Navigating E-Commerce's Reverse Logistics Challenges
The chances of a shopper crossing the threshold of doubt and clicking ‘buy now’ is largely determined by two key terms. ‘Free shipping’ and ‘Free return.’ In fact, the success of the buyer-seller relationship rests on whether or not the product comes with ‘no-strings attached.’ That is what earns it the coveted trial in the hands of the buyer before its fate is decided.
Research has found free shipping to be the most important consideration for almost 98% of the consumers while shopping online, with a significant 75% voting for free returns. Anecdotal evidence suggests that shoppers are equally bewitched by free returns and free shipping.
According to the National Retail Federation, approximately 18% merchandise, worth $158 billion, is returned by the American customers. In India, on the other hand, a whopping 30% of the products bought online are returned. While both ‘shipping’ and ‘return’ are driven by logistics, it is the latter that has been steadily assuming greater significance in recent times as the quintessential part of the supply chain. This has also been one of the major reasons why the idea of hassle-free buying has driven value for the consumers and led to the growth of the sector. The massive surge in returns has fueled a global reverse logistics market. Pegged at $635.6 billion in 2020, the market is estimated to touch $958.3 billion in 2028, registering a CAGR of 5.6%.
The Surge
A large part of this trend can be attributed to the accelerated growth e-commerce has registered globally, especially post pandemic, rising from 15% of total retail sales in 2019 to 22% of sales in 2022. Morgan Stanley estimates the e-commerce market to grow from the current $3.3 trillion to $5.4 trillion in 2026, accounting for 27% of the retail sales. On yet another bullish note, e-commerce enablement platform Shiprocket estimates consumer spending in India, growing at a CAGR of around 10%, to breach the $4 trillion mark by 2030. With 80% of the consumers giving preference to online shopping, the e-commerce market would certainly grow exponentially in India too — honoring projections to rise from $22 billion in 2018 to $350 billion dollars by 2030. And this is where reverse logistics — the journey from the customer’s doorstep to the manufacturer or the warehouse — comes in because a significant number of sales are followed by requests for returns or exchanges. Returns in case of B2C e-commerce might be the most visible part of the reverse logistics industry. But there is more to it than meets the eye. Product recalls, B2B returns, end-of-use returns, and end-of-life returns by brands also contribute significantly to the pie. And beyond physical logistics and transport operations, it also entails scheduling, warehousing, reselling, returns/replacement management, refund management, recycling management, repurposing/remanufacturing, etc.
Reverse logistics has become an indispensable part of the capitalist world — for want of gaining new customers or retaining them; as part of corporate social responsibility agenda; to reduce their carbon footprint; or for environmental compliance.
Revolutionizing Reverse Logistics with Innovation
There are a host of challenges that the reverse logistics industry is trying to address through innovation. Companies are increasingly migrating to cloud platforms while leveraging Big Data, Predictive Analytics, Blockchain solutions, advanced automation, and Machine Learning algorithms to extract maximum value out of the returned goods and minimize their losses.
The need for efficient reverse logistics services has spawned countless startups in the space. The Global Startup Heat Map reveals heightened startup activity in the reverse logistics space in the UK, the US, and in India. Noteworthy mentions being Reusely, Preshipping, Warehowz, Recommerce, Saara, and iThink Logistics. India-based startup, Warehouse Now, for instance, provides a variety of logistic services on-demand, such as pickup and delivery, in more than 150 cities. Its end-to-end supply chain solutions offer procurement facility for in-bound logistics, inventory management, optimized multi-stop routes, with full-time live tracking of products and routes for flow of goods, finances, and information.
Business owners, suppliers, manufacturers, and distributors are also relying on Warehouse Management Software such as NetSuite WMS, Sphere WMS, Oracle WMS, Fishbowl, etc. to enhance their efficiency quotient.
Managing the Backward Flow
In the face of cut-throat competition and shrinking profit margins, sellers also need to extract maximum value from the returned inventory to curb the loss of revenues and improve their bottom lines. Fortunately, it also saves the products from heading to the landfills and gives them a second chance at life. Cloud-based reverse logistics solutions help the sellers by optimally routing the returned products by identifying the right return category. It could be repair, resell as a new product, resell as return, refurbish, or recycle. This in turn has given rise to the e-commerce industry (which research firm Cowen predicts will account for 14% of the apparel, footwear, and accessories market by 2024, up from about 7% in 2020) that facilitates this transition by leveraging data analytics and market insights.The Value Potential
Returns and exchanges in e-commerce have fundamentally reshaped the consumer experience, offering a valuable service that goes beyond mere transactions. In today's retail landscape, an increasing number of consumers are choosing online shopping platforms primarily due to the added convenience and assurance provided by the option to return or exchange items.The evolving nature of the retail industry has been centred around meeting the dynamic needs of consumers. E-commerce has spearheaded this revolution by recognizing that a flexible and hassle-free return or exchange policy is a significant factor in consumer decision-making. Rather than viewing returns negatively, they are now perceived as an integral part of the purchasing process, fostering trust and confidence among shoppers.
One of the pivotal aspects that e-commerce has introduced is the ability for consumers to shop from the comfort and safety of their homes. Free shipping, coupled with a robust returns policy, has become a cornerstone of this convenience. It allows consumers to explore a wide array of products without the constraints of time or location, eliminating the need to physically visit stores.
The true value proposition lies in the peace of mind offered to consumers. Returns and exchanges serve as a safety net, enabling individuals to make purchases without the fear of making a wrong choice. This flexibility encourages experimentation and exploration, empowering consumers to try new products or styles they might not have otherwise considered.
Moreover, the positive impact of a seamless returns process cannot be overstated. It instils a sense of confidence in consumers, knowing that if a product doesn't meet their expectations or fit their needs, they have the option to easily rectify the situation. This results in increased loyalty and repeat purchases, fostering a stronger bond between consumers and the e-commerce platforms they frequent.
Seamless returns processes build consumer confidence by offering easy rectification if a product falls short. This trust fosters loyalty and repeat purchases, strengthening the bond between consumers and e-commerce platforms. However, return fraud remains a significant concern. Tactics like wardrobing and bracketing contribute to increased logistical and financial burdens for retailers. Managing reverse logistics often costs more than the initial sale, impacting profitability. To counter fraud, retailers employ transparent return policies and leverage data analytics. Technologies such as Stripe Radar utilize machine learning to significantly reduce fraud, offering insights into customer behavior. Implementing rigorous inspection processes, like Delhivery's QC-RVP, aids in detecting fraudulent returns. Despite these challenges, e-commerce platforms persist in maintaining consumer-friendly policies like free shipping and hassle-free returns, emphasizing their commitment to consumer satisfaction despite the presence of a few bad actors in the sector.
Ultimately, the value of returns and exchanges in e-commerce extends far beyond a mere service; it's a cornerstone of consumer empowerment, convenience, and trust-building. By embracing and refining these customer-centric policies, the retail industry continues to evolve, catering more effectively to the diverse and evolving needs of consumers in today's digital age.
Building the Ship while Sailing it
Given the shifting market dynamics, the e-commerce companies will need to bolster their return policies and strategies to keep pace with the latest return and fraud trends. Proverbially, it will be akin to building the ship while sailing it. To gain resilience, the waters need to be tested at multiple levels periodically – a robust and secure financial payment gateway, routine internal audits, shortening the return window in case of categories that bleed, charging a return fee, are just few of the many anchors that will unlock immense value for the businesses.About the writer
K. Giri is the Secretary General of Empower India - a think tank group, which conducts policy-oriented research and analyses and offers assistance to governments, corporations, and policy formulators on domestic and international issues.
LIFTING & SPECIALIZED TRANSPORT, JANUARY u2013 FEBRUARY 2024
