At the mall, we try on several pairs of jeans, select the ones that fit, and buy them. The items we leave behind are returned to inventory for other shoppers.
Online, we also decide what we will purchase. For us, it’s easy to return what we don’t want. But not for the sellers because we return so much:
Buyers’ Return Behavior
You can return almost anything. As long it’s within a year, you can return a dead plant to Home Depot. Petco will take back your dead fish. Referring to online purchases, an executive at a shopping strategy website said, “Swimsuits and dresses for weddings—you never buy just one,” She might have added that you do keep one…and return everything else.
What we buy can determine if it is resellable. Because people tend not to read the directions for example, for their pressure washers, they return them, unscathed, unused, ready for resale. By contrast, many items (like our iPads) have glued components, designed not to be replaced, and thereby unrepairable.
Sellers’ Return Behavior
Many of us think that easy return policies started with Zappos. Founded in 1999, the company boosted sales by encouraging us to buy more than we intended to keep.
Actually though, the real beginning came from J.C. Penney (the C. is for Cash) in 1913. Then, several decades later, Sam Walton copied him. A century ago, the return rate was close to two percent. Now, for apparel, it could be a whopping 40 percent.
When Amazon receives a returned electronic device like a Kindle or echo, if the seal was broken, the device is not resold. Sometimes we get our credit without even returning the item because the reverse logistics cost more than the gadget.
Returned items can wind up in a slew of places. They might go to a shredding facility or a reseller. They could be auctioned in bulk to the people that repair or refurbish them. Then, they will surely be “delabeled.” However, because fashion goes out of style, loads of dresses are much tougher to resell than umbrellas.
Our Bottom Line: Transaction Costs
You can see why easy returns create seller dilemmas. They want to use their return policy to encourage a sale. However, they do not want the expense of a return.
For buyers and sellers, it all adds up to the transaction costs. Not necessarily money, a transaction cost is the hassle it takes to accomplish a task. When I call CVS, my transaction cost is massive because it takes multiple steps to reach a person. Similarly, standing in a line or filling out forms are transaction costs. (Economists like to say that the former Soviet Union’s economy dissolved because of the transaction costs.)
For buyers’ returns, the transaction costs are minimal. Perhaps unintended when it was initiated 20 years ago, Amazon Prime makes it easy to order duplicate items in different sizes. Then, it is almost as simple to send back the ones we don’t want.
On the supply side, transaction costs can be daunting. As a result, sometimes we are even told not to return an item. But then, to our delight, we still get a credit.