Record holiday gift returns are ‘exacerbating’ supply chain issues: Optoro president

Optoro President and Co-founder Adam Vitarello speaks with Yahoo Finance's Brian Sozzi and Julie Hyman about how e-commerce holiday shopping is fueling record gift returns and the impact that has on supply chains and the planet.

Video Transcript

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- Consumers will return at least $66.7 billion in holiday purchases, up 13% year over year, and 45.6% over the previous five-year average according to a new report from Optoro and CBRE. And that could spell bad news for retailers as every return comes at a cost. Adam Vitarello is the president and co-founder of Optoro and joins us now. Adam, nice to see you this morning here. What's causing all these returns?

ADAM VITARELLO: Good morning, Brian. Thanks for having me. Yeah. So the big cause of the returns is e-commerce. So we all like the convenience of being able to shop from home. But with that, you know, you've got to touch and feel those products, and maybe that shirt that your mom got you, or the present your uncle gave you for Christmas, isn't quite to your liking.

And so you have to find a way to send it back. And as you mentioned, there's going to be a record number of returns in 2021 as we've seen a growth in e-commerce.

- And you guys are processing a lot of these returns. Who's paying for it now? Because just on an anecdotal basis, Adam, I've been surprised. Shame on me for not reading the fine print, but lately when I returned things, more commonly than it used to be, I'm bearing the cost of returning stuff. Has that been a change?

ADAM VITARELLO: Yeah, you know, I think the short answer is we're all paying for it. We're paying for it in a few different ways. One is a lot of companies are starting to charge for return shipping. Although, I would say, that trend is generally going down as retailers realize that annoying customers and tagging them with the return shipping costs is actually going to make them not shop again. And that's why folks like Amazon and Zappos know just don't do that.

But more broadly, you know, this incurs, I guess, two big costs that we all incur. The cost gets passed on to retailers, over $20 per return. And so they pass that along to consumers. And we all pay for having an inefficient returns process.

And then, even bigger picture, the planet pays. Because many of these goods actually go into landfills. Almost $6 billion pounds of returns end up in landfills every year. And that's something that isn't nefarious, but just is the byproduct of an inefficient system. And we're all paying for that. And as we're looking for a more sustainable, more ecological future, this is one of the problems we've got to solve.

- I think Julie got me a couple zinnia suits for the holiday season, all of which I will not be returning. I know those are very expensive. But I mean, this comes at a time when we're seeing massive supply chain bottlenecks here, Adam. All these returns, will that impact me being able to get this new stuff that I want in January and February?

ADAM VITARELLO: Yeah, absolutely. There's two big impacts on the supply chain crisis going on. On one hand, it's going to exacerbate it, because the Postal Service, the shipping carriers, they're now going to see an influx in returns. And right now is kind of the second peak that's coming through as all these goods that were bought and being returned are now being shipped back. And so that's going to put a lot of pressure on supply chain.

On the flip, it's a big opportunity for retailers because this is actually a great source of inventory. So rather than having to ship the goods over from the far east or from overseas, you can actually just repurpose these returns and get them back in the hands of consumers. And so, the folks that we work with like American Eagle, IKEA, Best Buy, are really using this return stock as a great opportunity to get the next inventory back to consumers and not wait for the stuff to come overseas.

- To your point though, Adam, a lot of the stuff doesn't get back in the hands of consumers, which is the environmental issue, as well as also if you're shipping everything everywhere. Do people need to be a little more choosy again? I feel like there has definitely been a cultural shift and a higher willingness to return. You shop with that in mind, right? Do you think that needs to change, again?

ADAM VITARELLO: I think people, and both consumers and retailers, need to be conscious of the decisions they make around returns. I don't think it's fair to say that, hey, if a retailer sends you something and it doesn't fit, hey, you've just got to keep it because it's going to have a bad environmental impact. I think more importantly, retailers and consumers need to choose ways of dealing with returns that are more ecologically friendly.

So for example, returning something to store has a way lower carbon footprint, than returning it via the mail. And retailers that have good systems to repurpose these goods and not just kind of throw them away. And even something innocuous, or seemingly innocuous, like telling a customer to keep a good is actually really bad for the environment. Because most customers, something like 70% to 80% of customers, that are told to keep something end up throwing it away.

And so we would tell retailers, rather than do that, let them return in-store where it's really cheap, and then repurpose it right from there. So we all need to be conscious about doing the most environmentally friendly option. For example, Amazon actually shows you when you go to return it, hey, this is the most sustainable option to return it to store. We think innovations like that are really going to drive better customer behavior.

- Good advice there. Adam Vitarello, president and co-founder of Optoro. Good to see you. We'll check back with you soon.