Online shopping and easy returns are a big problem | Guest Opinion

There are many laudable attributes of online shopping. Focusing just on clothes, one can access many colors and sizes of a particular item that one would be hard pressed to find in a physical store. Then, there is the convenience factor. One can be a couch potato and shop for one’s favorite items while munching on snacks or while watching TV. Finally, one avoids the hassle of traveling to a store or, better yet, at least for some shoppers, one avoids the disutility of having to hang out in a mall.

These advantages notwithstanding, there is mounting evidence now that online shoppers return purchased items at very high rates. According to Business Insider, between 2019 and 2022, the portion of purchases returned soared from 8 percent of sales to 16 percent. In addition, people shopping online, return purchases at three times the rate they return purchases made in physical stores.

Aggravating the “returns problem” is a specific consumer-friendly practice that is frequently offered by e-commerce firms. This is the practice of offering free returns to customers. This means that a shopper who orders 5 different colors of the same item, wishing to keep only 1 or 2 colors pays nothing to return the remaining 3 or 4 items even though there is no free lunch and, hence, someone must pay for these supposedly free returns.

Who pays? One would think that it would be the firms that are selling online but this is often not the case. Research by Danni Zhang and her colleagues shows that, because of the very high cost of processing returns, large numbers of returned items are not resold by firms. Instead, these returned items are “dumped,” which means that they are sometimes sent to online resellers, at other times to charities, and very frequently to landfills. Focusing just on returned clothes in the United States, Earth.org tells us that 2.6 million tons of clothing ended up in landfills in 2020.

Economic theory tells us that whenever a good or service (such as a merchandise return) that is costly to provide is provided for free, consumers will tend to buy too many of the goods or overuse the service. So, the rate of use of free returns by private shoppers exceeds the rate that would be optimal from a social standpoint. As such, from a policy standpoint, the salient question is this: How does one create incentives so that when it comes to easy or free returns, the private use of this service matches the use that would be optimal from the perspective of society?

One can, of course, put stringent regulations in place to control the use of easy or free returns. But it is not clear that freedom-loving Americans will go for such an approach. In addition, it is also not obvious that the benefits of such an approach would outweigh the costs. These two points notwithstanding, one does not have to throw up one’s hands in despair because there are other things that can be done. Here are two examples.

First, we need to get rid of free returns. Online shoppers must bear the full cost of their shopping and being able to return items for free means that are bearing less than the full cost. That said, there is a collective action problem here. If one online merchant eliminates free returns but its rivals do not, the first firm will be at a clear competitive disadvantage. So, it would be best if all online sellers of all goods and services came to a voluntary agreement among themselves to get rid of this environmentally damaging practice.

Second, one reason why so many Americans shop online in bulk quantities — with the expectation that they will return most of what they purchased — is that there is no uniformity in either sizes or styles. Take the case of chino pants for example: A waist 30 inches, inseam 28 inches-length chino from manufacturer A may bear little resemblance to chino pants with the same dimensions from manufacturer B. Similarly, what manufacturer X markets as a “relaxed fit” chino may, once again, have little in common with a “relaxed fit” chino from manufacturer Y. The point is that the standardization of sizes and styles would not only make the shopping task less risky but it would also greatly reduce the tendency of online shoppers to substitute one’s home for a physical store’s fitting room.

Existing research demonstrates that, in 2020, returned inventory created 5.8 billion lbs. of landfill waste and the shipping of returns emitted 16 million metric tons of carbon dioxide. The New York Times reports that emissions of this magnitude are equivalent to having 3.5 million cars on the road for an entire year. If we want to be serious about addressing the serious problem of climate change then we need to also understand that we all pay a price for indiscriminate online shopping accompanied by easy or free returns.

Batabyal is a Distinguished Professor, the Arthur J. Gosnell professor of economics, and the Interim Head of the Sustainability Department, all at RIT, but these views are his own.