Is the Era of Free Returns Over?

Published Aug 24, 2023, 4:05 AM

Amit Sharma is the founder and CEO of Narvar. Narvar works with companies such as Sephora, Lululemon and Home Depot to manage the post-purchase phase of online shopping — tracking, alerts and returns. Around 10 percent of online purchases are returned and every return cuts into retailers’ profits.

Amit’s problem is this: consumers have learned to love free returns, but can retailers afford them?

Pushkin.

There's this genre of YouTube video, the unboxing video. It starts with somebody on screen with a package that just got delivered. It's something they ordered online, a watch or a stand mixer, really could be anything, and the video is just the person opening the package and then opening the box inside the package and taking out this new thing that they just bought. That's it. That is the unboxing video, and it's not really my thing. I want somebody to make reboxing videos. Some practical middle aged dad, say, decides he really doesn't need those those hiking boots that he ordered online last week. We see him putting the boots back in the shoe box and then putting the shoebox in a cardboard box, taping it up, maybe putting able on the box, and then dropping the box off at ups for that sweet, sweet full refund. That is relatable content. I'm Jacob Goldstein and this is What's Your Problem, the show where I talk to people who are trying to make technological progress. My guest today is Ahmatsharma. He's the co founder and CEO of Narvar. Narvar works with companies like Sephora, Lululemon, and home Depot to manage the post purchase phase of online shopping, tracking alerts, and crucially, returns and returns are huge, hundreds of billions of dollars a year in the US overall, something like ten percent of online purchases are returned, and for categories like shoes, it's even higher, around twenty five or thirty percent. For the retailers I'm it works with, this is profoundly expensive. So the problem I wanted to discuss the omet was this. E commerce companies have trained us to love free returns, but will they be able to afford it to start? Though, we talked about just the basics of how returns work. What happens when I send back a pair of shoes. I know there's lots of options, but I do whatever I ship it off. What happens to that pair of shoes that I have bought and sent back next? Where does it go?

Once that pair of shoes gets back to the retailer, they will do what they call the grading process, which will say, hey, is this shoe is in a good condition to go back on shelf to be sold again as a proper full price item.

So as a new pair of shoes? Yeah?

If not?

If it is you know, if it's scuffed or there are some issues, can it can be sold on hey, worn already or a discounted piece of it.

So there's a second way of doing that.

Third is that if it is completely in non sellable condition, then you know, retailers have a couple of options. Either it goes to landfill or you can actually sell sell into secondary market, which means it may show up on other market places such as eBay.

So does that mean that when I'm buying shoes online, are they usually shoes that somebody has like bought and then returned? Like? How often when I buy a pair of new shoes has somebody bought them and returned them?

It's a good chance.

I mean, you know, usually for a pair of shoes, it might take three or four round trips to find the right home or right pair of feet to get there.

Wait, when you say three or four round trips, do you mean most like is there for a typical pair of shoes sold online? It goes out and back and out and back like that's a normal things.

Normal thing. I mean typically people will buy one size up and one size down.

Twenty plus years ago, Appos when they started in the place. I mean that there was a they changed the equation free shipping and free returns both ways out and then you know, you will see all the experience and the stories out there from consumers where they're trying on shoes and they're keeping what they like or fit, and the returning rest of.

It was the Zappos free returns thing, like the watershed moment for returns. Is that the like glowing origin story of online.

Returns absolutely hands down, and Zappos and Zamazon they changed the equation for consumers for good.

I want to talk a little bit about the kind of evolution of online returns, right, So Zappos was what their early oughts. So before Zappo's hard for people to believe. Now you had to pay to return stuff where you bought it online.

That is correct, And you may even have to call the contact center or customer service to even get an authorization that you can even return it. Hey, I am so and so and I placed an order and I would like to return it. It gets authorized, then only you send.

It back, like the companies really didn't want you to return stuff you bought online.

Well, that's one way of saying it. If you want to speak with brands and retailers. They would say, we really want you to make sure you're buying what you want to keep.

And I mean it makes sense, right, I mean it must be profoundly expensive for companies to deal with returns, right, I mean, let's talk about that. So, first of all, free returns are not in fact free, right, We're all there included, we're all paying for free returns, whether we return stuff or not.

Absolutely. I mean there's a cost of shipping or bringing it back. There is the labor cost of as we just discussing, inspecting it, grading it, you know, putting it back on shelf, and then selling it again.

So there's so much cost.

And then, as we discuss, not everything goes back online to sell full price. You know, twenty thirty percent of items get discarded, either in the secondary market or landfill. So they say tangible, significant cost associated with returns.

And I feel like for companies at some level, this is an optimization problem, right. They want to maximize sales while minimizing returns, and to some extent those things are our intention for.

Them, absolutely, no doubt about it.

And then our analysis shows to quantify that for you know, every one hundred dollars of online sales, roughly twenty five or twenty six dollars of impact comes from returns.

So that's twenty five percent of the gross twenty five percent of their gross revenue is dealing with returns.

Absolutely, yeah, a lot, Yeah, it is. That is a lot. Yeah, it's a massive number.

Is part of what your company tries to do to get that percentage down.

Yes, So there are a couple of things that you have to think about. You can actually figure out what's the most optimal way or the cost effective way to bring the goods back to the merchant. So who is the right carrier, which is the right location to drop off? And there are cost effective ways. Second A is enforcing your returns policy.

Right.

So if you are, you know, buying something online and retailer has thirty day policy, you don't want to offer or honor returns at day forty five or day fifty.

I have observed that different companies make it easier or less easy to return things, right. I will say, you know, sometimes you can just bring the thing. You don't even have to put it in a box. You just bring the thing to whatever the drug store or all foods and give them the thing which feels like magic. Sometimes you have to like put it in the box. Sometimes even have to print out the label, which who even has a printer. I have assumed that those were deliberate choices on the part of companies, and that there was a strategic reason to make it harder to return things, which is it would cause people to return things less for sure.

But Jacob, let me ask you a question. Would you buy your pair of shoes when it is arduous or a difficult process to return from the company that you would like to buy.

If they were a lot cheaper? Maybe right? If there's something take running shoes. I buy basically the same pair of running shoes every few months. I know what running shoes I want. It's the Nike Pegasus whatever is last year's model. I've been buying them for many years. And in fact, when I buy those shoes, I go to like weird second tier retailers because I just want to buy them cheap. I know what they are, so in those instances I am more price sensitive and less concerned that my returns will be easy.

But do you bring a really great point? And the consumer behavior is in essentially two pieces, right value seeking whether it is a good value.

For the product you buy, or convenience seeking. Those are the two pieces.

So the question is, you know, for businesses to grow, they not only need their loyal customers, but they need the next set of new customers who are coming to you.

Right and if you're a brand or a retailer.

And if you are attracting the customer for the first time, they actually do check your help section and retailer's FAQ to make sure what are your returns policies. I'm not comfortable buying for the first time for a brand or retailer if I don't know if those pair of shoes and I have easy to understand or easy to follow returns process.

I mean there's another version, and you do still see it sometimes, although it's rare, which is when you send something back they charge you for shipping. They're like, we'll give you a refund minus eight dollars for shipping. Like that is still a thing that one sees occasionally.

Not not occasionally, you'll be surprised forty percent four zero percent of top online retailers in the US are charging for return fee.

Oh you don't say, yeah.

And typically in your example, what they will say, I.

Will give you your money back minus the return fee.

Like, behaviorally, that's a nice move, right because you're still getting money back and so like, I feel like it works with the behavioral economics pretty well. And do your customers choose that as well? Is that sort of on the menu of things you offer?

Yeah, I mean we are a tech platform. You can design and define your returns policies. And I think earlier you were saying even the choice and convenience, whether.

A retailer wants consumer to print the label in their homes.

Or their offices if they're going to offices, or pack it yourself and then drop it off, or you just bring the item which is non boxed, don't have to print the label, simply go to designated places where they will scan your QR code.

Don't worry about printing a label or package it.

Then, all these things are designed based on the brand's position on those pieces, and they drive different behaviors. For example, if you give them the choice, they will actually return those items faster. It's not sitting in your car or back of your trunk and finding the right place to doing the returns.

Let me ask you this, when a company makes me print out a return label? Are they doing it to reduce the chances that I will return the product?

That's a good, good question. I never thought that way is just giving and.

Why else would they do it? You know, there are companies and I like this. I like this. There are companies that will put in the package they're shipping you a return sticker label right where you open the bag. It's like a plastic bag and you take out the shirt or whatever, and A the plastic bag is resealed, and b there's a sticker return label. And like when a company does that, I'm like, they're on my side. I mean, they're on my side. Is kind of a dumb, naive thing to think, But I think, oh that's nice, Like that is going to make me a more loyal customer of this company because they are not deliberately making it hard for me to return this shirt.

Okay, so let's play a devil's advocate there. Yeah, we just discussed that on an average, On an average in the retail industry, online returns rates.

Around ten percent. Yeah, ten percent.

That means ninety percent of the paper print ink electricity going to that printing that label is never going to be used.

Come on, is that really you really think it's the cost of printing the label? Come on, what's the cost of print a label for.

A large retailer? It will cost you closer to million dollars every year.

I know, But we care about one label. What's the cost of the print one label?

But that's another good twenty five cents. But it adds up. Everything adds up.

Listen, there's a dial that companies can turn of like make it really easy to return things, make it medium to return things, make it hard, right, and they would be dumb not to think about the behavioral responses to the things they're doing. Right, Truly, that's part of the calculation.

Absolutely, But you know it's not either are you know you want to keep the label inside the box? Great, but oftentimes consumers will throw that packaging label and then a few days later they want to return it.

Where do they go?

They still need somewhere online to now get a QR code or something to go handle there.

I feel like you're big an apologist for companies that make it hard to return things. I thought you'd be on my side on this.

One, and all I'm saying is beyond the products you're selling. What kind of value add services and experiences you are offering, Especially in our discussion, the same pair of Nike shoes you can buy in half a dozen places. Where is the company's value proposition there? That's the biggest question besides the price. We discussed price is one key lever outside of the price, where else otherwise it's race to the bottom.

Right, So you know that's the question.

So our piece is that, I know, using the technology and then figuring out where do you want to actually craft your policies, Whether you want to make it, you know, difficult, or you want to make it more reasonable or extremely convenient. Right, all those things are there, but underlining factor remains and which is you you're calling out it costs money?

After the break, Amazon, Now back to the show. I've thought of Amazon a lot in this conversation. You you have done a lot for returns, you have a lot of big clients. But Amazon is also very impressive in terms of returns. What's something you've learned from watching and in some ways competing with Amazon?

First off, we don't compete with Amazon.

We love Amazon because they set the standard and we want to make sure we can democratize those standards and giving that back choice and convenience for everybody. So it's a level playing fields for all the brands and retailers that they can leverage.

So there's nothing that we can do that, you know.

So you go to your clients and say, do you want to be as good as Amazon on tracking and returns? We can do that for you.

And nine out of ten conversations are, hey, I already shop, I'm already a Prime member, and how do I offer same similar services to my customers? So that's that is absolutely absolutely the case. I mean the other piece I'm saying that, you know, it's very impressive to see Amazon offering these returns services at scale, not only just in the US, they operate globally, right so, and it's just seeing, you know, how you can offer these kind of programs. It just has been quite impressive.

You know how hard it is. You truly know how hard.

It is to do. Absolutely absolutely, So.

I feel like there's an interesting maybe and maybe I'm kind of reaching here, but there's like this bigger macroeconomic idea that I'm curious about here, which is we've just lived through this call it ten year period, you know, basically the teens of zero interest rates, incredible inflow of capital to tech companies, including e commerce companies, growth above all else. Right, So this is a universe I feel like where online retailers are just throwing free returns at us and free shipping and they just want you to buy and they don't care if you return. And so the high costs of free returns could be absorbed in that era. Now we're in this new era when interest rates are not zero, when lots of tech companies have become more interested in profits relative to growth. And so I'm curious now that we've all been trained to just expect free returns whenever we want it, Like our company is going to stop giving us free returns now.

I can tell you hands down returns. This top of mind for all the retailers. So now the question comes, how do they actually really think about from the P and L perspective, not just the consumer experience perspective.

How do you bring the P and L perspective to really do that and.

All profit and loss absolutely, Now, whether they're going to make it harder, are they going to actually.

You know, charge more to the consumers?

I can make it, you can return it, but it's going to cost you, right, That's where the conversation is going to go.

And that is what exactly is happening in the market.

So it is more retailers are in fact charging for return that is true. Are there ways the world of returns might look significantly different in five years in terms of how we can return stuff, what it might cost, the technologies you know, on the on the back end, what might be different.

In next three to five years out as we see it. And that's not a typical that's a very common consumer surprise factor, but they do not know the impact and the you know, the size of returns economy where we see that transparency is needed for creating that education and awareness what happens to returns when they are sent back.

So consumers are being a little bit more mindful, you.

Mean, companies are going to try and talk us out in a nice way of returning so much stuff. Companies is gonna be like, do you really really are you sure you want to return those shoes? You can't, but think about it, like, is that what you're saying?

Maybe if consumers are aware of how much they buy, how much that goes into landfill, how much is actually circulated back in the economy, and that's where there has to be certain areas. I believe in next three to five years there will be more transparency. Education awareness is needed in this whole area of returns and exchanges.

Well, I mean, if you really want to make a sustainability argument, the argument is buy less stuff. But I don't think the ecover sites are going to give us that one.

Well, you are correct, but there are example is Patagonia.

Yes, Patagonia is an atypical company, which, by the way, charges for return.

That's right, you know, twenty five years ago Zappos was atypical and here we are. So we need more companies like Patagonian others who are atypical now to create that education and awareness in the market. Whether that changes the consumer sentiment or not in a we all will find out in five years time. But all I'm saying is that if you want to change that equation in a meaningful fashion, we need to have a much, you know, much broader discussion with consumer base.

Interesting. So it's like the pendulum has been swinging for twenty years towards just return return, free returns, easy to return. You're saying the pendulum is already starting to swing the other way. Don't return so much stuff. Maybe we're going to charge you if you return your stuff. You should really think about the environmental impact of returning your stuff. The pendulum is going to keep swinging away, and we'll return less stuff in five years, perhaps a smaller percentage of the stuff today returns.

And as you mentioned, there's a hidden cost of returns which is not transparent. So why won't we have a transparent conversation. You're getting a service and in exchange right now, there's a hidden fee of exchange. Why wouldn't we make it much more open and transparent about it. That's what I'm saying about on that dobby.

So, so returns aren't free now. They're included in the price, and people who return a lot of stuff drive up the price for everybody. Exactly if you had to pay for returns, then it would be way more fair.

That's right, right, So, and again is this the show.

Where we're declaring Can we declare the end of the free returns era? Can we say that it's over?

I would say for sure, twenty twenty three will be the end of free returns era?

Wow?

Yeah, absolutely, without a doubt.

Okay, okay, we'll be back in a minute with the lightning round. Back to the show. Let's close with the lightning round. I'll let you go very soon. What's the last thing you returned?

Last thing that I return? Actually, you know it's a pain up shoes that just didn't fit.

What's the worst possible thing I can return from the point of view of the company, Like, what's really bad for companies if I return?

If you return.

A dining table or a couch or a much bigger item, it requires not only a you know, a lot of coordination to come and pick it up, but you know it costs even a lot more money as well.

What's one thing you learned working at Apple.

Maniacal focus on the finest details.

What's one thing you learned working at Walmart?

I mean the true league adding value and that's in their tagline, you know, save money, Live better.

One more question and this one goes back, goes back. Aways in your career in the original dot com boom, you you started a startup that failed, and because you were on a work visa at the time, you basically had to go back to India. You wound up going back to India and I'm curious. Was it a hard call to come back to the US after that?

No, honestly, it was not a hard call.

I mean, and back in two thousands and and and even now, you know all the technological advances and an entrepreneurship.

I mean, the US has been in the forefront of it.

So if you want to learn something or make a difference, US is the land of opportunities, at least in the in the world that you know we are in commerce and technology or or any kind of startup work.

Amate Sharma is the founder and CEO of Narvar. Today's show was produced by Gabriel Hunter Chang and Edith Russolo. It was edited by Sarah Nix and engineered by Amanda k. Wong. You can email us at problem at pushkin. You can find me on Twitter at Jacob Goldstein. I'm Jacob Goldstein. And we'll be back next week with another episode of What's Your Problem.

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