Returns of big and bulky items are the castor oil of logistics. Retailers and manufacturers hate them because they have to refund the customer’s payment, pay to pick up the item, and then find something to do with it. Consumers are disappointed because an often-sizable investment did not work out.
Reverse logistics experts are more conflicted: On one hand, they appreciate the business. On the other, providers incur significant costs that they said could be mitigated if retailers and manufacturers did things differently.
Online demand for big and bulky goods is growing rapidly. Consultancy ShipMatrix estimates that the market for deliveries of online heavy-goods orders will rise 18% in 2020 to $11.8 billion. As the segment expands, so does the aggravation for retailers in managing returns. All returns programs are costly, but large-format items have their own unique burdens due to the shipments’ size and weight, which usually requires more labor and specialized freight needs.
Yet the returns process is increasingly important to customer retention and brand preservation. This is especially the case in the online world, which is populated with fickle and demanding customers who have no qualms about skewering a company on social media if they aren’t satisfied.
It’s been said, with some truth, that the delivery process is how a customer remembers a brand. But if a return is required, that experience becomes the consumer’s final impression. Telling a customer to lug a heavy item back to a store to receive a refund is “not the best way to build a positive experience,” said Nicholas Isasi, executive vice president of DM Transportation, the non-asset-based unit of the Evans Network of Companies, a multimodal transportation firm in Schuylkill Haven, Pennsylvania. DM specializes in last-mile deliveries — both forward and reverse — of big and bulky stuff.
An August 2019 survey of online buying behavior by UPS Inc. (NYSE:UPS) found that 73% of 18,000 consumers across 15 countries and regions said that the returns experience “affected whether they would continue shopping with a retailer.” Globally, 36% of online shoppers returned an item within the three-month period before the survey was conducted in early 2019. (UPS did not commission a survey in 2020.)
The UPS online consumer survey, which is normally done annually, focuses on returns of small parcels. However, the same expectations apply to returns of big and bulky stuff. Consumers want the same easy and transparent experience with quick pickups, quick refunds and, if necessary, quick deliveries of a replacement item. In the world of COVID-19, many have opted for exterior-only or inside-the-garage deliveries. However, should delivery folks enter the house, consumers want them in and out fast. Because the consumer generally throws away the packaging that the product came in, specialists need to come equipped with the proper packing material to ensure an undamaged product stays that way on the return trip.
Consumers expect returns shipping to be free, even if there is nothing wrong with the item and it is their decision to return it. In fact, consumers purchasing high-end items like a washer-dryer or exercise equipment may be more insistent on free shipping than a consumer returning, say, a pair of shoes. That’s because their dashed expectations match the size of their investment, said Dan Coll, vice president, e-commerce fulfillment for Kenco Logistics, a Chattanooga, Tennessee-based third-party logistics (3PL) provider. Coll joined Kenco from reverse logistics specialist Genco Distribution Services, which was acquired in late 2014 by FedEx Corp. (NYSE:FDX).
Retailers often bake their projected ding for returns — Coll pegs it at between 5% and 7% of the cost of goods sold with the transportation costs stripped out — into their selling prices. Some charge a restocking fee depending on the product’s value and how long the customer holds the product before returning it. Other retailers simply eat the cost, which makes cost-effective product disposition that much more important.
E-commerce raises the stakes
E-commerce has ratcheted up the supply chain challenge. In the days when brick-and-mortar ruled, a product was typically returned to the store where it was purchased. The item, if pristine, was put back on the floor. If not, it was consolidated with other returned items for a trip to the retailer’s distribution center.
That level of efficiency goes by the boards with e-commerce. Returns must be processed as individual items known as “eaches,” precluding any consolidation activity. With an online order, the product could come from anywhere and there is often no physical store to accept a return. Pure-play e-tailers may not have any warehouses, or at most three or four spread out nationwide. This lack of density requires longer trips, which drives up shipping costs and narrows potential ROI.
According to research from returns technology specialist Optoro, two-thirds of online consumers actually prefer to return items to the store. Even consumers who’ve bought a large-format product online will return it in person. This creates a dilemma for retailers, said Anna Pomerantseva, Optoro’s product marketing manager. For example, a store may not carry a television set that was ordered online but returned to that store, Pomerantseva said. If not, the retailer will typically consolidate and ship e-commerce returns to a central distribution center to determine the product’s next best home, she said. If the store carries the product, it can be put back on the shelf. However, larger returned items can quickly overwhelm a store’s floor and shelf space, she said.
About 70% of DM’s e-commerce returns are destined for a retailer’s or manufacturer’s forward-fulfillment facility, a figure Isasi said is unacceptably high because it increases shipping costs and clogs up DCs designed to support outbound distribution. One option is to work with a resource-rich company like XPO Logistics, Inc. (NYSE:XPO), the largest last-mile provider of heavy-goods deliveries, whose infrastructure is big and dense enough to be able to segregate forward and return shipments. “Our last-mile network has centers dedicated to returns, including returns centers for individual large customers. For those customers, we typically manage the pickup as well as the return to the original manufacturer,” said Erik Caldwell, the new head of the Greenwich, Connecticut-based giant’s last-mile division.
For companies with little or no physical footprint, Isasi suggested outsourcing returns management to providers with DCs dotted throughout the country. This shrinks shipping distance and charges, eliminates the distractions of processing returns in a facility geared to the forward move, expedites the resale process because goods arrive faster, and reduces carbon emissions, he said.
Jeff Abeson, vice president of Miami-based Ryder System, Inc.’s (NYSE:R) last-mile operations, said the company transports returns to its closest building rather than to the customer’s facilities, which are usually further away from the pick-up point. Not only does it save on shipping, but Ryder gets the opportunity to determine the condition of the product and the reasons for the return, Abeson said. The objective is to reduce the frequency of future incidents, he said.
Ryder works in a consultative role with retailers, which seek its guidance on how to reduce returns expenses and improve customer outcomes, Abeson said. “We are an extension of our retailers’ brands, and we take that responsibility very seriously,” he said.
Ryder’s IT systems are tightly integrated with its customer’s platforms, enabling forward and reverse orders to be handled uniformly, according to Abeson. “We treat a return just like we treat an outbound delivery,” he said. “We schedule with the customer using the technology that allows us to pick up the product at the customer’s convenience, confirm the appointment, and then pick it up and bring it back to our facility where it gets brought into our inventory.”
An ounce of prevention …
No manufacturer or retailer wants to pay $200 in shipping to return a product valued at $100. Minimizing the cost of returns can be mitigated through some forward thinking, experts said. Even before a product is shipped, retailers should instruct their shipping partners on how and where the item should go based on the goods value and projected ROI, said Coll of Kenco. Returns can be refurbished and resold at a lower price, recycled, repositioned directly for resale at a higher price, donated or liquidated for spare parts, if any exist. Specific instructions from the retailer at the front end may reduce the extra expense of returning a product to a distribution center if the cost and the product value can’t justify it, Coll said.
The mitigation work could start further upstream at the marketing level, according to Coll. Marketers should cull out customers known as “serial returners” and, if necessary, avoid sending product promotions to them. Retailers also need to be more precise on their websites about the way they describe their products, and need to produce the clearest images possible, Coll said. According to industry data that he has reviewed, 22% of returns were the result of inaccurate online product descriptions. About 23% of the returns were due to the wrong product being shipped, while 20% were due to the product being damaged during transit. “Buyer’s remorse,” which conventional wisdom would consider a main reason behind many returns, didn’t crack the top three.
Isasi of DM Transportation said that before a return is executed, his company establishes a cost checklist with the client that lays out what the client will pay for specific return services. If the cost of the return outweighs the value of the item, the client will use DM to liquidate, donate or recycle locally. Also before the return, DM e-mails a brief questionnaire to the consumer to determine the product’s condition, if it’s been assembled, disassembled or neither, and where it is located in the residence. This level of detail allows for better planning and a faster in-home experience, he said.
Speed is the cornerstone of an effective returns program, according to Isasi. Once they request a return, consumers want real-time visibility into the location of the pickup vehicle, a quick turnaround inside the home, and most important, a quick credit to whatever payment vehicle they used.
Speed is critical for manufacturers and retailers as well. The faster they can find a new home for the inventory, the more value they will realize for it, said Pomerantseva. Investing in smart, decision-based technology can make routing decisions more efficient, increase cost savings and save needless shipping, she said. It also frees up labor to focus on the retailer’s core business of forward order fulfillment, she said. Predictive analytics should be utilized to detect patterns in returns transactions that can reduce future incidents, she added
There is no firm industry data to measure the size of the online heavy-goods returns category. XPO estimates that returns in general account for 10% of its traffic. DM goes much higher, with Isasi estimating that returns in 2020 will make up 35% of its total traffic. That’s up from about 28% in 2019, an increase Isasi attributes in part to a surge in all online transactions as stores shut down shortly after the COVID-19 pandemic hit.
What is clear is that large-format items will make up a larger proportion of e-commerce orders. Most multiline retailers are throwing open their inventories to all products, including the big and bulky stuff. FedEx is building three facilities, and expanding five more, dedicated to processing and delivering goods that are “non-conveyable.” FedEx and UPS, along with other traditional parcel delivery firms, are levying steep peak-season surcharges on oversized items, knowing that it increases their costs to serve and that they will be handling much more of those goods than ever before.
With more heavy-goods deliveries will come more heavy-goods returns. For retailers and manufacturers working in this “new normal,” failing to plan ahead will be costly.
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September 25, 2020 at 06:00PM
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Heavy-goods e-commerce returns: Dreaded but inevitable - FreightWaves
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