Retail executives love the lack of friction in online shopping that makes it fast and easy for customers to complete a purchase, and promising free returns is part of that. But the costs of those returns add up: Of the approximately $1.29 trillion in U.S. online retail sales in 2022, it’s estimated that $212 billion worth of goods — 16.4% of sales — were sent back. While that represents a reprieve for retailers from 2021, when the rate shot up to 20%, returns are up still significantly, from just 10.6% in 2020. It’s putting e-commerce executives under pressure to lower these unsustainable numbers.
The managers we work with on fulfillment strategies keep coming back to two less-obvious, intertwined questions regarding product returns: Does the current common strategy of putting the lion’s share of resources toward speedy delivery affect the return rate? And could a fulfillment approach that deprioritizes speed and instead aims to consolidate multiple-item orders into single, large deliveries improve return rates?
The issue matters not only to those invested in lowering reverse-logistics costs but also to colleagues in sales and marketing, since sales figures can oscillate dramatically as return rates and refunds are factored in.
Research we’ve conducted to answer these questions could challenge the assumptions underlying online delivery practices that, often counter intuitively, lead to higher rates of returns. We found that delivering all products in an order together, even if that means later delivery for some items, lowers the probability of returns. Our results suggest that delivery speed matters less to customers than the convenience of receiving all ordered items in a single delivery.
This story is from the Spring 2023 edition of MIT Sloan Management Review.
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This story is from the Spring 2023 edition of MIT Sloan Management Review.
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