How to Sell Returns Experiences That Create Repeat Business?
As returns volumes continue to rise every year, impressing consumers isn’t just about a great order fulfillment experience anymore.
A hearty welcome to the 76th edition of The Logistics Rundown, a weekly digest that aims to put some perspective on what’s brewing within the logistics industry. This is a space where we religiously dissect market trends, chat with industry thought leaders, highlight supply chain innovation, celebrate startups, and share news nuggets.
One of the biggest headaches for e-retailers today is fulfillment, as they pick the tab on a large chunk of the fulfillment expenses. Just look at Amazon — the company saw its fulfillment costs zoom to $162 billion in 2022, over tenfold more from just a decade ago. Their filings show that fulfillment expenses were over one-third of their total revenue. While Amazon has its AWS division to foot the bill, what about the thousands of SME retailers that must keep up with the times and provide an Amazon-sque fulfillment experience?
While free shipping is now the cornerstone of a great fulfillment experience, it's killing off margins in the retail business known for its slim pickings. And on top of this, another operational expense is looming large — returns logistics. Given consumers are thrice as likely to return a product bought online versus at the storefront, and with e-commerce almost certainly expected to grow, an increasing returns logistics scenario is inevitable.
Given consumers are thrice as likely to return a product bought online versus at the storefront, and with e-commerce almost certainly expected to grow, an increasing returns logistics scenario is inevitable.
Returns logistics is a lot harder to manage than regular fulfillment, as the returns process lacks the economies of scale that come with the latter. Aside from covering the cost of shipping, retailers would have to also pay for restocking, refurbishing, or disposing of the returned products — situations that can sink SMEs in a cutthroat low-margin, high-volume business. This still doesn't account for the need to impress customers during the returns handoff. Consumers have grown to expect a seamless and convenient returns experience, and lengthy procedures or time-consuming handoffs can put them off the retailer for good.
Retailers have realized that there's no circumventing returns logistics. The market is expected to surpass $620 billion this year, with NRF data showing e-commerce returns seeing a 16.5% increase in '22, compared to 14% the year before. A speck of hope here — companies retain close to 30% of the revenue with their returns process. Meaning, a portion of the income stays with the retailer either via an exchange or product upsell.
For merchants, adapting their returns experience to consumer expectations is paramount. "Adaptability is about finding creative solutions to meet demands without negatively impacting your business," said Tasha Reasor, the senior vice president of marketing at Loop, a platform automating returns workflows and product refunds. "A survey we did found that 70% of shoppers are willing to pay for a more convenient, premium return experience. We see the trend of free returns for everything is no longer the norm."
Premium return experiences include at-home pickup or drop-off at a nearby convenience store, considering the alternative of printing a label, boxing the item, and taking it to a specific location. Reasor pointed out that their survey showed people were willing to pay an average of $6 per return for such hassle-free experiences.
Obviously, this isn't a one-size-fits-all approach. Retailers are scrutinizing their buyers a lot more, looking to provide services comparable to their level of loyalty to the brand. "Brands classify shoppers based on repeat purchases, which helps tailor their return policies and experiences to each segment. The personalization brands create for their loyal customers on both their pre-purchase and post-purchase side of things will help sustain that loyalty," said Reasor.
Retailers are scrutinizing their buyers a lot more, looking to provide services comparable to their level of loyalty to the brand.
Reasor explained that an overwhelming majority of consumers check return policies before making a purchase. This makes it crucial to make return policies clear, easy to understand, and consumer-friendly. "Clear, easy, and friendly does not necessarily mean free. As the segment evolves, you might see certain retail brands offering free returns for specific items or during sales periods, among other creative ways to accommodate customers."
Getting creative is essential. This could even be about extending returns deadlines, especially after a peak sales season. Considering returns volumes are high post such peak seasons, extending the returns deadline will help curb returns volume spikes — making it manageable for brands to sort them out. Another option could be offering an exchange, where the new item is shipped in transit while the customer drops off the original item. This makes the process seamless and convenient, potentially increasing loyalty.
But it's in providing such flexibility in returns that it makes a big difference if you're a large retail brand or an SME merchant. Companies like Amazon, Walmart, or Target can afford to dazzle customers while operating at a loss, which inevitably ends up changing consumer expectations for all retailers across the horizon.
Companies like Amazon, Walmart, or Target can afford to dazzle customers while operating at a loss, which inevitably ends up changing consumer expectations for all retailers across the horizon.
"SMEs face the challenge of finding a balance between offering flexible return policies, while still maintaining profitability. All this while they compete with large retailers who offer more convenience at scale," said Reasor. "Platforms like Shopify enable SMEs to compete by offering a Prime-like delivery service for its merchants via its own fulfillment network. By tapping into such networks, SMEs can leverage expertise in logistics — which usually isn't their strong suit."
Omni-channel fluidity with returns also helps. Companies like Loop bridge the gap between e-commerce and in-store experiences by enabling customers to return or exchange items they purchased online at nearby physical stores. By breaking down information silos, brands can provide a cohesive customer experience that drives loyalty and foot traffic to physical stores.
In the end, for the returns environment to improve, Reasor advocates for a change in the traditional mindset brands have around returns. "Merchants often view returns as a cost center, and so refuse to make it easy for people to return as they don't want to issue refunds. This mentality has to change. Rather, merchants need to consider retaining that revenue, and driving customer loyalty via a great returns experience."
The Weekly Roundup
Walmart is focusing on scaling up supply chain automation within operations to improve profit margins, with a goal of having 65% of its stores serviced by automation and 55% of fulfillment center volume moved through automated facilities by 2026. The company hopes automated fulfillment centers will be a way for it to compete better with Amazon.
Maersk Air Cargo, the cargo airline subsidiary of A.P. Moller-Maersk, has started its first U.S.-China routes, offering twice-weekly freighter service between the countries. The move will help solidify Maersk's strategy to position itself as a one-stop-shop logistics integrator, providing guaranteed ocean and air capacity, as well as customized supply chain services for its top customers, with the airline to support internal customers for the first time.
FedEx is consolidating its operating companies into one organization, Federal Express Corporation, to create a fully integrated air-ground network. The move is expected to be fully complete by June 2024 and will help facilitate the company's cost-cutting efforts, with $1.2 billion in surface network savings identified by FY2025 through the overhaul.
China's largest trade expo, the Canton Fair, will take place from April 15 to May 5, amidst declining commodities exports and falling overseas demand that pose a challenge to exporters. Chinese policymakers are offering more help via improved customs procedures, logistics, and funding, as China aims to leverage major events and offer wider access to overseas markets to shore up its economy.
…said who?
“There’s only so much room in the vehicles. There’s only so many vehicles available. When we can optimize the size [of packages], we drive a lot of efficiency.”
- John Blake, an analyst at Gartner, while commenting on how improving packaging efficiency will directly improve logistics efficiency
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