Materials Handling: The returns headache

by Dave Luton
Dave Luton
Dave Luton

While Canada is considered somewhat of a laggard in the e-commerce world the problem of returns is a headache that has reached epidemic proportions in countries with more mature e-commerce.

A recent column in the Financial Times showed how bad things have become in Britain: “Across e-commerce, returns average 15 to 20 percent, although fashion e-retailers see much higher rates of up to 50 percent. CollectPlus, the parcel delivery operator, has estimated that 31 percent of goods purchased online this Christmas will be returned.”

In a Wall Street Journal article a UPS spokesperson noted that in some areas apparel returns can reach approximately 50 percent, and that e-commerce returns can be up to three times that of in-store purchases.

The same article noted that two thirds of consumers who now purchase online returned at least one item in the last year. What is more worrying for retailers and manufacturers is that for some product classes such as electronics or apparel, a product may not be defective but will still be returned, with some cases bordering on consumer fraud.

Use and return is a growing retail problem ranging from wear-and-return for apparel and use-and-return for electronics (for example, using a large screen TV to watch the Superbowl and then returning it.)

From a logistics perspective the increasing volume of returns creates the need for a dedicated returns handling process and network. The best network is dependent on the existing outbound customer logistics system. The two main types are sale through retail outlet, or via e-commerce.

Whichever the network used, the operational requirements for handling returns are the same.

These include the following:
Phase 1 – Initial Processing and Disposition
• Provide procedure to authorize returns.
• Determination of cause of return, initial inspection and handling, including repair, replacement, and/or customer credit.
• Returns follow-up processing; classifying for follow-up action, packing and packaging for disposal or return to main returns processing facility (e.g. warranty return to manufacturer) including use of economies of scale like batch returns.

Phase 2
• Receipt at main returns processing centre(s);
• Returns follow-up inspection for onward processing and handling;
• Processing and repair for reuse, recycling or disposal of non usable items.

The location and handling of the initial phase depends on the location and size of the outbound logistics network supplying the customer. In a retail environment the customer goes to the location that initially sold the merchandise.

This also has the advantage that it may allow to resolve the cause of the return in the case of non defective product. There is a large savings opportunity here as surveys have found that product with no defects account for the majority of returns in some industries such as consumer electronics.

This also allows the product to be offered for resale in case of non-defective product. For retailers returns prevention offers a significant advantage that e-commerce companies often find hard to match by providing customer assistance in the product functionality and better customer fit. With their closer accessibility to the point of first use, retail outlets can ensure their customers get better set up with their new goods. In effect they are weeding out potential returns.

In e-commerce, with the lack of customer-accessible outlets, this initial phase has been handled at the main fulfillment centres or a centralized returns processing operation for larger operations. The problem is there is often increased in transit damage because of improper returns packaging and increased fraudulent or non-authorized returns.

With Internet capability e-commerce companies can offset this advantage by providing time-efficient customer support and use of modern video technology. It is interesting to speculate that some companies, in their desire to cut accessible customer support costs, they may be increasing their returns volume.

Recently, with increasing volume of e-commerce shipments and associated returns, many of the larger courier companies are establishing returns processing capability to help their customers. These include regionally located facilities like the UPS Store which can do initial returns processing for e-commerce clients.

In this role they can provide a cost-effective initial returns screening and processing for their clients much like that of a triage nurse in a hospital emergency room. They can even do initial repairs on small defects (are the batteries working?) Truly defective returns requiring more complex repairs can be directed to company repair sites for proper follow-up handling.