In its short existence, e-commerce has successfully pushed reverse logistics higher up on the corporate totem pole of online retailers and their last-mile carriers.
The founding CEO of online shoe retailer, Zappos, Tony Hsieh, boldly told potential buyers, “Order five pairs and send back four if they don’t fit.”
His marketing masterstroke revolutionized e-retailing. It removed a major psychological barrier to potential purchasers, particularly for women, who otherwise would never have dreamed of buying a pair of shoes without first trying them on in a store. As a result, online retailers who prominently display their returns policy and practices on the websites together with carriers, have developed more efficient ways to handle them.
Zappos benefited mightily as a result. When Amazon bought the company in 2009, its annual sales had reached US$1 billion, up from US$1.6 million in 2000.
And yet, Hsieh’s artful challenge to online buyers has not clogged up the e-commerce reverse logistics pipeline. Says Dave Mack, Mississauga-based Omni-Channel Retail vice-president at SCI Logistics, a retail veteran with experience at The Source, RadioShack and Sears Canada, “Despite popular misconceptions, online product returns are only slightly higher than conventional in-store sales. In part, that may be because many consumers don’t like to make returns.
At the Source, it was single digit and only slightly higher than in-store sales. Currently, overall figures are five to 10% for many traditional stores and seven to 14% for their corresponding online sales.”
“But in the past 12 months, the return rate for apparel including footwear has jumped from 14% to 24%. That’s because it is quickly becoming one of the fastest growing segments.”
Today, simplified returns policies and processes have become a differentiating marketing strategy rather than a mere supply-chain afterthought. Says Craig Calvert, Burlington, Ontario-based Director of Customer Solutions for UPS Canada, “Having reverse logistics as a core part of their business strategy has created a positive online shopping experience and has made shoppers return customers.”
Statistics support Calvert’s conclusion that customers value a supportive returns policy as part of the omni-channel experience. According to a UPS Pulse of the Online Shopper 2013 Canadian study:
• 65% of respondents want to be able to purchase online and make returns in-store.
• Over 50% of customers look for the return policy prior to making a purchase online.
More important, a good returns policy must also create a good returns experience. The survey also found that online shoppers who have made returns want free returns shipping (63%) and a “no questions asked” return policy (58%). An automatic refund (48%) is also very important for ensuring a good returns experience.
When Mack puts on his logistics hat, he notes that while online buyers prefer free over fast delivery, they also want to be sure that carriers will in fact deliver their order on the promised date.
He also points out some of the advantages that his firm’s parent, Canada Post offers such as 6,000 post office locations across Canada which can serve as both pick up and drop off points, initiate refunds as well as offer APIs (application program interfaces) and print proper return labels for SCI shipper clients. Many savvy online retailers already include such labels automatically with all their online orders.
The more recent 2015 UPS Pulse of the Online Shopper white paper, which surveyed 5,118 active online shoppers, documented several noteworthy shifts in consumer preferences for final delivery destinations. For example, the choice of home/residence slipped to 67%, down from 74% a year earlier. As well, support for package delivery lockers jumped to four percent up from two percent in 2014. The latter choice will likely continue to grow as such locations spread across North America. In the United Kingdom and much of Europe, they are everywhere.
Lost in the shuffle is the continuing role of brick-and-mortar stores in e-commerce reverse logistics. First of all, shoppers say they prefer dropping off items at a store although they usually ship unwanted products back to retailers. According to the 2015 UPS report, 70% of shoppers made new purchases when returning products to a store.
Recalling his own retail experience, Mack points out that conventional stores are not always properly set up to handle returns nor are staff trained to handle them quickly. Often the items sit around in back rooms. The key to recapturing the value of unwanted items is returning them to stock, recovering value through liquidators, or disposing of them as quickly as possible.
As well, traditional retailers must also contend with the seasonality of returns. As expected, online sales similar to conventional in-store sales peak late in the year so returns start rolling in after the holiday season. But that complicates life for retailers by disrupting their efforts to re-stock inventory and prepare for the spring season. As a result, many conventional retailers are bringing in third-party service providers to lend a hand.
In fact, the handling of returns offers further opportunities for online retailers to update their returns processes to gain brownie points with today’s conscientious consumers. For example, well.ca, a major health & beauty product site, besides providing a full refund for their purchase, also offers to certain customers the opportunity to donate the returned item to an organization or group to pass on to a member who could use it.
Although simplifying the returns process for consumers is useful, reducing product returns to zero is the ideal solution. For their part, carriers need to provide greater item visibility throughout the entire journey to its final destination.
UPS has introduced a range of programs to meet such needs. Says Calvert, “Our customers look to us to assist in managing those returns and thus we have invested in services like UPS My Choice – a notification tool – and the UPS Access Point Network indicates where they can pick up their orders. Convenience, along with tracking transparency, is not solely cost saving measures but also growth measures as well.”
But to eliminate the problem goes far beyond just mastering the related transportation and logistics issues. Dave Mack suggests that making greater use of analytics will provide online stores and even possibly retail sales reps with a clearer picture of a consumer’s past purchases and preferences that will go a long way to reducing returns. He says, “What retailers must do to reduce returns is to ensure that customers get the proper products in the first place.”
Unknowingly, Zappos sidestepped such retail logic and made a fortune by putting the company’s fate in the hands of logistics professionals.