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Online Returns are Retailers’ Biggest Problem

Free shipping and forgiving return policies played a huge part in pushing U.S. e-commerce sales to $83.9 billion in the second quarter of 2015, but retailers are struggling to handle the high costs associated with offering such incentives, according to a new study by HRC Advisory.

The recently published report from the retail advisory firm found that 95 percent of retailers said their biggest challenge in transforming the supply chain was learning how to ease the impact of online returns, which often run as high as 30 percent.

And while 85 percent of retailers pointed out the expense of returning online purchases to a brick-and-mortar location—particularly when that item is not carried in-store—the study said it’s just as costly when merchandise is sent back to a fulfillment center or supplier. Incremental freight costs and the potential for in-transit product damage, as well as the missed opportunity for a replacement sale in-store, add up.

“Today’s consumer is driven by an ‘I want it now’ mentality, yet many retailers are still struggling to deliver,” said Farla Efros, president of HRC Advisory, a unit of Hilco Global. “Competing with pure-play e-commerce retailers and accommodating the multitude of new fulfillment options, requires a significant increase in supply chain flexibility and better integration between physical store and e-commerce network.”

Despite omnichannel being such a buzzword, retailers are still grappling to streamline the shopping experience: 75 percent of those surveyed said that their online sales are “cannibalizing” purchases that would have otherwise happened in-store, while 70 percent said they’re struggling to create a lucrative economic business model for e-commerce while maintaining acceptable profitability for brick-and-mortar.

The reason retailers are straining to merge their online and offline businesses: outdated infrastructure. In fact, more than half (52 percent) admitted they haven’t fully integrated inventory and fulfillment between the two channels. On the bright side, however, 60 percent said they plan to invest further in their e-commerce-related systems to improve the shopping experience.

Efros added, “Without these changes, traditional retailers will not be able to execute a truly customer-centric model.”

Other areas where retailers are lacking: only half are able to ensure fulfillment from the closest location when an item is available in multiple locations and distribution centers, while 47 percent can’t provide customers with accurate inventory information or fulfill the entire order at the time of online purchase.