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Should More Retailers Be Accepting Third-Party Returns?
A university study finds that partnerships involving physical stores accepting returns from other retailers or brands “can be a win-win.”
The study from professors at Carnegie Mellon University and the University of Washington (UW) was recently published in Management Science.
Researchers constructed a model with an online retailer and a store retailer in which customers had several options for buying and returning goods. The study compared the expected profit of the retailers before and after a return partnership was formed and identified when both sides benefitted from the partnership.
Among the study’s findings:
- Retailers accepting returns benefitted from having more traffic in their stores.
- Retailers or brands enabling returns to be processed by third-party stores were able to shift returns to a more cost-effective channel. Collecting and shipping multiple returned items from a physical store is less costly than individual mail-in returns.
- Return partnerships can occur with no direct financial transaction between the two retailers because of how the partnership affects consumer behavior. Such partnerships can also work between retailers offering similar as well as differentiated products.
One caveat was that online sellers with lenient return policies are “best poised to benefit from return partnerships” as those with stricter policies (e.g., high restocking fees) can lead to complications.
Researchers also said sellers of similar products run the risk of driving excessive returns. The study stated, “It limits the incentive of an online retailer when the added convenience of an offline return induces more returns of online purchases. Thus, we caution that with limited differentiation in product offerings, store visits should not be too convenient for a partnership to form.”
Only a few retailers accept returns from other stores.
Amazon is best known for its partnerships that enable free online returns with no box, tape, or label needed inside Kohl’s and Staples locations. It also accepts free online returns at its owned stores (Amazon Fresh, Amazon Go, or Whole Foods Market) and UPS locations.
Nordstrom Local, Nordstrom’s pint-sized urban hubs supporting online pickup and returns as well as personal styling services, helps customers ship returns from other stores. If the retailer doesn’t offer free returns, Nordstrom charges a shipping fee based on package weight, dimensions, and destination. There are seven Nordstrom Locals in Los Angeles and Manhattan.
Staples, Petco, Ulta Beauty, Cost Plus World Market, and Giant Eagle all accept returns from merchants that have partnered with Happy Returns, which UPS acquired last November. The deal made Happy Returns drop-offs also possible at 12,000 locations. Participating Happy Returns’ merchants, including Levi’s, Everlane, Revolve, and Gymshark, pay a minimal fee per returned item.
In announcing the Happy Returns’ acquisition last October, Carol Tome, UPS’ CEO, said retailers estimate that between 20% and 30% of all online orders are returned, and it costs an average of $33 to process each return. Tome said, “We’re going to offer consolidated returns for our customers, which will reduce their handling costs, actually improve our delivery density.”
Discussion Questions
Should significantly more retailers be open to accepting returns from and allowing returns to third-party retailers?
Do returns from complementary or differentiated products to the third-party retailer work better?
What other conditions support “win-win” return partnerships?
Poll
Loading …BrainTrust
Nicola Kinsella
SVP Global Marketing, Fluent Commerce
Keith Anderson
Founder, Decarbonizing Commerce
Well, I guess it helps to drive footfall into a store. The question is whether that footfall can be converted to incremental sales. The picture here is mixed. I am not sure that Kohl’s acceptance of Amazon returns has been very good at driving additional revenue for the business in a meaningful way. The other consideration is store operations. Whole Foods, for example, does accept Amazon returns and allows for collections. This makes sense as it’s owned by Amazon, but in a lot of stores it looks messy and creates clutter: in our local store a whole area that used to be seating for a cafe has been turned into a sort of fulfillment center. It’s like shopping in the backroom of a post office (slight exaggeration!).
I won’t offer advice here, because this stikes me as strictly a numbers game – i.e. it may or may/not work depending on the situation, and will almost certainly change the more widespread it becomes – buy my gut-level reaction is clear: “Really? Is this the best a retailer can do? play houseboy for someone else”
For stores whose value equation includes convenience, accepting other online returns is a good service to offer. But does it move the traffic and sales needle? The Kohl’s results since the start of the Amazon partnership have driven more traffic than incremental sales.
Construction of a “model” by university researches may not translate into real-world results.
Dick, you make a good point. Returns are part of the value equation for the customer.
Yes! Often in Kohl’s the lines for Amazon returns are longer than the lines at Kohl’s own registers. Tells you all you need to know!
I find this to be a very odd definition or portrayal of a “win/win” scenario. My definition would be an absolute minimizing of returns in any form. The retailer had the right product at the right place and time, and the customer made a problem solving/want/need purchase. No return necessary. Win/win. Otherwise the retailer is actually saying, “How do I lose less on returns?” and the customer is saying, “OK, I can make my return at X or Y instead of Z, but I still have to spend time and energy on a return. Grrrrrr.” Correct, returns are never going to be zero. And certainly every opportunity to save money and time on the returns process should be explored. But even better would be smarter selling on the retailers part and smarter buying on the customers part. The use of the word “free” and various customer acquisition strategies over the past 2 decades have created a monster of a shopping mindset. And now look at the time and money being spent to try to contain that monster. “Free”…really???
Convenience and choice are inseparable in the minds of consumers. Third-party return partnerships fit the bill by streamlining the return process and giving shoppers easy options to return goods at their convenience. For retailers and brands, these partnerships drive traffic, reduce logistical costs, and build loyalty. I will say that the Amazon returns sections at some Kohl’s locations I’ve visited were a mess, with miscellaneous merchandise piled up on the floor. These partnerships can ding retailers’ brands if not managed properly, including providing associate training.
This definitely benefits the brand whose products are being returned in the sense that they’re appealing to consumers’ extreme expectations surrounding convenience. For the brands hosting the returns, I think the jury is still out on if it’s as good of an idea for them.
Returns are a hassle. For both retailers and customers. But if efficiencies and sales opportunities can be gained for both parties then it totally makes sense. That said, having returned Amazon purchases to both Staples and Kohl’s, they’re not making the most of the footfall opportunity. A coupon isn’t enough to drive an unplanned sale. They need other supporting messaging and merchandising as well. Otherwise they risk their brand being perceived as a ‘return drop off point’ rather than a ‘place to buy’.
As returns balloon, erode margins and tie up resources for reverse logistics, collaboration has become a strategic advantage. For instance, retailers with a limited brick-and-mortar presence can partner with other chains to extend their reach nationwide.
Consumers now expect all-channel options like BORIS and they will reward retailers that offer flexibility and hassle-free returns. Retailer partnerships can reduce costs by consolidating returns, boost store traffic and improve the customer experience.
We often discuss the cost and environmental impact of returns. This item solves part of the issue rather than making returns a one-at-a-time system. It is undoubtedly suitable for a customer who can make convenient trips to make their returns.
As others have noted, the incremental footfall can be helpful, although staff will need to be retrained on the new operating procedure.
That said, these programs have potential to improve customers’ experience by reducing friction from returns, and anything that makes the reverse logistics process more cost efficient or increases the stock of returned goods available for resale is good.
This drives traffic into a store AND gives an opportunity to increase market share based on the customer experience once inside the “third party store”. Another angle is it expands the geographic reach of the partnership, making returns potentially easier. Once the connection is made, it potentially unlocks co-marketing opportunities.
A true win-win, with a dash of “maybe we can steal each others customers” thrown in for intrigue!
The benefits of accepting third-party returns to the retailer are over-stated – it is a clear win for the third-party as it helps them reduce returns expense. Generating more store traffic does create a sales opportunity for the store, and it’s this opportunity that retailers find compelling. However, converting this ‘returns traffic’ into sales is much more challenging than retailers appreciate. The returns traffic is often focused on the task at hand – returning the product. In order to convert more of this returns traffic, retailers need to create clever and interesting ways to convince these returns visitors to stop and shop the store. These are much harder prospects to convert than other shoppers who intentionally visited the store to shop, and so any additional effort applied to the returns traffic that might take away serving intentional store visits could actually hurt store sales.
Accepting returns from a third-party retail is not a guaranteed win-win situation. From a personal perspective, returning products from Amazon at Kohl’s is a common practice for our family. Sometimes it results in an impulse purchase at Kohl’s, but oftentimes it is just a routine return. When I have been in the store, it appeared that Kohl’s had a dedicated employee that manages the Amazon returns area and it can but steadily busy. There is a cost to accepting this returns. Retailers need to try to quantify the incremental revenues to determine the return on investment.
Despite the significant operating costs associated with product returns, there are capabilities and strategies retailers can leverage to mitigate the cost per item. According to a recent McKinsey survey, the difference in processing costs between the most and least expensive return channels is $5 to $6 on average.
There are many advantages to incentivizing customers to return online orders to retail stores via BORIS (buy online, return in stores). Aside from the significant cost and time savings, it’s a win-win for the retailer and customers. On average, processing returns at stores saves 18 days and improves the probability of reselling the item at full price. Additionally, the consumer can have a more immediate return experience and will most likely buy additional items at the store.
Retailers can more efficiently and profitably partner with third-party drop-off points via a partnership model. In most scenarios, this offers a more efficient and profitable alternative to shipping returns to warehouses for processing. Expanding your network of returns locations provides retailers an opportunity to drive additional ecommerce conversion, improving customer experiences, leveraging your existing checkout flow, reducing stolen packages, and mitigating significant reverse logistics costs. This strategy prioritizes the customer and leads to greater loyalty and engagement.
Three key metrics to evaluate whether a retailer should accept 3rd party returns:
Are return package customers buying our products while in-store? How much can we track or observe?Are we marketing to these potential customers with bounce backs or offers for future sales? What are these numbers showing?How much labor are we spending on transactions, stacking and dealing with return merchandise?
When consumers have an “in-store” or “whole store” feel when walking into retail chains, third party returns can be a good way to drive incremental sales.
Incremental sales will not happen if returns are handled somewhere in the store that is isolated from displays, shelves, promotions, and other visionary hot spots. I have seen examples of where returns are strategically situated, and other examples, where it’s set up more like an isolated post-office, with no benefit to the retailer.
If I were a retail chain manager, I would probably set up a few enticing displays of profitable merchandise, right at the point of third-party returns, and have a self-check right there, or an easy way for the consumer to pay right on point.
Overall, having third-party return partners is only a plus for on-line retailers. Amazon’s set up with UPS centers, where returns can be left at the desk unpackaged, is as ideal for the consumer as any program that ever existed. UPS stores are mostly in small strip malls, or in convenient locations inside supermarkets.
Retail today is all about choice, value, but also convenience. Third party returns are win-win-wins, when executed properly. Db
Offering returns is a nice thing to do. Sometimes , once in a while, when I have extra time, I peoplewatch and at Kohl’s I have often seen people at the Amazon return area, drop off their package, and then walk out of Kohl’s.