How to Improve Reverse Logistics in an Era of Free E-Commerce Returns

How to Improve Reverse Logistics in an Era of Free E-Commerce Returns
6 min read

We are living in the era of e-commerce, which, as it turns out, could be both beneficial and challenging for today’s businesses. With online shopping more popular than ever before, RBC Capital predicts online sales will account for 24% of total sales by 2027. As free online shipping has become the predominant practice for e-commerce businesses and even brick-and-mortar stores with an online presence, consumers have been experiencing increasingly better customer service. Yet, e-commerce businesses are more strapped for resources than ever as they must ensure that all aspects from purchase to return are seamless and smooth.

It has become so easy for consumers to get items shipped for free or returned, it’s common to see multiple orders of the same product to ensure the right fit or size. In fact, software vendor MetaPack’s 2018 consumer research report found that 41% of consumers often or sometimes purchase multiple products online, knowing they will return some or all of them.

This is a huge issue for e-commerce businesses for a variety of reasons: Extra logistics costs, processing, and restocking merchandise all create large overheads. Not to mention that if the customer returns their purchase after it’s been marked down or is now out of season, the business loses even more in profits. The reverse logistics issues are even deeper: items on their way back to the store come from different places; are usually mixed with other items and thus difficult to organize, and often need to be shipped through different vendors and warehouses as they find their way back up the supply chain.

If these returns happened at a low rate, it may not be such a huge issue; however, logistics providers have discovered that returns are happening at a larger scale than ever. FedEx estimates that 15% of e-commerce orders are returned, “with about 5% going to a store and 10% being shipped back.” DHL also reported that they see return rates as high as 25% for e-commerce customers. According to Statista, the cost of returns for e-commerce businesses will hit $550 million in the U.S. alone in 2020.

Of course, the easy answer would be to simply eliminate free shipping and returns to cover the overhead costs of returns. Yet because consumers are already so accustomed to easy, free returns, they are much more likely to reject any business that doesn’t offer it. In fact, Narvar’s 2018 Consumer Report found that 69% of shoppers are actually deterred from buying online if they have to pay for return shipping. A majority of consumers also believe the overall returns experience influences their likelihood to purchase from a retailer again, according to UPS’ Pulse of the Online Shopper study. In fact, consumers now care about their experience more than the actual products they purchase 84% of the time.

The Technology Tackling Reverse Logistics

Reverse Logistics PUDO Station

This file is licensed under the Creative Commons Attribution-Share Alike 3.0 Unported license.
InPost PUDO Station in Warsaw, Poland. Picture Credit: Kai Kowalewski

With no answer but to have free return policies or lose out on customers, businesses are adding employees, increasing warehouse space, and taking other measures to handle reverse logistics. One popular option is adding more pick-up and drop-off (PUDO) sites to make shipments more easily accessible for customers. Logistics giants like UPS, FedEx, and Amazon are all partnering with retail chains to create thousands of extra PUDO points to offset their shipping costs.

In addition to UPS’ nearly 5,000 store locations in the U.S., they have also partnered with Michaels, Advance Auto Parts and CVS Pharmacy to create 14,000 extra “Access Point” locations. Amazon returns can be dropped at Kohl’s or a UPS Store, and they don’t have to be pre-packaged or can be dropped off pre-packaged at over 55,000 FedEx drop-off points. FedEx also has formed an alliance with Dollar General, which is estimated to increase the FedEx Retail Convenience Network to more than 62,000 locations by the end of 2020. Deutsche Post also announced it will expand its network of DHL Parcelshops, supplementing the already-existing 10,000 Parcelshops across Germany and nearly 50,000 points across Europe. DPD also boasts over 20,000 PUDO points across 13 countries in Europe. Hermes even goes as far as to offer courier return service, picking packages up directly from the customer’s doorstep.

Some companies are turning to automated return startups to solve their shipping woes. Using an automated return system, customers can select the items they’d like to return, find out where to drop off or mail their package, and track their orders to completion. One such solution is the UK-based Clicksit, which fully automates returns for small-to-midsized enterprises that don’t have the same bandwidth to operate return processes profitably. Using the Clicksit app, customers can access a self-service customer return portal and dashboard that manages all returns while saving the business money on return costs. Businesses that use Clicksit can gain insights on the reasons for returns, use a dashboard for real-time tracking insights, and find capabilities to deal with hundreds of different return locations.

InPost has created its own PUDO service to help e-commerce businesses save money in last-mile delivery. InPost has planted Lockers in many locations, including shopping centers, supermarkets, petrol stations, train stations, and retailers. The lockers accept 45 times more parcels than a standard courier delivery, maximizing the number of parcels handled by the courier. InPost has also partnered with Poste Italiane to create a network called PuntoPoste, which combines InPost’s lockers with Post Italiane’s collection points for expansive return service. The network offers any customer the use of its lockers, automated kiosks equipped with touch screens, barcode readers and mini printers.

Preventing Returns From Happening Altogether

Picture Credit: Houzz

While some companies are enhancing the returns experience, others are simply trying to prevent returns from happening altogether through artificial intelligence and augmented reality solutions. Apparel and retail outfitters are using data and AI to help customers order the right sizes that will properly fit them so they reduce return rates. One such example is True Fit, which has developed what it calls a “Fashion Genome” to help fashion sites direct users to order the correct size for their body. By prompting the shopper to answer a few questions about their normal size orders and details about their height, weight, age, and preferences, the AI technology recommends the correct size.

Outside of apparel sites, furniture brands are also getting a boost from augmented reality solutions. Startups like Houzz are using AR to help customers design and place furniture in a 3D rendering of their homes so they can know exactly how a certain piece would look and fit before making the purchase. Nike has long used online customization of its shoes to avoid returns, and Levi’s allows its customers to choose custom embroidered designs on the jeans they pick out.

Logistics companies themselves can also take action to address and prevent returns. Ryder Supply Chain Solutions is one example of a logistics company helping its clients to get an insight into the reverse logistics. Ryder helps its customers gather data on what is returned, why and how much returns cost, allowing companies to improve their processes and lower the costs of returns. Third-party logistics providers can also improve reverse logistics by taking returned items and testing, repairing, recycling and/or disposing of them so the e-commerce businesses don’t have to.

All of these solutions reap plenty of benefits for both the customer and the business. When companies are able to prevent returns through customization, automate their reverse logistics operations through third-party startups, and make active use of strategic PUDO partnerships, any business can succeed in avoiding costly returns. Furthermore, their clients will continue to experience high customer satisfaction rates and make smarter purchases allowing them to avoid return hassles. With better return processes, both clients and companies win.

If you would like to learn more about the innovative returns practices, PUDO’s and returns management support, make sure to attend Leaders in Logistics: Post and Parcel Summit which takes place in Copenhagen on October 5-6.

Join 400+ attendees and 90+ speakers at the must-attend summit uniting logistics and postal operators across EMEA. Use code TRANSMETRICS10 to save 10% off your ticket!

Learn more about Leaders in Logistics: Post and Parcel Summit…