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Retailers are Feeling Boxed In by E-commerce Returns

Free, fast shipping has become the mantra for online retailers looking to lure shoppers to their sites.

And it seems to be working.

The U.S. Census Bureau estimated that total e-commerce sales for 2016 were $394.9 billion, an increase of 15.1% from 2015.

But all too often, many of those outgoing packages get bounced back to retailers by shoppers who are unhappy with their purchases. And while stores are equipped with the logistics to fulfill orders, they’re lagging way behind when it comes to handling this flood of incoming merchandise.

The National Retail Federation says the amount of merchandise returned increased by 52 percent from $171 billion in 2007 to $260 million in 2015.

This flood of returns is creating a logistical headache—one that’s undermining the bottom line.

To address this issue, new businesses are springing up to make returns easier for consumers and merchants alike. At the Innovations in Returns panel at the ShopTalk retail conference in Las Vegas Monday, several entrepreneurs discussed the costs associated with reverse logistics and how their companies strive to remove this burden from retailers.

Delivery deluge

“If you talk to retailers, there’s often not one person who’s focused on returns. This is not [retailers’] core competency,” said David Sobie, CEO and co-founder of Happy Returns. “If you tried to design the worst possible process for returns it would be returns via mail today.”

Sobie said the current return mechanisms are frustrating for consumers and costly for stores. And, unlike the rest of the industry, there have been no significant innovations since e-commerce started to boom.

Happy Returns offers consumers the ability to make returns in person at one of its Return Bars. For stores, it’s a cost savings because the company then sends goods back in bulk. “Think about 20 1-pound boxes going across the U.S. That’s 86 percent more expensive than two 20-pound boxes going two hops—one to a regional hub and one going to retailer.”

Deliv CEO and co-founder Daphne Carmeli said her company gives consumers another option other than the mail. The company provides a local messenger service for stores through which consumers can receive—and even exchange—goods all in the same day.

Carmeli said Deliv removes a lot of pain points. “Making it easy is very important. Almost half of the consumers surveyed say they don’t want to have to print labels,” she said, pointing out another advantage of local delivery. “Another issue is packages being damaged. When you’re moving across the country, the more touch points, the more places it stops, the more likely it’ll be damaged.”

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Inefficiencies abound

In addition to shipping costs, stores are also often paying for returns of all items, some of which are in no condition to be resold. With an intermediary like Happy Returns, the company can assess the condition of the items and help route goods back to the retailer or dispose of them in another way like sending them to secondary markets.

Reverse logistics specialist Optoro handles it in a different way. The company operates two resale sites where retailers can liquidate goods they don’t want: one is consumer facing and the other sells items in lots to businesses like thrift stores and flea markets.

“We see a ton of waste coming out of the reverse logistics side,” said Tobin Moore, CEO and co-founder of Optoro. “There’s a study that says there are over 4 billion pounds of waste a year in the U.S. created from reverse logistics, which is everything from packaging to items ending up in landfills.”

Moore said a store might opt to dump goods because it would cost more in labor to handle the returned items than they’re worth on the secondary market.

Carmeli said part of the value in her company’s service is it’s so easy that customers make returns quicker, which ultimately saves stores money.

“Returns are going to happen and we know that consumers wait till two to three days before the expiration period to bring [items] back so that could mean that by the time it comes back, it’s out of season or it goes on clearance or can’t be sold at all,” she explained, adding if the process of returning were easier, items might get back to stores quicker, in a timeframe in which they can still resell it.

Data dilemma

Some of the waste and costs could be alleviated Moore said if retailers had better data that would help determine what the items are and their condition as soon as possible.

“The biggest waste in retail is that items get touched again and again and flipped between liquidators and ad hoc jobbers and pawn shops and a lot of the redundant processes are done again and again,” he said, adding the sooner the retailer can access the product type and condition, the fewer steps needed to route it appropriately.

Sobie agreed. “The next best place for a returned item may not be the place it was sold originally,” he said, adding that knowing what to do with it is “based on timing, condition and a lot of factors.”

Ultimately, the panel agreed that the industry has to address this issue because returns aren’t going to stop. And actually, returns are a good thing. “You always want a steady rate of returns,” Optoro’s Moore said, “because if you don’t have them, it means customers aren’t taking chances.”