Curing The Reverse-Logistics-Returned-Products-After-Christmas Blues

Santa failed to bring you what you wanted? While return policies are expected by consumers, the reverse logistics struggle after Christmas is real for online retailers. Surely there is a simple tech-driven solution?

Svante Lietzke
by Svante Lietzke

Every time you return an unwanted Christmas gift, one of Santa’s elves sheds a tear… In reality, while the vast majority of North Pole denizens may be somewhat neutral about the increasingly alarming volume of rejected gifts, for most retailers the post-Christmas period is one of the biggest, most expensive, and logistically awkward times of the year.

Yup, returns – or to use their more formal title, ‘Reverse Logistics’ – are a huge continuous headache for retailers. Post-Christmas returns dominate during the first few months of each year, with January 5th being the zenith of the most frenetic time. In fact, courier service UPS has even coined a name for it: ‘National Returns Day’.

So why do so many online stores continue to promote ‘free returns policies’ like a feather in their caps rather than try to discourage them? Because returns have become an essential part of the online shopping cycle.

The customer, it seems, is (still) always right. Free returns are pretty much the norm now – for both bricks & mortar retailers and their online counterparts. But while physically-present stores are more likely to encourage in-person returns, online retailers have a unique set of issues to deal with.

Reverse logistics - returned products

Statistics show that up to 67% of online shoppers will check a website’s returns policy before putting any items in their digital shopping baskets, and 80% of shoppers expect retailers to offer free returns. While it's easy to see why customers take for granted just how costly (they are even worse for the Environment!) returns are; it's harder to understand why retailers are content to maintain the misery.

A lot of retailers seem only too happy to take a hit on copious amounts of returned consumer products. And even though many unfaulty goods are quickly put back into the inventory cycle for resale, the high costs incurred by doing so means that online stores are effectively losing money. In fact, it's often cheaper for retailers to simply dump returned goods rather than resell them!

But surely there's a better way to manage the movement of goods from the point of consumption to the point of origin? One in which both retailers and customers benefit from a more effective reverse logistics supply chain? Could the costs of returns be passed on to customers if the overall experience was better?

The key term to consider here's ‘customer’. If reverse logistics is an essential, albeit final, part of the customer journey, then it needs to maintain consumer expectations and do more than just deliver. It should also ‘delight’.

There're lots of pain points to consider here. Let's take a closer look.

The True Cost Of Reverse Logistics

In theory, from a consumer perspective, the principles driving reverse logistics make perfect sense:

  1. You get a gift
  2. It's the wrong size, color, or brand
  3. You return the item to the retailer at no cost for you
  4. In exchange, you receive an item of equivalent value, a credit note, or your money back

For retailers, however, it's a different story.

  1. Create a returns policy that meets customer needs (i.e. is free – meaning the cost of postage or courier delivery is covered)
  2. Publish it on your website and actively offer up the information to customers
  3. Work with a reliable courier service with a large logistics network
  4. Employ more staff to handle returned goods at your warehouse or distribution center
  5. Examine, record, and enter ‘reasons why item was returned’ information
  6. Decide whether to restock or discard the item
  7. Repackage the returned item or discard it
  8. List it for resale
  9. Lose money
  10. Potentially relive the entire process again

Why and how did returns become such a logistical nightmare? Historically, the volume of returns was insignificant for most retailers, but the recent and unprecedented rise has caught many by surprise and struggling to keep pace. Part of the reason is the rise of intentional returns – goods (usually clothes) bought in several sizes, colors, styles with the intention of returning the vast majority of them.

Now, one could argue that online retailers could restrict the number of items sold per buyer, or perhaps offer more accurate sizing information on their sites. But… well, free market economies aren't in the habit of restricting purchases. And honestly, how many of us have a clear idea of what an item looks and feels like until we have it in our hands?

So, returns have to be endured. But when it transpires that in the US alone, merchandise returns were valued at $260.5 billion in 2015, that less than half of all returned goods can be sold at full price, and that returning an item is up to three times more expensive than shipping it the first time around – one cannot help but feel the whole system is completely and utterly crazy.

Reasons For Returning Products

During the first weeks of January, US shoppers will return nearly 9% of all purchases. Clothing accounts for by far the lion’s share – 80% – but what reasons are typically given for returning goods?

  • Size too small: 30%
  • Size too large: 22%
  • Changed my mind: 12%
  • Style: 8%
  • Not as described: 5% (Source: Shopify)

Challenging Parcel Returns

What might the potential solutions be to the returns mystery? Well, the most obvious idea is to charge customers a fee to offset the associated costs. In the publishing industry, for example, retailers factor in the cost of returns into their prices, as they anticipate that some 20% of all products will be returned.

But disregarding additional costs for a moment, there're other more practical solutions to be found – which involve deploying smarter logistical solutions.

Companies that do returns well are adept at managing efficiency across outbound and return supply chains. But, as mentioned above, the actual transportation part of the returns process is just one piece of the puzzle. Storage, sales, data entry, and quality control all play a part too – and come with their own additional costs.

Ultimately, getting reverse logistics right involves balancing three things: efficiency, profitability, and customer service. Failing to get these in alignment leads to bad service, delivery uncertainty, and random coordination.

For this reason, more and more retailers are investigating automated logistics solutions to help them get the balance right. But what does this actually mean?

Return christmas gift

Better Coordination Through Automation

Automation is redefining the nature of work right now – and will only become more instrumental to our working lives in the foreseeable future.

Both business process automation (the use of tech by humans to carry out tasks) and robotic process automation (in which a piece of tech operates autonomously) are making waves. So how can we apply them to reverse logistics?

The most obvious answer is through the use of smart devices – the kind we use every day as consumers: our phones, tablets, and watches. We already use them for everything from messaging each other to recording our heart rates, so the opportunity for retailers and consumers to seamlessly share parcel returns information and logistics data doesn't seem like a massive stretch.

Real-time information is important to all parties concerned, but unless there's a way for data to be shared and made visible across numerous channels, the conditions needed for service, efficiency, and profitability to flourish in tandem will easily get lost.

KPMG offers a compelling look at how, in an ideal world, online shopping, real-time data, customer needs, and smart logistics could work together in perfect harmony – using the example of a pair of shoes needed for an office Christmas party.

In this detailed example, the customer’s shifting location is easily handled by different delivery solutions (a van and push bike courier combo), the order itself is quickly scanned, dispatched, returned, and put back into resale thanks to an automated warehouse service; and the service representative handling the customer’s returns query… isn't even human. And doesn't need to be.

„Ultimately, getting reverse logistics right involves balancing three things: efficiency, profitability, and customer service. Failing to get these in alignment leads to bad service, delivery uncertainty, and haphazard coordination.“

Managing Customer Service During Christmas & Beyond

Overall, it's clear that better automation-driven processes will improve the customer experience. No doubt about that. But in their continued efforts to drive long-term loyalty, online retailers need to go the extra mile (so to speak) – particularly during the busiest times of the year, when staff will be stretched to full capacity.

This is where the use of automated service agents – or chatbots – becomes very persuasive. In customer service, staff deal with the same questions 80% of the time. Like other menial tasks – such as data entry or call logging – this kind of work can become repetitive and boring, particularly when a good deal of the information is already available on the retailer’s website in the FAQ sections.

Chatbots are already making a difference in this kind of work. Where returns are concerned, customers often have the same queries – meaning the same answers and instructions are offered by service agents time and again. Reverse logistics is a process that can be easily mapped. And during a busy period like January, bots able to draw precise customer order status information are worth their weight in gold.

But bots aren't merely ‘tech for tech’s sake’. They're actually a lot cheaper than using a human agent. The average cost of a customer service phone call can be up to $50 per interaction, while a text interaction averages out at less than $10 per session, according to IBM – savings that could easily offset the cost of reverse logistics.

Getting More From Messaging Services

Given that some 80% of brands want chatbots by 2020, there can be little doubt that we will continue to see more bots come to fruition very soon. Brands leading the way include: Coca Cola, Starbucks, and Pizza Hut – alongside The Wall St Journal, hotel chain Marriott, and Whole Foods.

Quite an eclectic mix. What do they all have in common? They want to offer 24/7 customer support. And those that can respond to and engage with customers any time of day or nightstand a much better chance of success – increasing sales conversion rates by up 35%.

While many bots use Facebook Messenger as their primary interface platform, over the past year there have been significant developments among other messaging services – including Google’s RBM service, WhatsApp, and Apple Business Chat – all offering different functionality designed to attract growing numbers of brands and retailers to their chat ecosystems.

Loyalty Through Innovation

While the battle for chatbot supremacy will rage on for some time, consumers and retailers can only stand to benefit from this kind of innovation. Consumers can expect instant customer service on any device, on any platform; and retailers will be able to offer more in-depth, contextually-relevant information, draw on customer data, and better serve their overall needs. From a reverse logistics perspective, these developments will help to minimize cumbersome returns processes, give customers an instant overview of their parcel’s status, and provide them with an always-on branded communication channel.

Can we ever envisage a time when the cost, hassle, stress, and inconvenience of returns and reverse logistics will be completely mitigated by advances in AI and automation? It seems that there's a real chance of progress. But as long as retailers continue to focus on the overall customer experience and grow their tech footprint in line with their needs, they will continue to foster loyalty.

And while all retailers can learn a thing or two from Santa about loyalty and logistics, unfortunately, the Big Guy doesn't actually handle returns (yet) and has yet to strike a deal with a third party logistics firms – or develop his own chatbot. But as NORAD will attest, he always delivers; even if he doesn't respond to every letter.

„Automation is redefining the nature of work right now – and will only become more instrumental to our working lives in the foreseeable future.“
Svante Lietzke
Svante Lietzke
With a background in the logistics sector and operational experience in hospitality, Svante is responsible for the solution design and operational fit of Mesaic's conversational operating platform for our partners within the respective industries. He is enthusiastic about new tech and the numerous possibilities of digital experiences.

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