As strange as this headline sounds, companies like Amazon and Walmart have determined, through the use of artificial intelligence, that in some cases of very cheap, and even some expensive products, it makes more economic sense to give the customer all their money back and let them keep unwanted items than to send a truck to pick up the return.
This new strategy was employed by Amazon during lockdowns and spread widely in the retail sector. Other companies such as Target have begun to apply this strategy and offer a full refund to the customer of their purchase instead of sending a truck to pick up the return.
The problem is no less costly. Besides the logistics costs of sending a vehicle to pick up an unwanted item, retailers must establish whether the product is still in a condition to be resold and designate space in their warehouses that could be allocated for the new inventory.
Unwanted items, a problem for the entire retail industry
The pandemic led to an inevitable growth in online commerce. During 2020, returns of articles through this channel increased by 70% compared to last year, and it is estimated that half of the returns were due to the increase in the flow of e-commerce channels.
According to Forrester Research, around 25 percent of online purchases are returned, representing a considerable cost to both retail companies and carriers, including the Postal Service.
The U.S. Postal Service transported about 3 billion packages during the holiday season. Millions will have to be returned to vendors, including 2 million that were returned due to delays during this season.
FedEx said return volumes have been record-breaking over the past six months, but returns on total orders have been proportionally lower than normal times as many of the purchases have involved the purchase of essential items.
Larger products such as appliances and furniture have also become more challenging for transport companies. According to the consulting group, IBISWorld, the market for online furniture purchases is growing at double-digit rates and reached $45.7 billion in 2020.
Retailers have worked hand in hand with transportation companies to improve logistics for the transport of larger products, which have increased in volume with the pandemic. However, the return of furniture, stationary bikes, coolers, and other durable goods has also been a logistical headache.
Among the reasons for this is that often large items are still delivered unassembled, yet many returns are made with the item already assembled, taking up more space than necessary in the cargo trucks.
Last year to discourage these types of large returns FedEx and UPS established a $24 fee for the return of unwanted items over 50 pounds. Other companies have chosen to establish regional return centers to avoid long and costly trips, such as returning a cooler from North Carolina to its original warehouse in California. Times and routes often don’t fit perfectly, raising the cost of a return considerably.
Other retailers have chosen to encourage in-store returns, which not only represent savings in shipping costs but also the benefit that once in the store, customers tend to buy additional items.
Companies like Amazon and Walmart, because of their significant cash flow, can afford to make a full refund and give away the product, however this strategy is not risk-free, because according to security analyst Yuval Ben-David, from the agency Sixgill, criminals are already using this strategy to get products for free.
According to Ben-David, “cyber-criminals are using sophisticated techniques to try to persuade Amazon’s algorithm, including a false excuse by arguing that the customer is afraid to sign the document certifying the return of the product for fear of catching Covid-19”.
He added Amazon has designed strategies to avoid this type of behavior such as not making returns to new accounts, which has created a secondary market for old accounts. With this challenge in mind, retail companies will have to consider new fraud prevention modalities in order to attend a growing e-commerce market, which is also growing in terms of returns from dissatisfied customers and fraudsters.