Americans return about 30% of their online purchases, costing retailers billions of dollars and creating mountains of environmental waste. Gad Allon, a Wharton professor of operations, information and decisions, wants to change that.
He’s working with companies and researching ways to improve the reverse supply chain. He also believes that raising consumer awareness is key to reducing the massive rate of returns.
The reverse supply chain is clunky because it lacks the efficiency of scale that is achieved in the forward supply chain, Allon explains. From manufacturing to distribution to the last mile, an entire system of logistics is activated when products are sold in quantity. But returns are processed one at a time. A sweater that was purchased in November and returned in January, for example, doesn’t have much value for the retailer. The item is likely to be resold at a deep loss, liquidated, or sent to a landfill for disposal.
The pandemic-related boom in online shopping corresponds with a surge in returns. Each return erodes the profit margin of the item, especially if the retailer covers the cost of return shipping. Amazon, Walmart, and other big vendors can absorb those losses to some degree, Allon says, but small businesses simply cannot afford it. Now, he says, consumers are conditioned to get anything they want delivered right to their door with the ability to return it, no questions asked. However, few consider the consequences on profit.
Returns also create a hefty consequence for the environment. Allon says about 25% of returned items end up in landfills, so reducing returns will help shrink the carbon footprint created by so much waste. In addition to the toxic side effects of manufacturing, greenhouse gases are emitted from shipping back and forth.
“Consumers, hopefully, will become more aware of the impact, both financially and in terms of the carbon footprint of this behavior,” he says.
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