Study: Reverse logistics still a puzzle for omnichannel retailers

Today's online shoppers do not hesitate to send back items that don't meet their expectations—whether it's a question of fit, quality, damage during shipping, or a host of other reasons. By all accounts, the e-commerce returns rate today runs well into the double digits, with some estimates putting it at 30, 40, or even 50 percent.

To get a better understanding of how companies are meeting the challenges of reverse logistics in omnichannel commerce, DC Velocity, a sister publication of Supply Chain Quarterly, and ARC Advisory Group, a Dedham, Mass.-based technology research firm, teamed up to conduct a survey on retail fulfillment practices. More than 140 respondents answered 35 questions on their companies' approach to meeting current challenges in omnichannel commerce and their plans for the future. Included in those questions were eight that centered specifically on respondents' returns practices.

The survey showed that the world of omnichannel returns is a complicated one, with different retailers handling the process in very different ways. The majority (64 percent) of respondents have opted to process at least part of the returns themselves using in-house labor. But not all of them choose to go it alone. A sizeable percentage (40 percent) said they contracted with a third-party logistics service provider (3PL). Still others said they arranged for returned items to be sent directly to the manufacturer or a clearance reseller.

The process itself also varies. For example, 45 percent of respondents allow customer to ship returns back to a distribution or processing center, even if the merchandise was bought in a store, and 39 percent of respondents allow customers to return products to a store, even when the goods were ordered online.

Pain Without Gain?
Conventional wisdom says that while "going omnichannel" helps keep customers happy, it's a notoriously tough way to make a profit, and the cost of returns only adds to the pain. When shoppers return merchandise, a complex, labor-intensive process is set in motion. At the very least, someone has to collect, evaluate, and sort the returns, deciding whether each item should be put back on the retail shelf; returned to a DC for cleaning, refurbishing, and/or repackaging; sold to a clearance reseller; or recycled. The process requires time, training, and money—three resources that are in short supply in any retail organization.

Despite the considerable expense involved, retailers are disinclined to pass those costs on to customers. When survey-takers were asked what types of fees they collected to recover supply chain costs, the top two responses were fees for expedited delivery (55 percent) and fees for delivery in general (41 percent). Far fewer were willing to take this route for returns: Less than a third (30 percent) said they charged customers for returns shipment, and only 20 percent charged fees for returns processing.

That raises the question of how all this affects profitability. As it turns out, many respondents had only limited insight into the matter. Far less than half (42 percent) of respondents said they were able to measure the full financial impact of returns. Another 32 percent said they had only a general idea of that impact, while 27 percent admitted that they could only guess at the financial impact of returns or could not measure it at all. (Percentages add up to more than 100 percent due to rounding.)

This lack of clarity is not good news for retailers. Returns management is fast becoming a high-stakes endeavor—and how they handle it could dictate whether they thrive or merely survive in the brave new world of omnichannel.