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Reverse Logistics – the New Differentiator for Online Retailers?

By Ian Hobkirk | 01/05/2015 | 8:35 AM

As we all get back to work after the holiday break, I’m guessing that I’m not the only one who is still dealing with the remnants of the festivities in the form of gifts that have to be returned for one reason or another. In my household, both my wife and I shopped almost exclusively online this year. This is a big departure for someone who usually loves the energy and excitement of going to a big downtown department store around Christmastime. In years past I’ve usually worked this into my business travel schedule…stopping off at the massive Macy’s in Herald Square while I’m in New York, or perhaps its counterpart in Chicago…the old Marshall Field's department store on State Street. But this year, time and travel did not permit such indulgences, and so the shopping was almost completely through the Internet. 

In my personal case, I received a lot of clothing this year. I will never understand how it is that a men’s Large sweater from one company can be too small, while another Large sweater from another company winds up too big. I felt a bit like Goldilocks on Christmas morn, locked in an eternal search for the fit that is “just right”. As a result, I needed to return or exchange better than 50% of my Christmas gifts this season. 

Both my personal shopping experience this year as well as numerous end of year discussions with online retailers led me to an eye-opening conclusion: reverse-logistics is going to shape up to be a major differentiator for e-retailers. Apparel is probably the biggest sector which is impacted by this need. Most clothing retailers I talk to report e-commerce return rates of 20% or more. Hence, making the returns process easy for the consumer, and efficient for the retailer is a real key to profitability. Here are some important areas in reverse logistics where there currently seems to be a wide disparity of capabilities amongst retailers: 

  • Web portal interaction: The best online retailers allow returns to be processed by the consumer on their websites, without requiring a phone call to customer service. This can be a huge benefit, as anyone who has sat on hold with a customer service representative on December 26th can attest to. As consumers make more and more of their purchases online, they will begin to get a sense of which sites offer the easiest, cleanest experience when it comes to returns. As there is more acceptance of the returns process as being a normal part of the gift cycle, consumers will certainly start to gravitate towards retailers that make the returns process just as easy and fast as the original shopping experience. This means web-based, not phone-based interaction.
  • Real-time processing: Some retailers offer instant processing of the return when submitted online: a returned merchandise authorization (RMA) code is generated right away, as well as a parcel shipping label to apply to the box. This can be a big plus for consumers who want to make one trip to the UPS Store with all of their returns and not wait around for authorizations to trickle in from laggard retailers. Many retailers are not yet able to process returns at this speed. In one personal experience I had this year, the return label was emailed to me four days after the initial return had been submitted and approved online. This level of service trains consumers that the returns process is going to be cumbersome, and might influence future shopping decisions.

  • Pre-determination of freight billing: This is an area where I really have to hand it to Amazon. When a customer makes a return on the Amazon website, they are required to select from about a dozen different reason codes. The site then immediately determines whether the consumer, or Amazon, will pay for the return freight. For defective merchandise or for items that don't match the online description, Amazon usually foots the bill. The consumer usually pays return shipping for return reasons such as "changed mind," or "product didn't fit". Either way, the consumer is immediately given a ruling on who pays the freight, and given several options for how to make payment if it is the customer’s responsibility. Again, it’s this sort of immediacy in the process that makes it easy, fast, and lends itself to repeat business.

As noted, some companies are excelling in the above areas while others are struggling. Below are two capabilities that are still emerging, where even top retailers are still developing their processes:

  • Applying discounts to exchanged items: In some cases, items may have been purchased online using special discount or promotional codes. When it is time to exchange those items, for a different size for instance, it can sometimes be challenging to apply the same discount code, especially if the promotion has expired. Managing discount rules during the exchange process will be a key capability for e-retailers.

  • Consolidating returns: This is an area that even Amazon doesn’t have nailed yet. Last week I found myself walking into the UPS Store with three separate parcels, with three separate RMAs, all going to the same Amazon processing center in Kentucky. They could have easily all fit into the same box. In my case, the items were ordered on three separate orders, and there was no process to consolidate the return into one parcel. This limitation is inconvenient for the consumer, expensive for the retailer, and happy news for the parcel carrier. Providing the ability to consolidate returns of goods across disparate orders can pay dividends in all of the above areas, especially for broad-line e-retailers like Amazon where consumers likely place numerous orders on the same website.

It will be fun to see what new capabilities emerge over the next twelve months as reverse logistics becomes a more and more important differentiator for e-commerce retailers.

The author thanks the readers for allowing him to play consumer trends expert once a year during the holidays! 





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The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Ian Hobkirk

Ian Hobkirk

Ian Hobkirk is the founder and Managing Director of Commonwealth Supply Chain Advisors. Over his 20-year career, he has helped hundreds of companies reduce their distribution labor costs, improve space utilization, and meet their customer service objectives. He has formed supply chain consulting organizations for two different systems integration firms, and managed the supply chain execution practice at The AberdeenGroup, a leading technology analyst firm.


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