Isabel wants to buy a nice shirt. File several on the website of a Spanish brand without a physical store in your city. She is not sure about the size – sometimes she wears the S, sometimes the M – and asks for both, because she will return the one that does not work for her. The store is obliged to accept returns and makes them free so as not to discourage the purchase. Isabel does not know, but returning one of those two shirts will create a problem for the brand, which will assume the costs of return and will narrow its profit margin. If it is not more profitable to give or get rid of the garment, which is also an option.
“If an online store wants to survive, returns have to be zero,” says Carlos Zubialde, logistics expert and author of the specialized magazine Logistics Information. “Five years ago it was not like that. Companies created an artificial demand when trying to replicate the experience of the physical store: take five garments and do not worry, if you are not convinced you will return them. What happened? That in markets like Germany people asked for an average of five products and returned three. They have created a monster that is now unmanageable and unsustainable, to the point that Zalando already charges returns and Amazon blacklists you if you do more than normal. “
Returns are a real headache for internet stores. The percentage of products that are returned increases year by year. Different reports place the current average between 25% and 30%, although in fashion and in specific campaigns such as Black Friday and Christmas it may be higher (and also COVID has accelerated the trend). Even so, these data vary by country.
“In Spain it is increasing, but we are not at the level of northern Europe. When we opened there we were surprised by how common it was to buy two sizes and return one”, says Pere Castell, director of operations and projects at Logifashion, a logistics operator specialized in fashion. “In Latin America, for example, the rate of returns is much lower because there is less trust in the brands. But due to sustainability it is changing.”
When the customer presses the return button, a return trip begins which, according to Zubialde, will be on average three times more expensive than the outward journey. This journey is called reverse logistics. Below we will explain the different stages of that trip and its costs. We have focused on the world of fashion, but at some points we will talk about other products, such as electronics.
“You have to stop to see all the impact on the value chain: from the moment the packaging is produced, it is handled, it is packed, it is transported through a container, it reaches a warehouse, from there to another sub-warehouse … and back “, says May López, an expert in logistics and director of the Association of Companies for Sustainable Mobility. “This logistics also has an impact due to the consumption of the truck, plane or container and facilities. It is an impact that we do not see.”
“The first factor is the collection,” continues Zubialde. “A driver has a capacity of about 70 deliveries a day. But the collections are fewer and more separated. He still has the capacity to make 20 a day, so the cost per unit collected is much higher.”
Before e-commerce existed, a van delivered 60 T-shirts to a store that knew its hours. Now those 60 shirts reach 60 different houses to which sometimes you have to go twice because the customer is not there. Add to that the potential returns of, say, 12 shirts. If the company offers to collect them, we will have substituted a single trip for 72.
The only way for brands to get rid of these trips is to offer delivery and collection points and send the customer there: to the stores of the logistics operator (Correos, Seur, Nacex …) or to neighborhood stores that provide this service . This is what Amazon or Inditex do, which thanks to their network of stores reduce return costs.
Another way to save is to reduce urgency and offer longer pickup times. “Consolidate and inform the customer. Consolidate is to get the maximum productivity out of a van, which is delivering and collecting in an area where there are concentrated customers”, adds May López,
Although the normal thing is that the client returns to the company warehouse, in some cases the shirt will make two trips: one to one hub intermediate and from there to the main one. It depends on the size of the company. Logisfashion is a giant that works for big brands and that tries to have facilities in many cities to “group stock“And that the second return trip is much more efficient because I have a lot of returned jerseys.
“The logistics are designed so that the stocks are as close as possible. You study very well the number of stock that you want to have and you try to generate a network of returns present in most markets. Thus consolidated, they return together to stock main and reduce transport costs “, says its commercial director.
According to their calculations, the average cost of shipping a return is between 3 and 7 euros.
The shirt is already in stock. Now we must examine its condition. “Each store decides, but in general the clothes are not washed. We check to see if it is stained, if it has any defects, if the label is correctly placed … Quality control is a very important part of the process. We control the requirements that brands ask us and we inform them “, continues the director of Logisfashion. “From there, there are three possibilities: that he returns to the stock seasonal, which is no longer seasonal and goes to sales or outlets or it is stained and removed. ”
Washing and re-ironing clothes would greatly increase costs. Not even thrift stores like Humana do. “Nobody in the sector does it, we do not have financial capacity. It would increase the cost of the garment a lot. Second-hand we put the best quality recovered garments on sale, which represent 10%. We will never put a dirty or deteriorated garment. But the logical thing is for the customer to wash them. “
Quality control averages between 60 cents and 1.5 euros per garment, according to Castell. If we add the transport, we are already in that the return has cost us between 3.6 and 8.5 euros. Suppose Isabel paid 8 euros for her shirt. The logical question a store asks is: is it worth it? This is where the three possible ways of repayment come into play.
The shirt is in good condition. Isabel receives her money and the garment goes back into circulation. The store will have to bear one last cost: packaging. It is the cheapest (between 3 and 15 cents), but it already adds to the fortune in transport and handling.
“The problem with e-commerce is that products usually come very well packaged from Asia or wherever they were produced. They arrive, people unpack and try them on. If they return and resell them, they have to be repackaged,” says Gema Gómez , founder of the Slow Fashion school. “In the store it is different because there is no packaging. You return it and if it is good it goes on sale again.”
To save costs, companies are increasingly opting for packaging that can be reused multiple times. They are not only worth the roundtrip, because at this point in the process the package has already gone, it has returned and is preparing to leave again.
So far we have talked about money. But what about time? The seasons in fashion are very short, so it is possible that in the duration of the return that garment will no longer serve. “If it goes out of style, you eat it with potatoes”, sums up Zubialde. “A return is a double fixed asset: the garment is stopped and you cannot sell it and you also lose opportunity cost”.
In such a case the shirt would end up in the sales or in a outlet. Not only will the brand have paid shipping and handling costs, but it will make less margin.
If the margin on the shirt is less than the cost of return, the brand may conclude that it is better to dispose of it and move on to something else. This is the final destination of some products (not just clothes) bought online. In the United States, brands like Amazon and Walmart have started telling their customers to keep the product instead of returning it, even if the money is reimbursed. In Spain, according to the sources consulted, there are already brands doing the same. But they do not proclaim it to the four winds to avoid fraud. Zubialde explains that he works on projects to apply artificial intelligence to the process and that the brands know if it is worth assuming the return or not.
“The cost of reverse logistics varies daily. Today I can tell you to return it to me and tomorrow to keep it, because variables such as the cost of electricity, management time, resale time …”, indicates. “The system tries to see the global cost of the operation and see what works out better. Donate is another option, because if you give it to Cáritas in your city, the transport is local and costs less. In addition, you get the social and marketing component” .
What percentage of clothing is destroyed? From Logisfashion they assure that none of their clients destroys. Also in the Tendam group (Cortefiel), where they take advantage of the stores to receive returns and save costs, such as Inditex (which has not responded to a request for information for this report). The future waste law will prohibit them from destroying surplusesSo they are already looking for ways to sell clothes: Inditex, for example, has an agreement with Cáritas to donate used clothes. Amazon made headlines recently in the UK, where an investigation found that every year it destroyed millions of unused products. The multinational has a zero destruction policy for its products, but it also sells third-party products that are sometimes cheaper to destroy.
“My opinion is that Amazon does the best reverse logistics at the cost level. They take the collection away because they send the customer to a point of convenience. At that moment, they refund the money because they discount it to the seller. And then they ask him. What do we do, do we reinstate it or do we destroy it? If the product is of low value, it may pay off to destroy it. ” From the company they declare to elDiario.es that “the vast majority of returned inventory is resold to other customers or settled through third parties, returned to suppliers or donated to charities.”
Taking into account the monetary and environmental cost of returns, how to discourage them? The expert May López recommends advising the client – “that you know that by law you can return, but that it may be destroyed” -, in addition to working to avoid them, informing well of the sizes, implementing virtual fitting rooms, etc. Zubialde thinks in the same direction, but warns that with actors like Inditex or Tendam it will be difficult to change the culture of return. “They do not encourage it, but they do not put up barriers because returns are free if you take it to the store. Small stores are seen at that crossroads: yes, I avoid it, but the largest remains the same.”