Examining the Benefits of
In-Store Returns of Online Purchases

A tiny shopping cart rolling over a laptop keyboard. A tiny shopping cart rolling over a laptop keyboard.

Academic Research by: Soo-Haeng Cho

Many consumers who shop online prefer to return items to brick-and-mortar stores rather than mail them back. A study published in Management Science by researchers from the Tepper School and the University of Washington assessed a new practice called return partnership, in which online retailers partner with retailers with physical stores to offer offline returns.

They conclude that this arrangement can benefit both online and store retailers, though businesses should cautiously choose the right partners.

“Retailers are increasingly adopting ways to return products to cater to customers’ preferences,” explained study co-author Soo-Haeng Cho, IBM Professor of Operations Management and Strategy at the Tepper School. “These new approaches can be a win-win for online sellers and stores.”

To reduce problems for consumers who want to return goods without having to package and mail them, online retailers (e.g., Amazon) have begun to partner with firms that own a network of physical stores (e.g., Kohl’s) so customers can drop off returns of their online purchases. Store retailers benefit from purchases made during customers’ visits to stores to make returns and online retailers save on shipping costs (the retailer collects and ships multiple returned items from a physical store, which is less costly than individual mail-in returns).

Cho and his team created a model with an online retailer and a store retailer where customers had options for buying and returning goods. The study compared the expected profits of the retailers before and after forming a return partnership and identified when both retailers benefitted.

A young woman holding her phone while using a self-service kiosk to process a return at a retail store.

Among the study’s findings:

● Online retailers benefitted from shifting returns to a cost-effective channel, and store retailers benefitted from having more people in their stores.

● Return partnerships can work when the incentive
for the two retailers is based only on how it affects
consumer behavior.

● Partnerships can feature store partners that operate few stores but offer products similar to those of online retailers, or those with a large store network but offer differentiated products.

● Online retailers that offer convenient online shopping and lenient returns are best poised to benefit from return partnerships. Online retailers with strict return policies (e.g., high restocking fees) should carefully examine the return rate-increasing effects of entering a partnership.

By modeling consumers’ purchase and return decisions and their impact on retailers’ sales, the study provides insights into the types of online retailers that should form partnerships.