E-commerce: Substantial environmental impact from returned goods

E-commerce is increasing rapidly. But so is the number of returned goods. In the fashion industry, the percentage of returns is particularly high, with a substantial environmental impact as a consequence. At the same time, many consumers are unaware of what happens to their returns.

Sharon Cullinane, professor in sustainable logistics, and Michael Browne, professor of logistics and urban freight transport at the School of Business, Economics and Law at the University of Gothenburg, are coming to the end of a two-year project financed by the Swedish Energy Agency studying the energy use and environmental impact from returns in the online clothing sector.

“We selected the fashion industry because of the high number of returns, many of them cross-border. The average rate of returns in Sweden turned out to be 22 percent, but the range is large, varying from 18 percent to 60 percent depending on the segment. For example, young people return more clothes than older people, women more than men, and high fashion items are returned more than basic fashion,” says Sharon Cullinane.

What happens to returned items is often unknown to the customers. The returns need to be checked, processed and repacked before becoming available for another sale. The items often travel great distances before they re-enter the market. Some companies have dedicated warehouses dealing with returns; others are often sub-contracting the return processing to countries like Poland or Estonia – or even countries in Asia to reduce labour and other costs.

A new pattern in consumer behaviour has become discernible with the advent of e-commerce: customers tend to systematically over-order. To find the right size or perfect colour, they order many more items than they intend to keep, returning all but one or two. The return “culture”, if you will, is in other words becoming the norm, despite the cost for the environment.

“One of the reasons that returns are so popular with customers is that the process itself is a ‘big black box’ – people don’t know what the return entails, the cost is hidden. Consumers tend to think about the benefits, not the consequences of their behaviour. It’s hard for people to imagine that their items travel for maybe thousands of kilometres before going back to sale”, says  Sharon Cullinane.

E-commerce companies generally do not explain the return process in detail; the reason being that the most prolific returners also tend to be the best customers.

“No company wants to be the first to explain the true cost of returns to their customers, since they’re afraid they may lose market shares to their competitors. If customers are required to help to cover the actual cost, companies believe they’ll simply switch brands instead”, says Sharon Cullinane.

In her research, she has focused on finding ways to reduce energy use and lessen environmental damage resulting from transport. She’s identified three actors that need to work on this:

• Customers need to understand how much returns affect the environment and behave more responsibly. There are some digital tools in the works to help customers make better choices while shopping, e.g. digital dressing rooms.

• Secondly, retailers can do a number of things to handle returns more efficiently. They also have a responsibility to not encourage consumers to return items.

• Thirdly, carriers have to both improve their efficiency and switch to warehouses and transport with less impact on the environment.

“Another interesting solution is linked to the growing trend of sharing economy. Returns might be sent directly to another customer. This, naturally, requires a lot of trust on the part of the consumer, but if they could see the benefit to the environment some may opt to do that”, says Sharon Cullinane.

But in the long run, Sharon Cullinane thinks it is inevitable that we have to start to cover the true cost of returns.

“We’re all guilty of wanting to buy things as cheaply as possible. It’s natural, isn’t it? But we must be ready to pay a bit more for products in the future.”

About the research project
“Energy and environmental effects of the reverse logistics of e-tailing” was financed by the Swedish Energy Agency. Participating researchers: Sharon Cullinane, Michael Browne and Elisabeth Karlsson, School of Business, Economics and Law at the University of Gothenburg and Yingli Wang, Cardiff University.

Contact

Professor Sharon Cullinane, sharon.cullinane@handels.gu.se

School of Business, Economics and Law at the University of Gothenburg
With about 7000 students, 490 employees, more than 160 international partner universities and the main subjects business administration, economics and law, the School has a unique broadness. The School is also characterized by its close relation between research and education, internationalization, overall embeddedness of sustainability and its close engagement with business and society. The School is accredited by EQUIS, AACSB and AMBA and thereby the only "Triple Crown" accredited business school in Sweden.