Returns processes emerge as important element of customer experience, but there are some pitfalls to avoid.

With e-commerce playing a growing role in the United States economy, spiking as it did during the height of the COVID-19 pandemic, online retailers and their service providers must pay more attention to reverse logistics, especially in the aftermath of the holiday shopping season. Returns have become part of the overall customer experience and should be part of retailers’ business plans.

The National Retail Federation (NRF) has reported that 196.7 million Americans shopped in stores and online during the period from Thanksgiving through Cyber Monday in 2022, 17 million more than 2021. Consumers are expected to have returned over $1 trillion worth of merchandise last year, up from $760 million in 2021, according to NRF numbers—and that figure could top $1.6 trillion by 2027, according to a recent report from the Forrester advisory group. Expenses for reverse logistics total around $100 billion each year in the United States, according to the consulting firm Aberdeen Group.

“COVID accelerated the adoption of e-commerce,” noted Mark Delaney, a vice president at FourKites, a provider of a supply-chain visibility platform. “Because of that, a lot of retailers are struggling with a tsunami of returns. But there are other factors impacting returns besides the pandemic. One is economic. Everyone is trying to make their dollar go as far as they can.”

While there’s no doubt COVID altered the landscape for reverse logistics, how the pandemic impacts the industry long-term is still a question mark.

Christian Piller, COO of Pollen Returns, a technology company designed to help retailers to leverage their current inventory through quicker recovery of returns, says of the current state of reverse logistics, “It’s easier to understand how COVID altered reverse logistics in the short-term – consumers were at home, they ordered and returned more – but it’s more difficult to understand what meaningful, long-term impacts there will be. Returns are expensive for the retailer with the need to hold additional inventory and the cost per package; costly for the carriers if they are to pick up from consumers; frustrating for consumers as they must navigate multiple processes and act as a logistics provider by bringing their returns to a location that is more convenient for the retailer or carrier…”

BEUMER’s pouch technology eases the handling of returns by placing each item directly into a pouch that circulates on an overhead conveying system.

Product Evaluation and Returns

Convenience, product selection, and prices, are among the other reasons consumers choose e-commerce, according to Liz Lasater, CEO of Red Owl Logistics, a freight forwarder. “Unlike in brick-and-mortar stores consumers cannot evaluate products before they purchase them,” she said. “That leads to a large number of returns for items that were purchased online but did not meet consumers’ expectations for a variety of reasons.”

As Piller points out, “32% of consumers said that taking returns to a logistics provider was the most inconvenient part of the returns experience – if retailers do not expect consumers to pick up their purchase from logistics providers, why do they expect the consumer to bring their returns back to one?

Besides prices and selection, customer service has become competitive elements in retailing, and especially online retailing, which means that vendors that ease the returns process for their customers will have a leg up on the competition. As returns become an important element of the overall customer experience, vendors need to give some serious thought on how to manage returns and the related reverse logistics processes.

Facilitating returns, it’s worth noting, also benefits sellers. Once an item is to be returned, it reverts to the shipper’s inventory. By making returns processes easy, retailers can retrieve their inventory quicker.

But just how to do that that puts retailers in something of a quandary. Some vendors favor customer returns to stores, according to Delaney. “The idea is, if you’re in my store there’s a good chance, I’m going to get you to buy something else,” he explained. “But if you’re simply dropping it off in a third party location or shipping it back, I lose that opportunity.”

The Logic of In Store Returns

According to a recent report from Inmar Intelligence, a data platform company, “Omnichannel retailers should ask for items to be returned in-store.” Sixty percent of shoppers prefer to make in-store returns, according to that report, “where they receive a refund or store credit on the spot. Armed with fresh funds, they’re likely to make new purchases while they’re there.”

According to data published in Forbes last October, “consumers now rank in-person box-free returns,” such as an in-store return, “as the number one preferred method for online returns, while mail-in returns have dropped to the fourth-ranked position.” In-store returns also represent a more sustainable reverse logistics solution, according to Inmar, since those facilities are “already integrated into the company’s supply chain and logistics.”

The large number of returns from online purchases comes with considerable costs to retailers. “Reverse logistics has become costly mostly due to an inefficient process with inventory that might not be able to be resold,” said Lasater, “as well as the obligation to provide a cost-free online return policy.”

Implementing technology is one solution to the problems associated with reverse logistics. In the first place, innovative technologies like artificial intelligence and machine learning can serve to obviate many returns.

“AI and machine learning can reduce returns by offering sizing recommendations,” said Lasater, as could “virtual fitting rooms. Retailers can also use technology on the backend to determine which products need to be sent back to which location.”

Because the reverse logistics process adds to costs, there’s also the question of whether to send a replacement product or grant a refund without requiring the return of the unwanted item. “It is important to know exactly how much it costs to return an item, from incoming freight to liquidation,” said Lasater, “so you know the best way to manage returns.”

The Decision To Keep or Liquidate

According to the Inmar report, “returns management systems will eventually answer the return-or-keep question based on configurable rules engines.” Factors that they will consider will include customer value, shopper returns history, and SKU history. “Sustainability measures, optimal value recovery, speed-to-resale, and costs can further augment the decision to return or keep,” said the Inmar report.

Such a system might determine, for example, that a product should be slated for liquidation because returning it to stock would be cost prohibitive. Or it might recognize the customer as a first-timer and recommend “to let the newbie collect a refund” without a return “in order to establish goodwill and trust.”

Lasater agrees that return policies “should be simple and favorable to the customer.” “If you are worried about giving too much to the customer, don’t be,” she said. “The number of satisfied customers will outnumber those who abuse the policy.”

But abuse of the process is a recognized risk. Inmar cautions that “return-less refunds could invite bad actors into your shopper base” and that the practice “could backfire.” Shoppers told to keep an inexpensive item may try to return higher-priced items, to see if they can keep those as well. “Or they may encourage friends to order similar products from the same retailer,” said the report, “then initiate a return to see if they get the same offer.”

According to the NRF, organized retail crime costs retailers 7% of their total annual sales and fraudulent returns exceed 10% and are growing. Inmar’s final words on the subject: “Seller beware.”