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Top strategies for dealing with the high cost of E-commerce returns

03 Aug 2022 —
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Ecommerce product return

While the annual growth of e-commerce sales has slowed from the 25.7% in the early stages of the pandemic, the rate of growth of online sales globally increased by 16.8% in 2021 to $4.94 trillion*.

While the annual growth of e-commerce sales has slowed from the 25.7% in the early stages of the pandemic, the rate of growth of online sales globally increased by 16.8% in 2021 to $4.94 trillion*.

Product return: a crucial point for companies

Increasing e-commerce sales have been accompanied by a growing number of returns. Online transactions are expected to account for nearly 25% of global retail sales by 2025 and online shoppers return their purchases at a significantly higher rate than consumers who buy products in stores. Supply chain content platform, Logistics Matter, estimated that average return rates on online purchases in Europe were at least 25% compared to 8% for purchases at stores. Germany, (41%), the Netherlands, (36%), and the UK, (32%), had the highest return rates. Fashion retailers, consumer electronics and auto-parts experience a significantly higher return rate across global markets than other industries.


The costs of these returns are enormous and e-tailers generally foot the bill. In 2019, the cost of returned product deliveries in Europe, Middle East and Africa amounted to $381.8 billion, according to research firm Statista. With e-commerce industry leaders like Amazon pushing the envelope, free product returns have increasingly become a cost of doing business in cyberspace. Surveys show that online consumers expect free returns of their purchases and if they’re not happy with a return experience, they’re unlikely to shop with that vendor again.

 

Cost of returns

 

The financial costs are high. The extra packaging, return shipping, and the mountains of discarded products that come with online returns can kill e-commerce profit margins. The environmental costs are equally staggering.


Returned products often require additional packaging, barely half of which is recycled, and they produce more carbon emissions on their return trip. With a high percentage of returned goods deemed unsellable, many are simply thrown away. Every year an estimated five billion pounds of returned products end up in U.S. landfills alone and the situation is similar across global markets.


In the e-commerce world, however, a flexible and customer-friendly return policy doesn’t have to ruin your profit margins. Businesses can and are taking steps to both improve customer experiences with product returns and reduce their financial and environmental costs. There are basically two ways to tame the return beast: reduce the number of product returns and manage the return process more efficiently.

 

Even happy customers make returns

The biggest reason for product returns of online purchases is that the product did not fit or was in some way not what the consumer expected. The solution is to make sure the consumer understands the product and that it meets their expectations. The technology to communicate detailed information about products through online stores and websites can help do that. Here are several steps to help inform purchasing decisions:

Easy returns
  • Provide detailed specifications of products on your online platform with lots of realistic photos. When customers have more information on products, they are more likely to buy what they want. UK clothing retailer ASOS took the novel approach of providing a virtual changing room online where customers can view items on different sized models.
Customer feedback
  • User-generated content and reviews reduce returns. Surveys regularly show that input from other consumers reduces disappointment and flags issues for customers. Encourage online feedback from customers. It will improve their experience, reduce returns, and inform your own business processes.
Clear returns policies
  • Wardrobing is the practice buying an item, using or wearing it, and returning it for a refund. It is a problem in more than just the fashion industry. The “no questions asked” return policies that have accompanied the explosion in e-commerce sales have undoubtedly contributed to the costly practice. Draft a clear return policy that establishes that worn items that are returned will not be fully refunded.

Businesses have viewed product return fees as a risky strategy that could hurt e-commerce sales. Last month, however, online retailer Zara began charging just over two euros for customers to return a product online. The fee is waived if customers return the item to a store themselves. Whether other e-tailers will follow suit and the policy is sustainable remains to be seen.

Optimise your packaging and logistics

Smart packaging is crucial to creating an efficient product return process. While packaging materials must protect products and provide valuable marketing benefits for companies, they also produce major financial and environmental costs. Right-sized packaging designed to limit volumes and reduce empty space within packages can dramatically reduce the costs and environmental impacts of both initial deliveries and product returns. The use of eco-friendly materials in packaging can also endear you with increasingly environmentally conscious consumers.


There are also lots of opportunities to optimize the reverse logistics chain involved in a product return:

  • The use of eco-friendly materials that are fitted to products will reduce environmental impacts and costs. That is even more important for retailers that experience high return rates. In those cases, providing simple-to-use, protective return packaging may make sense.
     
  • Consider digitizing the return process. Rather than including return shipping labels with deliveries, enable customers to print them from your website or other online portals.
     
  • Good warehousing processes can go a long way to reducing the costs of returned products. Establishing an efficient system to assess the condition of the products and whether they can be reconditioned or repaired can dramatically reduce the cost of damaged and discarded goods.

 

efficient returns process

 

And for tomorrow?

E-commerce is the future and higher rates of product returns will always be part of the ecommerce equation. Businesses that more actively engage their online shoppers to help them choose the right products will have fewer returns. And those that become more efficient with their packaging and logistics processes will find their online business more profitable and more eco-friendly.

 

Source:
*Statista, February 2022