According to the Office for National Statistics, online sales accounted for 19% of all UK retailing in January 2020. Of course, as e-commerce volume rises, so does the volume of returns. The 2020 IMRG/Metapack Returns Review puts it very well: “In today’s evolving bricks to clicks economy, delivery and returns go hand-in-hand. It’s impossible to have one without the other. Everybody shops online, convenience reigns supreme, delivery is king, and returns is the new queen.”
It is not only the shift to e-commerce that is driving up the level of returns. Over time, greater numbers of tech-savvy consumers are entering the marketplace, with Gen Alpha now snapping at the heels of Gen Z, who are active alongside Gen Y (the ‘Millennial’ parents of Gen Alpha). This ‘always on’ cohort is more likely to make purchases on smartphones – especially via social media – on the go. Research shows that this makes them more likely to make impulse buys and, consequently, generate more returns.
Returns have a direct impact on profitability. Research by KPMG found that it can cost double for a product to be returned into the supply chain than to deliver it in the first place, while a study by Kurt Salmon suggests that a third of margins can be lost in returns. It’s difficult for retailers to mitigate these costs due to consumer expectations of free returns. This is especially true of younger buyers – research last year by Klarna found that over half of Millennial and Gen Z shoppers would never shop with a retailer who did not offer free returns.
RETAILERS DRIVING LOYALTY
Retailers are realising that their returns systems and processes need the same priority as those required to fulfil the original order. This not only has the potential for huge cost savings, but also offers scope for driving consumer loyalty. According to the IMRG Consumer Delivery Review 2019/20, 69% of shoppers state that the quality of the returns service strongly influences the retailers they will buy from.
So, how can retailers improve their reverse logistics? The ideal approach is to minimise returns in the first place, giving a win-win result for the retailer and consumer. There are two key areas for improvement: marketing (before the order is placed) and fulfilment (after it is placed). In marketing, retailers can enhance their product descriptions, use richer online content and make better use of customer reviews to help shoppers make more informed purchases. This is especially true for the fashion sector, where the return rate averages 25% and can be as high as 45%. However, these measures can only help so much, due to the widespread practice of ‘bracketing’ – fashion consumers ordering their expected size and the sizes both above and below to ensure the best fit. Recent research by Metapack found that 29% of all consumers will often or sometimes purchase multiple products online, knowing they will return some or all of them, and a study by Accenture suggests that younger consumers are more inclined to do this.
When it comes to fulfilment, warehouse automation can make a significant contribution to the accuracy of order picking to minimise returns. Automation can also facilitate more efficient processing of returns into stock, thereby reducing the need for new inventory. It is estimated that as much as 10% of resalable inventory is within the returns process and unavailable for purchase at any point in time. AMHSA members provide a range of solutions for integrating returns – which may not be stored in the same area as the original stock. Overhead pocket sortation systems, for example, can be deployed to handle returns and feed them to the dispatch stations for consolidation with picked items.
Considerable R&D budgets are currently being invested by logistics integrators in solutions that leverage automation to handle returns with the minimum of touches, to offer their retail clients an edge in highly competitive markets. This includes the use of AI to help assess the condition of returns and decide whether their future lies in resale, repair or recycling.