The Challenge of Returns Facing e-Commerce Retailers

The growth of e-commerce created an unintended, negative side-effect: the explosive rise in the number of returns that many retailers must manage. In some industries, companies are dealing with return rates that exceed 40 percent. What’s worse, in the case of lower-value goods, the processing cost of each return often exceeds the value of the goods themselves. Automation technologies have been developed to address many of these challenges, minimize the associated costs, and return the received inventory to a state that makes them available for resale as soon as possible.

According to a Walker Sands report, 54 percent of e-commerce purchasers say that free returns or exchanges factor heavily in their buying decisions. Said differently: without generous return policies, online retailers are likely to face a significant decline in demand. The most common reasons for returns include incorrect size or color, gift return, damaged item, wrong product, and incorrect product description. In some sectors, such as apparel, consumers often buy several items with the intent to return all of them, or all but one. It’s an easy way to see what fits or looks good and to simulate an in-store purchase experience. Unfortunately, it’s very costly for retailers.

According to the National Retail Federation (NRF), the merchandise return rate across all sectors and channels exceeded 16 percent in 2022. E-commerce return rates are two to three times higher in some of them, due in part to the near-painless consumer experience offered by many large online retailers. These numbers tend to be the highest in apparel and some high-dollar-value industries like electronics. Retailers understand that despite the costs, a positive return experience influences future buying decisions. Additionally, a wealth of useful information is accessible to retailers if they analyze the reasons behind the returns. Investing

in cost-effective, automated returns solutions is becoming increasingly common in many distribution and fulfillment centers. Some retailers elect to outsource their returns processing to third parties who manage it on their behalf, others set up dedicated returns facilities, and some incorporate returns processing into their core fulfillment centers. Regardless of the approach, it is important to understand the five steps involved in most online returns:

Preparation: A Return Merchandise Authorization (RMA) and a shipping label are printed by the consumer or included in the original package. The RMA slip, which is a preauthorization for the return, is inserted into the returned package and the shipping label is affixed to its outside. If the product is ineligible for return, an RMA label is not made available to the customer.?

Validation: Upon arrival at the returns site, the RMA is scanned to identify the corresponding order and to check that all preconditions are met. If they have been, the contents of the package are examined to validate that the item was returned in full and to assess its condition.

Disposition and Repair: Based on a physical inspection of the item and a review of its value, a decision is made whether or not to grant a refund and to assign a disposition. Potential dispositions are to return the product to inventory, send it out for repair, send it for testing and repackaging, or declare it as scrap.

Action: If a refund is approved, the ERP system is updated to process the corresponding financial transactions. If it is declined, the decision and the reason are communicated back to the customer, with a reference number and additional customer service contact information.?

Resale: When an item is deemed ready for resale, potentially after being repaired, repackaged, or recoded as an open-box item, the WMS is updated and the item is reinducted into inventory.

The above is an adapted excerpt from The Warehouse Revolution published by Business Expert Press , which I recently co-authored with Jim Stollberg and Miguel Pinilla . If you’d like to learn more about automation options that can dramatically lower the cost of processing returns, consider purchasing a copy of the book. In addition to returns, it covers all processes that can be automated from receiving through shipping and is available on 亚马逊 or other online book retailers.