The battle with returns is getting longer. On January 7 home delivery specialist ParcelHero declared that peak returns were continuing into the second week of 2020.
Courier firms had braced themselves for an avalanche of return parcel flows, with estimates of US$90-95 billion worth or goods flowing back. UPS was expecting to handle in excess of one million return shipments a day through December into January, anticipating to hit a peak volume of 1.9 million returns on January 2. Steve Vitale, director of communications of UPS Canada, says that returns have ballooned at an annual clip of around 10 per cent over the last four years and are going to continue to rise.
While this has been widely expected in the B2C arena, he notes that returns in the B2B sector are also growing at a rapid rate, albeit from a relatively small base.
“It’s becoming more a B2B play as well,” says Vitale. “For example, companies may send products to workers on a project somewhere and then ship back the unused products,” adding that B2B e-commerce now mirrors the B2C sector in many ways.
In B2C returns are simply part of the course—an indispensable part, for that matter. According to one study, 67 per cent of online shoppers check the merchant’s returns section before completing their purchase. Another survey found that the returns experience impacts the likelihood of a repeat purchase from a merchant for 73 per cent of shoppers.
“Years back returns was the ugly step-child, now it’s a mechanism to increase sales,” comments Vitale.
“If merchants don’t offer don’t offer a simple returns policy, they’ll lose business,” remarks Mo Datoo, director of strategy & planning of eShipper. Amazon has blazed a trail, making the process simple and smooth, and others have no choice but to follow suit, he adds.
As they mean extra cost for the merchant, returns come across as the bane of their existence, an image underscored by return rates north of the 30 per cent mark. Horst Manner-Romberg, principal of mail and parcel logistics consulting firm M-R-U, cautions that this picture is misleading. Garments may be showing return rates above 30 per cent in the e-commerce segment, but this is due to the fact that consumers order the same item in different sizes and/or colors, shifting changing rooms to their homes. Sectors like office equipment or furniture have much lower return rates, he points out.
“Returns is a channel-specific issue, not e-commerce-specific,” he stresses.
According to him, the image of the e-tailer being a martyr to the cost of returns is also misleading. “Merchants have managed to build an image that they are the battered ones, but they save more on what they would have to pay retail outlets,” he says. “They have a fat enough margin in e-commerce.”
Consumers are not inclined to pay for returns. In one survey 42 per cent named free returns as the strongest factor contributing to a positive returns experience.
Still, it is possible to charge for returns in some cases, says Brian Bourke, chief growth officer of SEKO Logistics. “You don’t have to offer free returns, you have to offer easy returns. You can monetize returns. It depends on the value,” he comments.
For most online merchants the easiest approach has been to include as return label with the outgoing shipment. This makes it easy for the consumer to send an item back, and the shipment can be traced from the moment it is picked up, which also helps expedite the refund process, another critical interface between merchant and consumer.
“Tracking is extremely important, also to steer the work process,” remarks Manner-Romberg.
However, Bourke sees labels on the way out, being increasingly replaced with online platforms that allow the consumer to download and print a label. SEKO unveiled a new returns service last spring which utilizes a portal (in the colors of the merchant) that consumers access to initiate the returns process.
“The portal helps. It improves visibility. Customers see right away what’s returned and why, which can help them reduce their returns ratio,” remarks Bourke. “You shouldn’t ship out labels any more.”
Some shippers still employ archaic systems to deal with returns, while others have embraced hyper-modern methods, notes Manner-Romberg. Emerging software providers have spotted an opportunity and unleashed a number of solutions for merchants to manage returns.
He is not too impressed with most of these. “There’s a lot of money looking for investment opportunities,” he remarks. Optoro, a technology company which helps retailers and brands manage, process and dispose returned and excess inventory, raised over US$244 million in several funding rounds.
At least these solutions are not getting in the way of the logistics aspects. They can usually be integrated through APIs or plug-ins, says Vitale. “These tools are not as cumbersome any more to implement.”
Bourke sees benefits in the emergence of tech companies that have solutions for e-commerce
“Nobody can do it all alone. We’re more into developing ecosystems with companies like EasyShip,” he remarks.
“Most retailers and brands have not figured out returns management. They rely on someone to take care of it,” he says. “The need for outsourced solutions is only going to increase.”
Datoo agrees. “A lot of people want to outsource the whole process,” he observes.
This opens up opportunities for logistics providers that extend well beyond the flows of return goods. To begin with, merchandise coming back has to be inspected to determine what will happen with it—can the item be repackaged and put back up for sale straight away, or does it need treatment or repairs?
“Most of the time they don’t come in and inspect the goods. We send them photos and ask what they want us to do,” says Datoo.
Imtiaz Kermali, eShipper’s vice-president of sales & marketing, adds that one client let some returns pile up in eShipper’s warehouse and then came in to train staff how to assess and handle the products.
In some cases, SEKO actually performs minor repairs of returned items, but this is not the norm.
“We have embroidery machines in some of our facilities, but this is no our forte. We allow people to enter our facility for refurbishment. There are companies that specialize in refurbishment,” says Bourke.
Often the cost of the merchandise does not justify sending it back for a second sale. A large number of returned online purchases are disposed of through a variety of channels, such as liquidation platforms, discount outlets or charities, while some merchandise is simply destroyed.
“Amazon doesn’t want a lot of goods back. You can keep them or destroy them,” says Manner-Romberg.
Chances that items do not go back to the seller rise exponentially if the consumer is located in another country. For returns of merchandise bought from Chinese suppliers the tenor is “forget it,” notes Manner-Romberg.
“International is much more difficult. A lot is disposed of, or the merchant tells the consumer: ‘You got the wrong color? Keep it! We’ll send you a new one’. Only high value goods are returned,” says Dean Maciuba, director consulting services at Logistics Trends & Insights.
For returns from U.S. consumers eShipper often looks to move the goods as close as possible to the border to bring them into Canada in consolidations. For the intra-U.S. leg, often the U.S. Postal Service is the preferred option.
SEKO uses postal agencies in many countries. “We leverage global postal solutions,” says Bourke. “It usually takes the least effort and the postal company comes every day.”
Another key element of cost containment is the use of access points. These are overwhelmingly used for returns, says Maciuba. “Their biggest purpose is to manage undeliverable shipments. The second reason is returns,” he remarks.
As a cost item they have to swallow, merchants are eager to keep the cost of returns as low as possible, so the pressure is on their logistics providers. Returns programs are rarely contracted separately, though. They are usually part of a package built around fulfillment. “We rarely do just returns for clients. We offer end-to-end bundled solutions where returns are part of it,” says Bourke.
“The only time returns are separate is when a business needs a bit more help, for example if they look for a consolidation point for returns. It depends on a bunch of things,” notes Vitale.
Consolidation of returns is a major lever for cost containment. It has the additional benefit of reducing the environmental impact, a theme that is rising in prominence, Vitale says. In the U.S. UPS leverages Coyote Logistics, a tech-based truckload brokerage to maximize consolidation that it bought a few years back. It has also partnered with Optoro to help retailers determine whether to move returned items back on the shelf, to inventory second markets, recycle or—as a last resort—dispose them.
“The impact ranges greatly. For a retailer with no reverse logistics who was throwing out a significant amount of product, it diverts more than 90 per cent from a landfill,” says Vitale.
For the most part, though, sustainability is not addressed directly in the returns arena but as part of the fulfillment mandate. Ultimately it is driven by the merchant’s preferences on the outbound sector, and much is determined by the approach to packaging.
Shipping nail polish in a 12x6x8 box does not make sense other than in the context of using a standard size box for all the merchant’s shipments to simplify the process, remarks Kermali
“Others want the unboxing experience to be special, like when you get an iPhone. Then you have clients who look for the cheapest way and use the simplest boxing strategy. Now you also get a new type of seller who is all about sustainability. They don’t want Styrofoam pellets and the least amount of carbon footprint,” he continues.
UPS and TerraCycle developed a system—called Loop—which eliminates the reliance on single-use packaging for consumer goods. Consumers will be offered a variety of products in customized, brand-specific, durable packaging that is delivered directly to customers, then collected, cleaned, refilled and redelivered. Customers will receive durable, reusable or fully recyclable packaging made from materials such as alloys, glass and engineered plastics. Even the outer shipping container is part of the design innovation; a state-of-the art shipping tote will eliminate the need for single-use boxes that reduces waste.
“Loop is being piloted in the mid-Atlantic U.S. and Paris, with plans to expand to other cities through 2020,” Vitale remarks.
Arguably the best strategy to reduce the carbon footprint would be to reduce returns volumes. Fashion retailers are leveraging new technologies to measure consumers’ sizes to come up with matching fits before an order is placed, and some furniture merchants offer simulation to give buyers’ an idea what their item would look like in their homes. For the most part, though, people seem resigned to the idea that returns volumes will continue to rise.