Product Returns: The Hangover Headache of E-Commerce

All of the headlines leading up to Christmas were about how retailers and parcel carriers were struggling to keep up with the record amount of online orders and deliveries for the holidays (see WSJ article UPS, Overwhelmed by Online Orders, Warns of Delivery Delays and Reuters article Surging online orders slow Wal-Mart delivery network). But there’s an equally big story that’s just beginning: dealing with all the product returns.

How big of a problem is this? According to a report published recently by CBRE, holiday e-commerce returns could reach $32 billion this year!

“E-commerce consistently generates more returns than brick-and-mortar retail, partly because shoppers often can’t sample online merchandise before buying it and partly due to the widespread practice of online shoppers ordering several versions of a product and returning those that don’t appeal,” states the CBRE press release. “Historically, returns of store-bought merchandise have amounted to 8 percent of total retail sales. However, for e-commerce, that share ranges from 15 percent to 30 percent, depending on the product category.”

Meanwhile, UPS announced last week that “in December 2017, consumers shipped more than 1 million returns packages to retailers daily [emphasis mine], a pace expected to last into early January 2018.” The company predicts that today — January 3 — will be UPS National Returns Day, when “the count is expected to peak at 1.4 million packages, up 8% from a year ago and marking a fifth-consecutive yearly record.”

Unfortunately, as much as retailers are struggling to keep up with the rapid growth of e-commerce and fulfilling online orders on time and profitably, they’re struggling even more with handling returns.

The bottom line is that most retailers lack the systems, processes, and expertise to manage returned goods in an intelligent and efficient manner.

“Speed and efficiency in processing e-commerce returns, with an eye toward preserving as much value of the merchandise as possible, often separates the top-performing retailers from the not-so-successful ones in the weeks after Christmas,” said David Egan, CBRE Global Head of Industrial & Logistics Research.

What also separates the leaders from the laggards is their use of online auction marketplaces, business intelligence and analytics, and lotting strategy to improve their liquidation process and effectiveness.

That was one of my takeaways from a recent Talking Logistics episode — Dealing with Holiday Returns: The Case for Technology-Based Liquidation — where I discussed product returns and leading practices in liquidation with Eric Moriarty, Vice President at B-Stock Solutions, a technology-enabled service company that powers a global network of B2B liquidation marketplaces.

I encourage you to watch my conversation with Eric for additional insights and advice on this topic, including examples of how retailers are benefiting by taking a technology-based approach to liquidation.

The bottom line is that product returns is yet another example of how “the way we’ve always done it” is just not going to cut it any more. Retailers have been so focused over the past few years on omni-channel retail, on the sell side of e-commerce, that they have virtually ignored (underinvested in) their ability to effectively manage product returns, the hangover headache of e-commerce.

Well, that headache is turning into a killer migraine, and unless retailers start innovating this end of the e-commerce process, they will see whatever gains they make on the sell side disappear on the returns side.

Of course, one company’s problem is another’s opportunity. For third-party logistics providers (3PLs) and supply chain and logistics software vendors, helping retailers with product returns is a growth opportunity (if they invest in building the capabilities).

Will 2018 be the year that companies get smarter about product returns and liquidation? It’s one of my supply chain and logistics predictions for this year. We’ll certainly find out in the weeks and months ahead, but what do you think? Are you investing to improve and innovate your product returns capabilities? If you’re a 3PL or software vendor, are you investing to improve and expand your services and solutions in this area? Post a comment and share your perspective!