WHAT HAPPENS TO ALL THE STUFF WE RETURN

Think your rejects go back on the shelves? Think again.

THE 20-SOMETHING daughter of a friend recently ordered half a dozen new dresses. She’d been invited to the wedding of a college classmate and knew in advance that she was going to send back all but the one she liked best.

“Swimsuits and dresses for weddings—you never buy just one,” says Joanie Demer, co-founder of Krazy Coupon Lady. For some online apparel retailers, returns now average 40% of sales.

Steady growth in internet shopping has been accompanied by steady growth in returns. A forest’s worth of artificial Christmas trees goes back every January. Bags of green plastic Easter grass go back every spring. Returns of large-screen TVs surge immediately following the Super Bowl. People who buy portable generators during weather emergencies use them until the emergencies have ended, and then those go back too. People who’ve been invited to fancy parties sometimes buy expensive outfits or accessories, then return them the next day, caviar stains and all—a practice known as wardrobing.

Brick-and-mortar stores also allow shoppers to return unwanted purchases. “Petco takes back dead fish,” Demer said. “Home Depot and Lowe’s let you return dead plants, for a year. You just have to be shameless enough to stand in line with the thing you killed.”

Last year, I attended a three-day conference in Las Vegas conducted by the Reverse Logistics Association, a trade group whose members deal with product returns, unsold inventories and other capitalist jetsam. The field is large and growing. Dale Rogers, a business professor at Arizona State, gave a presentation with his son Zachary Rogers, a business professor at Colorado State, during which they said that winter-holiday returns in the United States are now worth more than $300 billion a year.

“So 1.5% of U.S. GDP—which would be bigger than the GDP of many countries around the world—is just the stuff that people got for Christmas and said, ‘Nah, do they have blue?’” Zachary said. The annual retail value of returned goods in the U.S. is said to be approaching $1 trillion.

Most online shoppers assume that items they return go back into regular inventory, to be sold again at full price. That rarely happens. At the conference, I joined a roundtable led by Nikos Papaioannou, who manages returns of Amazon’s house-brand electronic devices, including Kindles, Echos and Blink home-security systems. I asked what proportion of returned products are resold as new.

“It’s minimal,” he said. “If the seal has been broken, if the wrap is not intact, then it’s not going back to the shelf.”

HOW WE GOT HERE

For a long time, a shocking percentage of online returns were simply junked. The industry term is DIF, for “destroy in field.” This still happens with cheap clothes, defective gadgets and luxury items, but in most product categories it’s less common than it used to be.

People often assume that easy refunds and exchanges began with the online shoe store Zappos, which was founded in 1999. Tony Hsieh, the company’s legendary late CEO, offered free returns for up to a year after purchase and encouraged people to order items in multiple styles and sizes. That policy, backed by intensely personal customer service, was so popular that the company’s revenues grew more than sixfold in four years.

In fact, America’s true refund pioneer was born a century before Hsieh, on a farm in Oklahoma. In 1902 he moved to Kemmerer, Wyoming, in order to become a one-third owner of a general store called Golden Rule. Within a few years, he had bought out his partners and opened more stores, and in 1913 he consolidated his holdings under his own name: J.C. Penney. (The initials stand for James Cash.) One of his innovations was allowing customers to return anything, no questions asked.

That approach made a permanent impression on Sam Walton, who went to work at a Penney’s store in Des Moines in 1940. Twenty-two years later, Walton founded his own chain, Walmart, and adopted a similarly generous return policy, which is still in effect. (Homer Simpson: “The customer’s always right; that’s what everybody likes about us.”)

A century ago, the average return rate at Penney’s was probably something like 2%. Before internet shopping truly took hold, retail returns had risen to more like 8% or 10%. Returns to online retailers now average close to 20%, and returns of apparel are often double that.

Among the many reasons: Products often look nothing like their online images—such as a crocheted bikini top that was barely big enough for the purchaser’s cat—and colors and fabrics appear different on different screens.

The COVID-19 pandemic accelerated growth in online shopping, and therefore in returns, by several years. Quarantined lawyers bought fewer neckties but more sweatpants and bedroom slippers. People who were suddenly forced to work from home ordered desks, chairs and computers. Pre-pandemic, a common shopping strategy was to study possible purchases in a regular store, then save a few dollars by ordering from Amazon. When in-person shopping became difficult, the best way to compare products was to order multiples and send back the rejects.

RETAILERS TRY TO KEEP UP

Returns are expensive for sellers, since shipping alone often costs more than the items can be resold for. Many retailers have responded by shrinking their refund windows or by imposing fees for postage or so-called restocking. Some sellers offer store credit only. Amazon now adds a “frequently returned item” label to some listings and encourages potential purchasers to double-check descriptions and customer reviews before ordering.

The online business model of the eyeglasses seller Warby Parker is based on easy returns: Customers can order as many as five frames, at no risk, to try on at home. The company still offers that option but has reduced its return costs by employing an increasingly sophisticated online tool that allows customers to try on glasses virtually. (It also has physical stores, which have mirrors.)

Despite the cost, retailers worry that discouraging returns discourages buying in the first place. Easy returns are like free shipping: They can be a deal-maker or a deal-breaker when a consumer is deciding where to shop, even though in both cases the cost is ultimately borne by the consumer. Most online mattress sellers offer free returns, in some cases for up to a year. Used mattresses can’t be resold, so the loss, usually some 8% or 9% of sales, is folded into prices.

“You’ve got to tread carefully if you try to ratchet back ease of returns, so that you don’t drive your customer to your competitor,” said Chuck Johnston, who served as Walmart’s senior director of returns between 2005 and 2012 and is now the chief strategy officer at goTRG, a returns management company.

As a consequence, even as sellers are subtly and not so subtly discouraging returns, they’re also exploring ways to make them easier. Some Target stores now have drive-up refund windows. Many online returns no longer have to be repackaged: Just get a QR code on the seller’s site and take the item to a location that consolidates shipments. Amazon offers Prime customers a seven-day “try before you buy” option on selected apparel and accessories; you pay only for what you keep. Pollen Returns uses underemployed ride-share and delivery drivers to pick up unwanted items, free, at buyers’ homes, thereby sparing them the nuisance of schlepping things on their own.

Some retailers simply refund certain purchases, no need to send anything back. My wife ordered a funny poster for a high school reunion, then decided it wasn’t funny enough. When she tried to return it, Amazon told her to keep it, and refunded her $32.72. Perhaps surprisingly, companies that sell sofa beds, dining tables and other bulky, heavy items often do the same, because return freight is so expensive.

A NEW INDUSTRY BLOOMS

If you leave money lying around, someone will pick it up. Liquidity Services operates eight regional warehouse-size facilities in North America. The one in Pittston, Pennsylvania, is at the outer edge of a business park that also includes distribution or return facilities owned by Amazon, Home Depot, Lennox, Neiman Marcus, PepsiCo and a number of smaller companies. The rise of online shopping has been very good for people who build immense, low, flat-roofed metal structures. Similar complexes now exist all over the United States, in locations that have easy access to highways and airports. More are always under construction.

You can register as a buyer on Liquidity Services’ website, as I did recently, and place bids in any of hundreds of auctions. I didn’t do that, but I did spend a pleasant morning studying items that other people were bidding on, among them a two-pallet lot containing 654 pounds of sports-related Amazon returns. The lot included seven pellet guns, six clear-plastic umbrellas, eight yoga mats, a minnow trap, an indoor exercise trampoline, a pair of hiking poles, two hoverboards, a quiver’s worth of crossbow bolts—114 items in all. Liquidity Services had estimated their combined original retail value as $6,576.

The lot ended up attracting 50 bids. The winner paid $925, shipping not included. None of the bidders were willing to offer more than 15 cents on the dollar, and even at that price they were taking a chance, since there was no guarantee that any particular item would still function. Returned items are often damaged, dented, scratched or inoperable, and even ones that don’t look too bad can be missing parts or accessories.

Liquidators must quickly sort and resell goods, usually in bulk. Some companies do more. One of those is America’s Remanufacturing Co., or ARC, based in Georgia, which contracts with brand owners to receive their returns and, when possible, to repair or refurbish them so that they can be sold by others. (ARC is also one of Amazon’s external repair vendors.)

For every item, ARC knows the potential resale price, what percentage of that price the brand owner is willing to spend on refurbishment, and the cost of each potential intervention. Some problems are too expensive to address; pressure washers with broken pumps are stripped of usable elements and thrown into a steel hopper, to be sent later to a local recycling company.

This spring, I met with Paul Adamson, the company’s chief revenue officer, at ARC’s facility in Union Point, Georgia. The building is on a short and potholed road with an aspirational name: Industrial Boulevard.

We walked through the receiving area, a large, open space that was filled with recent arrivals—tilting piles of household appliances, stacks of yellow bins containing miscellaneous Amazon returns. We stopped in front of a pallet on which half a dozen Husqvarna pressure washers, made under a license by Briggs & Stratton, had been stacked and bound with plastic wrap.

Workers sorted units by model and year of manufacture. They checked electrical components and replaced damaged parts with parts they’d salvaged from returns they couldn’t repair. At the end of the line, a worker replaced each Husqvarna label with one from Murray, a brand that Briggs & Stratton owns. Each unit also received a new serial number and a new box, which clearly identified it as a refurb.

“These will all end up at the discount chain Ollie’s, where they’ll sell for maybe half of what a new one costs,” said Adamson. The pandemic was good for the refurb market, which makes sense because in many product categories supply-chain problems made new items scarce.

A large number of the returns ARC receives, Adamson said, are “remorse returns”: You order something late at night after drinking too much wine, or you and your spouse accidentally order the same thing. I saw bins of window curtains in another part of the building; all were from Amazon, many in packages that hadn’t been opened.

Pressure washers, by contrast, are often returned because the people who bought them don’t read instructions. “You’re always supposed to hook a pressure washer up to water before you turn it on, but a lot of people don’t do that, and they burn up the motor,” Adamson said.

I asked whether Briggs & Stratton couldn’t prevent that problem by adding a cutoff switch to the water tank. He said that such a fix was unlikely to be cost effective, and that a more practical solution would be to add an extra warning tag or sticker.

A VANISHING SKILL SET

I visited another ARC facility and was shown around by David Hogan, the company’s CEO. At a workbench, two technicians were repairing upright vacuum cleaners, which were deluxe enough that ARC could cost-effectively give them lots of individual attention. The two technicians that Hogan and I watched are members of a rapidly vanishing species: people who know how to repair stuff. It used to be that when something went wrong with our dishwasher, washing machine or oven, my wife or I would call a guy who owned a local appliance-repair company. Once, he got our dishwasher working again by taking apart the grinder and removing what he guessed were broken pieces of ceramic. (They were actually coyote teeth. Long story.) The last time I called him, seven or eight years ago, he said he’d had to get a job as a greeter at Home Depot because nowadays when appliances malfunction most people simply buy new ones.

That change is partly the result of consumer ignorance and laziness, but manufacturers are at fault too. Almost all modern appliances contain electronics, which not only have a limited life span but are also usually impossible to repair and expensive to replace. Our former repairman once told my wife and me that we should always buy the “dumbest” appliances we could find. That was excellent advice, but it’s close to useless now, since even blenders and coffeemakers contain microchips.

Another challenge is that few products today are manufactured with repair in mind. “You see it when you get inside the product, as we do,” Hogan said. “A lot of it is materials selection, or the way the assembly was executed.” Two significant impediments to repair: components that are glued together rather than screwed, and pieces that were snapped together with plastic fasteners that break off when the pieces are pulled apart.

Hogan recently took part in a panel discussion at the Ray C. Anderson Center for Sustainable Business at Georgia Tech, his alma mater. He asked the people in the room to imagine a world in which products were so well made and so easy to repair that a company like ARC wouldn’t need to exist.

“I said, ‘Let me just theoretically offer you a deal,’” he told me. “‘I’ll sell you a computer for the same price as the one you have now—a nice, expensive computer. But it will be twice as durable, and it will weigh half as much, and its battery will last twice as long, and it will have twice the processing power and twice the memory.’” The only condition, he said, would be that returns would not be allowed, for any reason.

“This was Georgia Tech’s sustainability center, so these were supersmart engineering hippies,” he said. “There were probably 40 or 50 people, all MBAs.” Hogan assumed that they would all jump at the deal. But no hands went up—not one.

“I was blown away,” he said. “It’s just astounding how embedded returns are in our behavior. When I finished my talk, I said, ‘Thank you all. I definitely picked the right industry.’”

FROM THE NEW YORKER (AUG. 21, 2023) © 2023 DAVID OWEN. ALL RIGHTS RESERVED.

– Bob