Study: Reverse logistics still a puzzle for omnichannel retailers
The promise of hassle-free returns may keep customers happy, but our latest survey suggests that omnichannel players are still struggling to find the right balance between cost and service.
Ben Ames has spent 20 years as a journalist since starting out as a daily newspaper reporter in Pennsylvania in 1995. From 1999 forward, he has focused on business and technology reporting for a number of trade journals, beginning when he joined Design News and Modern Materials Handling magazines. Ames is author of the trail guide "Hiking Massachusetts" and is a graduate of the Columbia School of Journalism.
Today's consumers love the convenience of online shopping, but it often takes them a few attempts to find the perfect fit. Retailers have a solution for that. To ensure a "frictionless" online shopping experience, they promise hassle-free returns. Shoes too small? Return them. Pants too long? Return them. Sweater too tight? Return it.
And return they do. Today's 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.
All this creates big headaches for retailers. That's partly due to the way they're set up. The sophisticated automated systems they've designed for processing high volumes of outgoing orders typically don't run as well when shifted into reverse. And inefficient processes are just the half of it. There's also the added labor, time-consuming worker training, the need to discount inventory, and additional handling and shipping fees.
To get a better understanding of how companies are meeting the challenges of reverse logistics in omnichannel commerce, DC Velocity and ARC Advisory Group, a Dedham, Mass.-based technology research firm, teamed up to conduct our fifth annual survey on retail fulfillment practices. (See sidebar for more on our study.) 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. This article will concentrate largely on the findings from that section of the survey.
PAIN WITHOUT GAIN?
Conventional wisdom says that while "going omnichannel" helps keep customers happy, it's a notoriously tough way to make a profit. Retailers are well aware of that. When we asked respondents why they participated in omnichannel commerce, the top three reasons were to increase sales (63 percent), increase market share (57 percent), and improve customer loyalty (47 percent). Coming in a distant fourth was to increase margins. (See Exhibit 1.)
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.
As for who actually performs the work, that varies from retailer to retailer. Our study found that the majority (64 percent) of respondents have opted for the DIY approach, processing 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. (See Exhibit 2.)
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. (See Exhibit 3.)
That raises the question of how all this affects profitability. As it turns out, many respondents had only limited insight into the matter. When asked about their ability to track returns-related costs, 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. (See Exhibit 4.)
ASSEMBLING THE OMNICHANNEL MOSAIC
As for why many retailers struggle with the economics of returns management, part of the explanation may lie in the complexity of the omnichannel model itself. To begin with, "omnichannel" means different things to different players, with each individual retailer offering a different mix of service options. For instance, when survey respondents were asked what omnichannel capabilities they supported, the answers ranged from "order at store, fulfill from warehouse" to "order at one store, fulfill from another store." (See Exhibit 5.)
Another complicating factor is the number of players involved. In an omnichannel world, by definition, transactions aren't confined to a single conduit. Where once a retailer might have required that items bought in a store be returned to that same location, the field is wide open today. For instance, nearly half of respondents (45 percent) now allow customers to return merchandise bought in a store to a DC or processing center. As the number of players grows, so does the likelihood of complications.
These challenges are hardly unique to reverse logistics. Retailers struggle with the same difficulties in the order fulfillment end of their operations. To get a fuller picture of how they're dealing with the online shopping piece of the omnichannel puzzle, the survey also asked respondents a few questions about their fulfillment practices and strategies.
As for how retailers currently fulfill e-commerce orders, the results indicated that the industry has yet to settle on a standard approach. While the largest share of respondents, 60 percent, fill orders through a traditional DC that also handles e-commerce orders, that was by no means universal practice. Another 37 percent said items were shipped directly from the manufacturer or supplier, 32 percent said orders were filled from a store, and 25 percent used a Web-only DC.
Digging a little deeper into store-based fulfillment practices, the survey asked respondents how they handled e-commerce orders fulfilled through a brick-and-mortar store. Responses included picking orders at the store and holding them for customer pickup (65 percent), picking orders and shipping them from the store (also 65 percent), and shipping orders from the DC to the store for customer pickup (45 percent). As for where they pick store orders, 78 percent said they selected items from store shelves, and 50 percent from the stockroom. (Survey participants were allowed to select multiple responses.)
Regardless of how those orders are picked, statistics suggest that a significant percentage of them will be returned. What that means for retailers is clear: 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.
ABOUT THE STUDY
This year's omnichannel study was conducted by ARC Advisory Group in conjunction with DC Velocity. ARC analyst Chris Cunnane oversaw the research and compiled the results.
The study explored the details of DC operations that support omnichannel initiatives as well as how companies are handling the challenge of reverse logistics and returns. The findings reported here are based on 142 responses. Respondents included logistics professionals from a variety of industry verticals, who submitted answers during July and August 2017.
As for the demographic breakdown, the majority (56 percent) of respondents sold goods through a combination of direct and indirect sales channels. Another 31 percent sold merchandise through direct retail only, and the remaining 13 percent through indirect sales channels only.
A report containing a more detailed examination of the omnichannel survey results is available from ARC for a fee. Get information on the report.
Nearly one-third of American consumers have increased their secondhand purchases in the past year, revealing a jump in “recommerce” according to a buyer survey from ShipStation, a provider of web-based shipping and order fulfillment solutions.
The number comes from a survey of 500 U.S. consumers showing that nearly one in four (23%) Americans lack confidence in making purchases over $200 in the next six months. Due to economic uncertainty, savvy shoppers are looking for ways to save money without sacrificing quality or style, the research found.
Younger shoppers are leading the charge in that trend, with 59% of Gen Z and 48% of Millennials buying pre-owned items weekly or monthly. That rate makes Gen Z nearly twice as likely to buy second hand compared to older generations.
The primary reason that shoppers say they have increased their recommerce habits is lower prices (74%), followed by the thrill of finding unique or rare items (38%) and getting higher quality for a lower price (28%). Only 14% of Americans cite environmental concerns as a primary reason they shop second-hand.
Despite the challenge of adjusting to the new pattern, recommerce represents a strategic opportunity for businesses to capture today’s budget-minded shoppers and foster long-term loyalty, Austin, Texas-based ShipStation said.
For example, retailers don’t have to sell used goods to capitalize on the secondhand boom. Instead, they can offer trade-in programs swapping discounts or store credit for shoppers’ old items. And they can improve product discoverability to help customers—particularly older generations—find what they’re looking for.
Other ways for retailers to connect with recommerce shoppers are to improve shipping practices. According to ShipStation:
70% of shoppers won’t return to a brand if shipping is too expensive.
51% of consumers are turned off by late deliveries
40% of shoppers won’t return to a retailer again if the packaging is bad.
The “CMA CGM Startup Awards”—created in collaboration with BFM Business and La Tribune—will identify the best innovations to accelerate its transformation, the French company said.
Specifically, the company will select the best startup among the applicants, with clear industry transformation objectives focused on environmental performance, competitiveness, and quality of life at work in each of the three areas:
Shipping: Enabling safer, more efficient, and sustainable navigation through innovative technological solutions.
Logistics: Reinventing the global supply chain with smart and sustainable logistics solutions.
Media: Transform content creation, and customer engagement with innovative media technologies and strategies.
Three winners will be selected during a final event organized on November 15 at the Orange Vélodrome Stadium in Marseille, during the 2nd Artificial Intelligence Marseille (AIM) forum organized by La Tribune and BFM Business. The selection will be made by a jury chaired by Rodolphe Saadé, Chairman and CEO of the Group, and including members of the executive committee representing the various sectors of CMA CGM.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”