World Retail Voice Blog Post
Efficient Product Returns: Hitting The Nail On The Head Of E-commerce
By Jitesh Gera, Analyst & Mayank Tripathi, Manager
Global retail e-commerce sales grew ~22.2% Y-o-Y to ~$1.32 trillion in 2014. E-commerce sales rose at a faster pace than brick-and-mortar retail sales in 2014. With this trend likely to continue, the share of e-commerce in global retail sales is slated to increase from 5.9% in 2014 to 8.8% in 2018. However, despite its vast growth avenues, the e-commerce wave is not one without problems. In this blog post, The Smart Cube analyzes one such key challenge—product returns—along with its impact on industry players, steps they are taking to overcome this, and the way forward.
Necessary Evil or Competitive Advantage?
In a 2014 survey by PricewaterhouseCoopers (PwC) among 410 CEOs of retail and consumer goods companies, 71% respondents indicated that handling returns of orders placed online and in-store was one of the largest costs in orders fulfillment. Other costs included direct shipping to customers (67%) and shipping to stores for customer pickup (59%). From a customer’s perspective, a retailer’s return processes and policies are crucial while making a purchase decision. A 2013 multiple-response survey by US-based voice solutions provider Voxware revealed that return processes and policies formed an important determiner for continued engagement with a retailer for ~97% respondents (i.e., shoppers). Moreover, 57% respondents of the Voxware survey indicated having returned a product as they did not like it, 54% owing to incorrect sizes or colors, and 25% due to receipt of an incorrect product altogether. Another 2014 survey conducted by delivery management solutions provider MetaPack suggested that 83% customers were more likely to shop with retailers having easy return processes.
These surveys suggest the necessity of online retailers to facilitate seamless product returns, irrespective of the cause of return. With retail e-commerce becoming a competitive domain and an increasing number of players seeking opportunities to jump onto this fast-growing bandwagon, friendly return policies can be a differentiating factor to attract and retain customers.
However, many e-commerce players grapple with returns management, leaving customers unsatisfied. They are unable to handle product returns effectively or utilize the return process as a competitive advantage, primarily due to relentless pursuit of omni-channel or multichannel retailing, without commensurate investments in strengthening returns management processes. A 2014 Gartner study among 300 retailers that operate across multiple channels suggested that 52% of the products returned could not be resold at their original prices due to damages during transportation, product handling in warehouses, etc. Even so, this exposes an opportunity to improve reverse supply chains and derive maximum revenue from returned goods. Largely focused on driving sales, most retailers are unprepared to handle the increasing volume of returned goods.
Half of the 4,000 online shoppers surveyed in 2014 by Mindtree across the US, the UK, Germany, and Benelux indicated a preference for flexible (through multiple channels) purchase and delivery options, along with the choice to return products to nearby brick-and-mortar stores of retailers. Consumers want to purchase and return products as per convenience through a preferable channel. While most global e-commerce companies are increasingly enabling customers to buy through multiple channels, efforts to facilitate seamless return processes seem to be lacking.
Leveraging Returns to Woo Customers
Simple and convenient return processes can encourage customers to buy more; however, it also leads to a surge in return volumes. 70% of respondents to the 2014 Gartner study expected return volumes to grow with sales. For online retailers product return rates are significantly higher than those for brick-and-mortar retailers, and vary largely among categories. For example, return rates (as of 2013) for gifts, home products, and toys are typically low (~10%), while those for apparel are generally high (20–30%). Though most online retailers offer free or hassle-free returns in pursuit of customers and revenue growth, what sets apart successful players is the customer experience of returns or refunds. In wake of this, some leading e-commerce players have developed effective strategies to manage product returns.
Amazon: Easy Product Returns
Amazon was ranked first in Gartner Supply Chain Top 25 for 2015, and its reverse supply chain had a significant role to play in achieving this feat. The company not only manages its forward supply chain effectively, but has also proved to be the frontrunner in handling returns. Its success in dealing with product returns can be attributed to the following:
An easy product returns policy promoted widely on its website
Primarily outsourced reverse logistics operations, which provide expertise in returns handling and value maximization from returned goods
Amazon’s return policy varies across categories; returns are easier for some categories—such as apparel—while for others, returns are contingent upon certain conditions. The key feature of its return policy is that it is easy to find and comprehend for customers. The company is also quick in processing refunds. A study conducted by global management consulting firm Kurt Salmon, and US-based information and measurement company StellaService during the 2013 holiday season (October–December) in the US indicated that Amazon took the least number of days (2) to process refunds among 49 other retailers.
It might be hard to believe, but Amazon even has a petition against its liberal return policy. In 2013, some writers and publishers protested against Amazon’s return policy regarding its Kindle e-books. The company allowed customers to return an e-book within seven days of purchase—essentially allowing them to read the book and get a full refund for it.
“This is like going into a restaurant, buying a meal, and then asking for a refund after you’ve already eaten it.” – Glenda A Wallace, Founder and CEO, Pink Kiss Publishing Company (2013)
Nordstrom: No Return Policy
The US-based upscale fashion retailer is famous for its returns handling process. The company has no return policy instated; it handles returns on a case-to-case basis. According to company representatives, customer service is the motto. It allows free returns and free shipping for products bought through its online store—without any minimum purchase in the US.
The company places utmost emphasis on customer service. However, its returns handling is not the only success enabling factor, the overall customer experience it provides has been often cited as one exceeding expectations. This includes a host of actions such as taking the responsibility for a customer receiving shoes ruined in rain due to a third-party logistics partner’s fault, personally walking a customer to the section he/she wants to go to in the store, and helping customers carry stuff they bought (not only from Nordstrom) to their cars.
Online and Physical Retail: The ’Twain Shall Meet
While consumers have lapped up online buying like never before, the bar has risen for service providers. Customers are ever demanding, and somebody will always step up to provide the best customer service—the key to customer loyalty, revenue growth, and profitability. Amid the omni-channel boom in the retail sector, customers expect flexibility in returns as well—to be able to buy from one channel and return through another. Several brick-and-mortar retailers, including Wal-Mart and Nordstrom, operate online stores and are enabling customers to return products bought online at their physical stores. However, a few online retailers have also set up outlets to enhance customer services and boost sales. US-based apparel retailer Gap took its online brands Athleta and Piperlime to the brick-and-mortar route in 2011 and 2012, respectively. Similarly, India-based online eyewear retailer Lenskart has recently started expanding physically; it operated 70 stores as of March 2015 and plans to add another 500 by September–October 2015. Amazon also debuted in the brick-and-mortar space by opening a store at Purdue University (US) in February 2015. The store offers the university’s students a few specific services such as free one-day shipping on textbooks in the campus area and free one-day pickup on other products for Amazon Student and Prime members. The company plans to open three more such stores by mid-2015.
Increasingly, the lines between online and physical retail are being blurred, primarily as retailers seek to maximize growth and improve customer experiences to build loyalty. Amid this singular focus on growth, the following are a few key questions for which online retailers must seek answers to develop future omni-channel strategies:
Are there gaps in your customer service fulfillment? If yes, can these gaps be plugged through physical presence?
Are return rates alarmingly high for certain product categories? If yes, should physical stores focus on those categories to help reduce return rates and improve sales?
Is it possible to incorporate technology and provide superior customer experience without going offline?
The answers to these questions will help gain insights into the current state and future requirements of a business, enabling players to develop strategies that help sustain their competitive edge over competition. After all, a satisfied customer is a loyal customer.
Originally published on The Smartcube on June 19, 2015