In the wake of the ecommerce boom, consumers are returning more products to online retailers, giving rise to more tech startups in the reverse logistics space.

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Making returns free helped ecommerce grow from infancy to maturity. However the scale of returns has grown along with it. After the pandemic-driven boom, many consumers were beset with buyer’s remorse. The National Retail Federation reports that in the U.S., 21% of all online orders, worth about $218 billion, were returned in 2021. This increased from 18% in 2020. As return rates escalate, retailers as well as logistics and technology firms are developing ways to curb it, manage it, and mitigate losses. 

Online retailers fear that current economic uncertainties will cause consumers to cut back on spending and rethink more of their purchases. In the apparel segment, where return rates are highest, firms such as Boohoo and ASOS in the U.K. have forecast lower profits for this year. There is even an uptick in returns of discounted goods, notes Steve Rop, Chief Operating Officer of goTRG, a tech startup that provides reverse logistics services and helps retailers recover lost profits from returns.

Ecommerce companies have mostly focused on the outbound systems that allow them to offer consumers fast delivery times. These are highly automated and streamlined. The same cannot be said of processing returns, which is expensive and labour-intensive, says Zac Rogers, a former operations manager for Amazon subsidiary Quidsi and current Assistant Professor of Operations and Supply Chain Management at Colorado State University.

Beyond paying for returns to be shipped or picked up, retailers must pay employees to open packages and decide what to do with their contents. “A worker in an Amazon warehouse can pick 30 items in a minute, but a return can take 10 minutes to process,” says Rogers. Then, only 5% of products can be resold by the retailer; most are sold to liquidators or thrown away. Optoro, another reverse logistics technology firm, says that retailers typically recoup about a third on a $50 item.

Reverse logistics has expanded in recent years as companies incorporate more technology to keep up with the tech-heavy forward-facing logistics supply chains of the ecommerce sector. “Startups are getting in on the action”, The Economist observes. goTRG, for example, is using artificial intelligence to help retailers decide what to do with returned goods, based on factors such as price trends in second-hand markets.

To help prevent people buying the wrong size, which accounts for over half of returned items, ecommerce giants are using more virtual reality (VR) and augmented reality (AR) to allow customers to virtually try things on. Walmart announced in June that it will acquire an AR startup, Memomi, to expand these capabilities on its ecommerce platform. Amazon launched its Virtual Try-On for Shoes feature the same month.

Online retailers and startups are also trying out low-tech approaches. Fashion brands such as Uniqlo and Zara are using friction as a solution, by charging fees for returns. Amazon is selling more refurbished products to lessen losses from returns. On the logistics front, startup Happy Returns, bought by PayPal last year, collects returns at thousands of drop-off points in physical stores. As CEO David Sobie explains, the firm then aggregates and sends the products back to retailers all at once, saving them up to 40% on shipping costs.

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