventory management headaches.

The narrative of escalating returns is not unique to any single online retailer. Across the board, businesses are grappling with return rates as high as 50 percent in some sectors, driven by the consumer demand for flexibility and the ease of returning products. The financial implications are staggering, with the global cost of returned items hitting billions annually, and the cost of handling these returns being three to five times higher than the original shipping costs.

Moreover, the sustainability aspect of returns cannot be overlooked. The environmental impact of shipping products back and forth, coupled with the disposal of unsellable items, is becoming an increasingly pressing concern for both consumers and businesses. Unwanted merchandise poses logistical hurdles not only for big businesses but also for small and mid-size retailers, especially when goods are damaged or the whole process of returning items to shelves or warehouses is too overwhelming and complex. While approximately half of returns are suitable for resale, an alarming 5 billion pounds of returned goods end up in landfills annually, equivalent to the waste generated by 5 million Americans. According to data shared by the reverse logistics firm Optoro with Retail Dive, it is estimated that the returns process contributes to the consumption of 1.6 billion gallons of diesel fuel and the emission of 15 million metric tons of CO2.

Integrating BNPL payment solutions into the online shopping experience has transformed consumer purchasing behaviours across Europe. With BNPL transactions projected to soar 15.2% to US$219.2 billion in 2024, and an anticipated growth to US$354.3 billion by 2029, the convenience of deferred payments is reshaping the retail landscape. The shift is helping businesses to grow, but they will need to implement smart strategies to navigate so many returns. 

Strategies for navigating returns in 2024

In the face of these challenges, retailers must adopt strategic measures to streamline their returns process and minimise the financial and environmental impact.

1. Enhancing Product Descriptions and Images: One of the most effective ways to reduce returns is to ensure customers know exactly what they're buying. Enhanced product descriptions, high-quality images, use of social media influencers and even virtual try-on features can help reduce the gap between customer expectations and reality, reducing the likelihood of returns.

2. Implementing Smart Return Policies: Smart return policies that balance customer convenience with practicality for the business can also play a crucial role. For instance, offering store credit instead of a refund or allowing in-store returns for online purchases can help manage the financial impact of returns.

3. Leveraging Technology and Automation: For growing businesses, investing in returns management software or platforms that offer automated processing, tracking, and restocking of returns can save significant time and resources. Automation can also enhance the customer experience, providing real-time updates on return status and refunds.

4. Sustainable Returns Management: Adopting a green approach to returns can not only reduce environmental impact but also resonate with eco-conscious consumers. This might involve simplified packaging, local drop-off points for returns to reduce carbon footprint, and refurbishing returned goods for resale.

5. Streamlined Refunds: For small and medium e-commerce businesses, transitioning from manual to automated, one-click refund services can significantly enhance efficiency. This approach not only speeds up the returns process but also reduces the workload on staff, allowing businesses to redeploy resources to growth-focused activities.

As we move through 2024, the challenge of managing e-commerce returns will undoubtedly intensify. However, with strategic planning, investment in technology, and a focus on sustainability, small businesses can turn this challenge into an opportunity for growth and differentiation.

By partnering with innovative solutions like Montonio, small and medium e-commerce retailers can streamline their returns process, ensuring they not only survive increased returns, but thrive, riding the wave of e-commerce success well into the future.