By Chris Jarvis, Founder of uReturns
The situation around e-commerce returns couldn’t be more clear today – we are at a tipping point. The pandemic-fueled significant e-commerce growth and savvy retailers are paying close attention to the impact that is now being realized post a record holiday selling season – the outcomes can no longer be ignored.
Returns have long been accepted as simply the cost of doing business.
In the ecommerce era this is make or break.
Online First World
Retail returns continue to increase as we steadily move toward an online-first world. We return roughly 30% of all online purchases compared to only 10% from brick-and-mortar. In 2021 retail returns jumped to an average of 16.6% versus 10.6% a year ago according to a report from the National Retail Federation. This adds up to more than $761 billion of merchandise that retailers expect will eventually wind up back at stores and warehouses.
Costly and Complex
We’ve been busy building forward fulfillment for the past two decades. Mastering low cost and speedy delivery has been our priority (and still is today). While returns have long been accepted as simply the cost of doing business, in the e-commerce era this will need to change – as the bedroom becomes the new fitting room.
Returns and exchanges touch all corners of a retail organization both digitally and physically (very much like forward fulfillment). It truly is a cross-functional mandate including digital, customer care, stores operations, supply chain, logistics, delivery, buying, and planning. It’s not enough that forward fulfillment is hard – now we’re suggesting the need to layer on returns. Yep, returns must become a financial priority, a source of inventory supply, and a value-add loyalty touchpoint. This is no small undertaking.
So, why would we need to invest all this effort when it kind of works today? Simple, returns handling is extremely costly. Most retailers are not tracking the actual costs today but a report by CNN suggests that Holiday returns cost retailers 59% more than last year. Research suggests that a single online return can cost two-thirds the original price to handle when we include labor, transportation, and warehousing costs.
Your bedroom is the new fitting room.
Loyalty is at Play
The stakes couldn’t be higher. Returns have a direct financial impact but more importantly, they can have devastating repercussions on customer loyalty. I like to say, “every return tells a story around brand commitment”.
It’s a high bar. Today customers can buy anything from anyone, and 80% will stop buying after a single bad returns experience. Returns are make or break for the customer according to an article in Logistics Management:
Let’s Fix this Situation
You understand the problem and feel the pain. There are a few considerations on how best to approach strategically while considering your path forward:
It starts with leadership – everyone plays a role (just like in forward supply) but who should lead the charge? What department should own returns? Most organizations don’t yet have a Chief Returns Officer or even a single accountable owner. This is a cross-functional mandate that requires senior-level authority, visibility, and understanding of how the organization functions today and holds a solutions-driven mindset. Also required is the ability to clearly manage trade-offs, while balancing results, as the new network is designed and developed over the coming years.
Forward fulfillment assets won’t cut it – forward distribution is taxed and warehouses are not equipped to receive individual returns. Returns start inside the local community – you need to be everywhere your customers live. Partnerships are key to a robust solution and enable the necessary reach. Shared economies have proven effective and provide the variable structures to not only de-risk but support the seasonal scaling of retail. Remember, returns volumes are growing and should work in favor of unit economics.
Fresh thinking and new product development – from customer contact to item processing and inventory management there are systems gaps today. Returns management has a large footprint and touches everything from your e-commerce platform, ERP, WMS, OMS, and TMS. CTO’s are already stretched but they are crucial stakeholders.
Organizational alignment – returns operations are customer-facing and look back toward the organization for support. Operations are physically decentralized, processing and aggregating locally, but communicating through customer care and decision support structures at the center. Clear processes with highly visible measurement tools will guide fact-based execution and monitor cost controls.
Customer experience first – careful not to go backwards and create further inefficiencies or increase customer friction by fast-tracking. We’ve seen it before, trying to leverage structures or processes that ‘almost work’ won’t help. Customer expectations are moving too quickly and this isn’t a short-term project. We start with a design, align on the thesis, plan our path, and track progress. Synergies should be considered and unfair advantages exploited, however, we favor early wins focused on customer experience and establishing confidence for the new digital returns platform first. As we scale, gain traction, and mature the picture will change… think multiple phases across years.
Ready to push past the doubts and put in the work?
Here’s what I know, e-commerce returns require a purpose-built solution, shared assets produce the best returns and the time is now to get started. There are three simple objectives on this journey:
- Win customer loyalty by improving the returns experience
- Reduce costs with local aggregation and smart disposition
- Optimize inventory by synergizing with forward fulfillment
Chris is a thought leader in the retail logistics space and is combining his love for retail, supply chain design and the tech start-up world at uReturn. uReturn is a Toronto-based start-up working to improve the customer experience, increase inventory access, and reduce shipping costs with a purpose-built reverse logistic ecosystem.
Chris started his career in retail store operations which ignited his passion for the art and science of great customer experience. His work as an Industrial Engineer has afforded him opportunities to design and operate global supply chains solutions across a wide range of retail formats. Most recently he was Chief Logistics Officer at GoFor, a last-mile delivery tech start-up. Contact him at www.uReturn.ca or www.linkedin.com/in/reverselogistics