With ecommerce sales expected to top $1 trillion by 2027 according to FTI Consulting, it’s only a matter of time before online sales capture a hefty share of total retail sales, up from around 9% currently.
But as any merchant knows, the spike in online purchases brings an inevitable rise in ecommerce returns. Buyer’s remorse plays a large role, as does the propensity to order two or three sizes or styles and send back the rest.
It’s also exacerbated by retailers’ efforts to remain competitive through relaxed and easy return policies. From pop-up kiosks at the mall for items purchased online to year-long windows, third-party apps, and label-free returns, options abound.
Customers Love It, Retailers Dread It
But what amounts to a happy return for the customer is a logistical and financial nightmare for the retailer. This forces companies to rethink processes for offsetting the loss, both pre- and post-return. The most desirable option for doing this is to prevent ecommerce returns from happening in the first place. Many retailers are implementing strategies to help slow down returns, or at least make the customer think twice. For example, Jet.com offers a lower price if the consumer opts out of the free return policy, while companies like Dockers.com provide additional fitting details such as inseam and thigh-opening measurements.
Some retailers are using augmented reality apps to give shoppers a better way of visualizing the product and thereby cutting down on buyer’s remorse, which accounts for 25% of online returns.
Other companies are enlisting third parties to discreetly track how often shoppers return purchases. You might remember reading about a buyer being barred from making any returns or exchanges for a full year due to allegedly abusing the store’s return policy. Amazon has also been called out recently for shutting down the accounts of customers who they feel return too many items.
Technology Solutions for Returns
Still, ecommerce returns – and a lot of them – will remain the rule. Retailers must adopt newer, more efficient reverse logistics programs to deal with merchandise once it’s returned to the warehouse. For example, SaaS-based inventory management solutions use data analysis to determine the best channel for a returned item (re-shelve, refurbish, liquidate, scrap). This automated process allows retailers to quickly process, reroute and track merchandise, boosting efficiency. Apps that help manage online returns are also hitting the market.
Interestingly, more and more returned inventory – regardless of condition – is being slated directly for liquidation into the secondary market. This is happening for a few reasons including:
- The high cost of processing ecommerce returns back on shelf; it costs twice as much to process an online return than it does to sell it
- Vendors no longer want products back due to processing costs
- Social/environmental responsibility, i.e. sending items to landfills is socially unacceptable
- A robust secondary market exists for returned, excess and overstock products
- Newer technology-based liquidation methods produce higher pricing for returned items
Auction Marketplace Approach Growing
Many retailers are turning to B2B marketplaces to auction bulk quantities of returned and excess merchandise to business buyers around the country. From salvage and discount store owners to online sellers to mom-and-pops, refurbishers and exporters, a robust buyer base exists for just about every product regardless of condition. For the retailer, using an online auction channel sets up a dynamic where many buyers are competing for the inventory. This pushes prices up, allows for a faster sales cycle and reduces the cost of processing returns.
In addition to these marketplace platforms, retailers are also applying data to achieve their goals, be it recovery, velocity or brand control. The smallest adjustments can drive substantially better results. For example, lot optimization, low start prices, accurate manifests, targeted marketing and other strategies all contribute to better pricing.
As more commerce shifts online over time, retailers will need to shift gears in terms of how they approach reverse logistics. The best plans will combine pre- and post-return strategies. Yes, work to prevent the return from happening but if it does, have a process in place to offset the amount of loss. This includes looking to liquidation as a viable option.
Eric Moriarty is Vice President of B-Stock Solutions