Unpacking the Potential of E-Commerce Returns

In a recent blog post, we discussed the significant (and likely sustained) impact COVID-19 will have on customer purchasing patterns, given the rise in digital shopping and the resulting strain on e-commerce fulfillment. Today’s trends beg an important question: What happens in the reverse scenario? E-commerce returns present their own set of opportunities that we’ll unpack in this blog.

E-commerce sales accounted for an estimated 15 percent of all retail sales in Q4 2020 and are forecasted to jump to a 17 percent share by the end of 2021. While COVID-19 is responsible for at least some of the acceleration in online shopping, industry leaders—including Walmart CEO Doug McMillon—believe that the trend will persist long after the pandemic ends.

Holiday shopping again provided a seasonal boost to e-commerce sales in 2020, both in aggregate and as a portion of total sales. Online shopping over the holidays in the United States increased 32.2 percent over the same period in 2019, with total sales exceeding $1 billion daily during the entire 2020 holiday season, according to Adobe Analytics.

And when more sales happen online, retailers tend to see a corresponding spike in returns; e-commerce return rates can be up to three times that of sales seen at brick-and-mortar stores. With the increase in online shopping in 2020, Narvar estimates that the number of e-commerce packages returned last year jumped 70 percent over 2019. CBRE believes e-commerce returns could total as much as $70.5 billion for this past holiday season alone, which would represent a 73 percent bump over the previous five-year average, the Wall Street Journal reports.

These trends and forecasts point to an opportunity for supply chain leaders to turn e-commerce returns—something that is often an afterthought—into a competitive advantage. We recommend starting these efforts by focusing on your customers’ experience through the returns journey, wielding robust technological and data capabilities, and keeping relevant operational efficiencies in mind. Any strategy and approach, of course, should also be considered within the context of your organization’s goals.

Consider your customers’ experience

More e-commerce returns mean more responsibility and power in the hands of customers as they initiate a return, prepare the label and packaging, and send the return along the first leg of its journey. Various surveys have shown that an easy, efficient, and transparent e-returns process is key to acquiring and retaining e-commerce customers.

Ensure that your customers have easy access to a transparent returns policy, as this is a factor in the purchasing decision for many shoppers. Provide a straightforward, intuitive customer portal that clearly shows an item’s progress through the return process, backed by efficient handling that results in a refund—ideally within five days.

Some organizations have started to think outside the box and are offering, where fiscally appropriate, full refunds or encouraging customers to donate their purchase in lieu of processing a return. This requires robust analytics capabilities to support, including historical ordering patterns and the cost of processing a given return.

Strengthen technology, data fidelity, and tracking capabilities

An efficient e-commerce returns capability requires robust and integrated data capabilities. To meet this need, appropriately vet and integrate a returns merchandise authorization (RMA) system into your operations. RMA systems drive a quick and straightforward returns process for your customers while tracking and warehousing key data for your business.

An RMA system can also make some important strategic decision-making possible. Its ability to provide upstream data flow to buyers and inventory managers can enable more accurate purchasing and planning. Consider using this data to flag disposition statuses. This enables you to make inventory decisions ahead of facility arrival, and efficiently bifurcate and process returns upon arrival.

Re-organize for optimal efficiency

Increasing operational efficiency starts with identifying an optimal location to process returns. Analyze the benefits of having an individual returns center compared to the benefits of processing returns at a current distribution center(s). Return centers can be a strategic distribution point as well, making facility location another factor to consider based on sales trends.

Then, develop a receiving and sortation process within the facility. Thoroughly define a sortation process with a clear understanding of the disposition of returned items. For example, establish a standard operating procedure for items that will be put back in inventory versus returned to the vendor or discarded.

Finally, prioritize back-in-inventory processing to ensure that the product is available to customers again. A quick turnaround process is critical, especially if the returns center serves as a strategic point of distribution. This will also help you avoid incurring the prolonged cost associated with holding inventory.

Own the returns process

Returns processing has historically been an afterthought, but that’s beginning to change. By facilitating a simple returns process, a timely refund, and a prompt resolution (e.g., replacing an incorrect size), you can provide the customer experience that shoppers demand. Give e-returns processing the priority it deserves as an essential core capability. In doing so, you can truly compete on your returns process.