Niranjan Gidwani, Consultant Director & Board Member SSGMUAE walks us through how businesses must effectively manage returns while simultaneously increasing online sales.
Originally written by Niranjan Gidwani. Edited by Vibha Mehta.
As someone deeply interested in e-commerce and online returns, I have observed the ongoing changes in this sector. Businesses now grapple with enhancing online sales while effectively handling returns, especially as last-mile delivery expenses surge, posing significant challenges to profitability. Moreover, with more consumers worldwide shifting to online shopping, managing returns has become crucial to customer satisfaction and brand loyalty.
When one looks at a purchase process in the brick-and-mortar world, one realizes that many vital factors operate subconsciously. In the case of a physical-format store, the average consumer has to put in much more effort. The consumer has to travel to the location, physically go through various items and try out or even touch and feel some of them. Digital shopping, on the other hand, allows consumers to step into a similar virtual space at the click of a button and step out with another click. This requires little effort on the part of the shopper.
Also, in a physical store, the salesperson spends a fair amount of time and energy with consumers, patiently showing various options. This effort of the salesperson generates a certain kind of bonding and a mindset in many shoppers that makes it easier for them to leave the shop after buying at least one item. There is another important thing that a trained salesperson will often do in a brick-and-mortar store.
Clever salespersons reduce the load on shoppers by constantly moving aside those items that the shopper seems to dislike. This helps to improve the shopper’s decision-making process. Yes, salespersons also have growing numbers of bad apples, no doubt.
There is no such human interface in a digital transaction. Too many choices in the digital world could, and often do, create confusion during decision-making.
In recent times, shoppers have been displaying new behaviours, particularly in fashion and garments. In a recent article by Biju Dominic, Chief Evangelist, Fractal Analytics, an interesting phenomenon called ‘bracketing’ is rising. ‘Bracketing’ is the tendency of a consumer to buy multiple versions of a product, such as different sizes of a shirt, with the intent of sending back the ones they don’t want to keep.
According to a study by Narvar, more than 58% of shoppers in the US resort to bracketing behaviour. Another practice among a few shoppers is ‘wardrobing.’ That is, wearing an item of apparel once, maybe even for an event, and then returning it. According to industry reports, a whopping 16.5% of the goods sold in the US in 2022, valued at nearly $817 billion, have been returned. In 2019, the return rate was only 8%. As per data from Indian retailers, returns in the Indian online shopping market stand at around 25-40%. This high and increasing rate of returns is a severe problem for many online retailers.
According to a Wall Street Journal report, it costs a retailer $27 to handle the return of an online order worth $100. Many of the returned goods are not in a condition to be resold, and some are rerouted to charities. The environment bears much of the burden of this return behaviour. In the US alone, 2.6 million tons of returned clothes wound up in landfills in 2020. Fashion is the third-most-polluting industry in the world after construction and food.
Making it easy for customers to return items at no cost started as a retail strategy to entice more people to shop online. But it’s getting expensive for retailers and irreversibly expensive for our planet.
High-priced electronics, such as laptops and tablets, have short product life cycles and lose value quickly, sometimes at a rate of almost 1% per fortnight. Seasonal items, such as back-to-school supplies or winter coats, become more difficult to resell if retailers get them back on shelves after demand has bottomed out.
The interesting part is that once the returned goods are back in the hands of a retailer, according to Gartner Research, a fairly large portion may need to be sold below full price. According to US consumers, the most returned items were clothing (26%), bags (19%), shoes (18%) and accessories (13%), consumer electronics (11%), and food and beverages (11%).
While returns are a big problem for retail, many online retailers do not quantify their full cost and an equally large number do not use technology or software to better manage them. Regarding packaging, while online shopping generates 4.8 times more packaging waste than brick-and-mortar stores, returned products often require extra plastic or cardboard, which contributes more waste.
One of the critical factors of success in logistics is the wide adoption of new technology in their operations. Companies that use AI and blockchain enhance their efficiency in various ways. They can fully track the origin of goods and assist in maintaining data and minimizing cost on returns. Additionally, ESG is very high on the agenda for the UAE government and good companies. Embracing technology is a strategic move to enhance efficiency and responsiveness, contributing to the industry’s overall adaptability.
While we are all delighted with the advent of ecommerce and online shopping, this planet will undoubtedly only face adverse consequences if every part of the chain handles the returns process correctly. In this area, the start must be with the end consumer.