The Dirty Secret of E-Commerce

The continued growth in e-commerce retail sales has been largely driven by factors such as convenience, product selection and lower prices. However, the inability for consumers to initially see, feel or experience products they purchase online can create gaps between product expectations and what arrives at the doorstep.

As online shopping continues to grow – retail e-commerce sales are expected to make up nearly a quarter of total retail sales worldwide by 2026 – returns will become more prevalent. In the U.S, 21% of online orders were returned in 2021, up from 9% in 2019. Compare this to the 9% returns rate of purchases made in-store.

Reverse logistics is difficult and costly. For retailers and carriers, sending a package is easy. Fulfilling online returns, however, is not. The process is inefficient and unpredictable, and leaves retailers with used inventory that oftentimes cannot be resold. Even consumers find making online returns a pain, having to repack, print shipping labels for and drop off unwanted online purchases.

Online consumers today have come to expect cost-free and hassle-free online returns policies. In order for retailers to appeal to this demand, they are having to bear the brunt of orchestrating difficult reverse logistics processes and eat the costs of doing so themselves.

Who pays the price?

Returns are costly even before the shipping process is accounted for, costing retailers on average $10 – $20 per return. Taking this a step further and accounting for the costs of processing, discounting and liquidation, it costs retailers on average 66% of the purchase price of an item to process its return.

Fifty-seven percent of retailers claim that dealing with returns has a negative impact on their business, while 20% would increase the price of their products to make up for the cost of processing returns. Reverse logistics is simply inefficient, and many companies have not invested enough in transporting, warehousing and processing products that must move backwards through their supply chains. “A worker in an Amazon warehouse can pick 30 items in a minute, but a return can take ten minutes to process,” explains Zac Rogers who worked as a returns manager at Amazon.

And although the operational costs of online returns may cause headaches for managers, it is the cost of losing customers due to poor returns experiences that threatens companies most.  Eighty-one percent of shoppers will switch to a competitor if they have a bad returns experience

Moving Forward: Reverse Logistics Technology

The solution to the online returns conundrum lies in innovative technology and enhanced partnerships between shippers, logistics providers and tech-enabled platforms. Technology solutions today offer free, fast, flexible and sustainable returns to consumers and low-cost, resource-light processes for retailers, ensuring both parties are satisfied.

Route orchestration and optimization can increase capacity utilization for trucks carrying less than a full load to take on return deliveries. Retailers can enhance the use of their many omnichannel nodes to accommodate returns, using technology to determine which products should be sent back to where. Visibility technology can boost the communication between retailers, carriers and consumers, alerting consumers in real-time when their return is processed, and refunds can be made. All of these amount to a better experience for consumers, giving them immediate visibility to the cost and status of their return and greater choice in how their return is made.

Last-mile delivery isn’t a one-way street. With an increasing amount of products moving in reverse within supply chains, reverse logistics technology will become critical in the coming years for retailers and carriers alike. Those who can build reverse logistics processes into their business strategies stand the best chance to move forward.

Jorge Lopera is Vice President Latin America & Industry at FarEye. Jorge has over 15 years of global logistics experience in senior roles encompassing customer growth, product management, and strategy. As Vice President, LATAM & Industry, responsible for FarEye’s expansion into the LATAM region, overseeing commercial and operational activities including sales, account management and channel & ecosystem partners. Serves as industry expert, contributing to major publications and supporting analyst relations.