Skip to content

The Dark Side of e-Commerce

The Dark Side of e-Commerce


by Roland Martin, Industry Segment Leader, e-Commerce for WDS, Swisslog

Returning goods is not a new phenomenon, but the rise in e-commerce has seen a change in consumer buying habits. Having the option to buy a selection of items, especially when looking at clothing and footwear, trying them on in the comfort of your own home, and then sending back what you do not want has proven to be an attractive option for consumers. This has also spread into other sectors, such as electronics and homeware.

Consumers want their goods quickly; equally, they want their money back fast for any returns. Any delay in getting their money back is a delay in being able to spend it again; and retailers want to ensure this money is re-spent with them. Consumers certainly do not consider the impact additional returns have on the retailer – that they have to be factored into the item price, which ultimately means that everybody pays more.

The value of returns is staggering – in 2015, research from the retail analyst firm IHL Group put the global cost of returns at US$598.6bn per annum (€541.63bn). IHL’s report suggests that Europe accounts for 43.7 per cent of all returns globally, while in the US, the National Retail Federation expects that eight per cent of all sales this year – equating to roughly US$264.8bn (€239.6bn) – will be returned.

It is estimated that roughly 30 per cent of multichannel women’s fashion purchases are currently returned, while up to 14 per cent of consumer electronics goods are sent back. A German study in 2014 saw wildly varying rates for returned goods, including five per cent of washing machines!

A global challenge

In China, legislation has been passed on the Protection of Consumer Rights and Interests, which explicitly requires retailers who sell online to accept unconditional returns from customers within seven days of the sale. According to Dr Haozhe Chen, associate professor of marketing and supply chain management at East Carolina University, e-commerce giants, such as Alibaba, are still grappling with the implications.

“During peak seasons, such as Singles’ Day, China’s logistics network is overburdened with packages resulted from online shopping. If forward logistics is already an issue, it can only be imagined how much more challenging it is for reverse logistics related to returns management.” For the UK’s Black Friday, 2015 revenues were predicted to soar to around £890m (€1.1bn); 15 per cent of which would then be caught up in returns. Christmas would add to this, with a possible 45 per cent of all online purchases expected to be sent back, according to independent retail analyst Mr Richard Hyman. Returns management requires considerable resources to be made available to process goods, credit the correct customer’s account and make items available for resale.

Retailers also need to ensure that customers enjoy a seamless return and refund experience so they are encouraged to continue using their services; something that can act as a key differentiator within highly competitive markets. It may be tempting to make it harder to send things back, and indeed this was once the policy for many; but this presents its own challenge for retailers – the loss of customers. According to Harris Interactive, 85 per cent of customers say they will stop buying from a retailer if the returns process is a hassle; conversely, 95 per cent of customers will use the same retailer again if the process is convenient.

The true challenge arises in the warehouse

Of course, the challenge for business is not simply the idea of the customer “getting it right” or forcing customers to keep unwanted items. The true challenge arises in the warehouse, where logisticians are left to pick up the pieces.

One area where the inventory manager and the consumer agree is on the need for speed. The consumer wants to be able to return goods easily and freely, and receive a refund as fast as possible. Retailers strive to resell the item, which may be subject to expiration dates or seasonal demands. Reintroducing the stock for re-picking and repurposing items where necessary helps to maintain stock value and reduce overall supply chain costs.

The consequences of handling returns may not be fully appreciated by newcomers to the e-commerce industry. Similarly, some have taken somewhat draconian measures to returns; one UK retailer even sent returned bicycles straight to a landfill. Even a sought-after retailer may experience returns of 20 to 30 per cent of shipped items, all pushing up inventory value and putting a strain on cash flow.

Retailers are striving to reduce the returns rate to a manageable level from both a customer-facing point of view and from inside the warehouse, while others promote returns as a hook to increase revenue – particularly if consumers return items to the store (and therefore make additional purchases). A good and realistic returns solution enables the items to be returned to inventory at the earliest opportunity and lets the customer feel at ease with continuing to buy from the retailer.

Enhancing the customer experience

The management of returns is a critical function for any retailer no matter what sector they operate in. Retailers need the returned items back into stock as soon as possible; any stock that can be resold that is not available for picking is taking up resources and costing the business money.

Fashion retailers, such as, are now trialing click-and-collect services with integrated changing rooms. Immediately after picking up their parcel at the collection point, customers can try on the items in a changing room. If it does not fit, or is not to their liking, it can be returned at the parcel collection point. This process ensures that returns are sent back much faster.

This is crucial for the customer experience of the honest returner, who may find they can more accurately get what they wanted, and can discourage the over-orderer from buying multiple versions of the same item.

Returns solutions offering speed, accuracy & agility

Swisslog’s modular portfolio of automated Click&Pick solutions can address some of the issues within handling returns, especially in the areas of repicking from returned stock and random put-away.

Systems, such as CarryPick and AutoStore, perfectly highlight the versatility of automated systems and how they can be leveraged to improve efficiency in returns management.

By reducing costs and accelerating the returns process, both CarryPick and AutoStore show how the latest automation technologies can integrate handling returns into the ongoing processes of online, omni-channel or traditional retail.

With both technologies, returned items can be processed at picking stations in the warehouse so that only a few minutes pass between the time the item is returned to inventory and the time it is re-picked and packed.

About the Author

Roland Martin joined Swisslog in 2013 spearheading the division’s strategy to increase focus on the E-commerce industry in APAC. To develop e-commerce specific technologies, he engaged with the leading online retailers and supply chain experts in Asia Pacific to better understand their requirements in warehousing. Now, Roland is responsible for developing the e-Commerce and Retail market on a global scale. In addition, Roland has several years of project finance experience supporting industrials from Switzerland and the US doing businesses in Asia Pacific. He has lived in China for over four years and holds an MBA from the Hong Kong University of Science and Technology.