Guest article by Tor W. Andreassen.
“Return to sender” (1962) was sung by Elvis Presley at a time when letters dominated the post office’s logistics. Today, packages dominate and return to the sender is not as unproblematic as it once was.
The long trend of increased online shopping received a “boost” during the pandemic when customers could not or would not come to the suppliers. Then the suppliers had to come to the customers. With customers living life at home 24/7 cut off from the real world, the introduction of online services was like selling candy to children.
According to NHO Service and Retail, online shopping increased by almost 80% from February 2020 to February 2021. The payment service Klarna reports that “one in two makes at least half of their purchases online”. According to Statistics Norway, the largest increase is in textiles, household electronics, pharmacies, and food.
Problems?
But the strong growth in e-commerce has a darker side: the return of goods. The Financial Times reports in an article that in 2020, goods were returned in the United States to an extent equivalent to 6,700 fully loaded Boeing 747 aircraft. In real money, this corresponds to approximately NOK 1,000 million. If you won such an amount in the lottery, you could spend a monthly salary every day for 100 years.
Today, simple return schemes are a requirement for customers to shop online. Not surprisingly, the world’s largest retail chain, Walmart, together with FedEx, has established a separate return logistics company – Carrier Pickup. The goal for this free service, is to make it even easier for customers to shop with them. The solution came in response to Amazon’s scheme with UPS. Experience has shown that simple return schemes lead to increased turnover and more jobs for (the large) online companies.
“When it rains on the priest, it drips on the bell” is an old saying. So too in e-commerce. In Norway, Norway Post and Postnor benefit from the online companies’ generous return schemes with logistics both ways. With today’s scheme, customers, online stores, and logistics companies are the big winners and sustainability the big loser. One does not have to be a “rocket scientist” to understand that the current system is not sustainable and that a solution will push itself forward.
Solutions
I see two alternative solutions. Either the industry – e-commerce and logistics – will find a more sustainable way to create and deliver value to customers or the Government will find a solution. An industry solution, which will require collaboration, is that all actors price return services higher. This solution is very reminiscent of the Prisoner’s dilemma from game theory, where the incentives to cooperate are overshadowed by not cooperating. I therefore do not believe in such a solution.
Another solution is to help customers order what they need and thus reduce the need for returns. Today, it is a well-established practice that online customers order several sizes to make sure one fits. The rest is returned.
The industry can solve the “over-ordering” in two ways: by either standardizing on sizes (S, M, L, and XL means the same for everyone) and / or developing new solutions based on artificial intelligence (“visual computing”). For example, you can use the camera function on your smartphone and scan for the correct size. When customers get what they need, the need to order and return disappears.
If the online actors do not find a solution, society at large will have to nudge the players to act by taxing returned goods and logistics. Maybe taxes and fees must come regardless, as customers or players obviously do not pay all the social costs associated with the online stores’ generous returns and logistics arrangements. SDG #12 calls for responsible production and consumption. We must cooperate for a more sustainable solution.
Tor W Andreassen
Professor of Innovation at NHH Norwegian School of Economics
Director for the research center Digital Innovation for sustainable Growth
Image credit: Claudio Schwarz.
I couldn’t agree more. Responsible production (or servuction) and consumption is a shared responsibility among different stakeholders! Consumers may need to better educated, and trained to choose sustainably, while companies need to take up their responsibility as well, and need to innovate their services to stimulate and facilitate better (i.e., more sustainable) decision making on the customer side. New technologies are there to assist!