Returns remain one of the retail industry’s biggest headaches, with online returns costing US retailers US$212bn in lost sales in 2022 (NRF/Appriss Retail). Yet for posts and carriers they potentially offer one of the sector’s biggest opportunities for new business – if they can offer the services that retailers and consumers need at a price that suits everyone. Returns have increased by an average of 19% in the last two years, which means the scale of the problem is increasing. The biggest challenge is who bears the cost, both financially and environmentally.
Changing attitudes
Previously, retailers have felt the need to compete with giants in the market by offering free returns, but last year the tide began to turn. Research from DHL Supply Chain suggests that almost half of retail and consumer goods businesses are now considering charging.
“If you look at the current market, most of the e-commerce businesses are subsidizing returns,” says Nabil Malouli, senior vice president of e-commerce and global returns at DHL Supply Chain. “But there is an intent for change. As more and more companies are looking at profitability, they are looking at returns as an area that costs a lot of money.”
Most customers are resistant to be charged directly, yet ultimately they pay, according to Tony Sciarrotta, executive director of The Reverse Logistics Association (RLA): “The simple answer on who foots the bill is the consumer, who pays for it in higher prices.” Sometimes the retailer will make the manufacturer responsible, incorporating returns costs and resell losses into their stockist deals. “As these things escalate, somebody has to pay,” says Sciarrotta. “Either the retailer has to stop carrying the product because the margins are being killed, or they go to the manufacturer and say, ‘You want me to keep selling it, you’ve got high returns and you had better pay for it’.”
The ideal is reducing the likelihood of returns in the first place, so retailers are working hard to integrate technologies such as social proof, fit technology to increase customers’ ability to order the correct size, and reviews to help customers buy better first time. But where returns do happen, the process needs to be frictionless.
“Carriers and postal services have a big role to play here,” says Malouli. “They have a network of facilities of pickup and drop-off locations and that infrastructure can be used to improve the return flow.” But it’s also about offering new services, according to Tobias Buxhoidt, founder and CEO of ParcelLab. “There’s more opportunity than just trying to squeeze returns into the old infrastructure. There are still business opportunities that haven’t really been realized, such as pickup services where carriers come to the door.”
Pickup options
Some postal operators, such as Royal Mail with its Parcel Collect service, have already adapted to this demand with its (temporarily) free pickup services. However, research from ZigZag suggests that almost half (47%) of UK consumers would pay a premium for a quick home collection using the gig economy. In the US, Uber announced in October that customers could request a vehicle to drop off their e-commerce returns at a local post office or FedEx or UPS location for a flat fee of US$5.
US business ReturnQueen also meets this need. It offers an app-based returns pickup service that it claims overcomes many of the limitations of traditional returns. It transports returns from customers’ doorsteps to carriers such as UPS or FedEx, and offers a premium service where it packages up items, labels them and ships them for the customer.
Daphna Englard, co-founder and co-CEO of ReturnQueen, believes that such concierge returns services will grow in popularity, particularly when they are adopted by retailers as well as the end consumers. “It’s the same niche of users and people who are willing to pay to use an Instacart service or an Uber DoorDash service,” she says. “That’s our customer.”
Consolidation opportunities
There is a wider opportunity around consolidation of returns, which can lead to the ability to offer a wider range of services. “It’s an area where, without a doubt, shipping companies have a role to play to help to consolidate and use that infrastructure to enable consolidation, visual inspection, incremental consumer experience and eventually even doing some low value-added services in certain locations, such as repacking,” says DHL’s Malouli. “As we move into the future, these are areas of opportunity to increase value creation and increase the best use of the current infrastructure, for transportation companies, carriers and postal services.”
Parcel Pending by Quadient partnered with Evri earlier this year to offer a new Drop Box module attached to its parcel lockers, into which the customer simply scans their barcode and drops their return. It enables the consolidation of up to 20 parcels a day per carrier even before such parcels are collected. “Consolidation of the returns supply chain, if you can get it right, is a very lucrative opportunity,” says Gary Winter, VP of strategic initiatives at Parcel Pending by Quadient, which operates in more than 18,000 locations globally. “If you can get the economics of drop-off by the consumer and collection by the carrier in something like parcel lockers, then you are able to consolidate returns in decent numbers and process them correctly.”
Extended services
As DHL’s Malouli says, consolidation also offers the opportunity for an extended range of services to help reduce returns costs, particularly when it comes to the lost cost of what happens to returned goods. “The future of e-commerce returns management is tightly coupled with the ability to offer a cost-effective solution to retailers regardless of their scale,” says Helen Scurfield, innovation and development director at Asendia. “We need to shift away from the traditional model of returning goods directly to the retailer and consider ways in which we can reduce cost while offering value-added services. The focus should be on adopting a more sustainable approach that cuts carbon emissions and promotes the circular economy.
“For example, returned items could be evaluated at a central hub and processed onward for various options,” she says. “These could include reshipping to another customer, repurposing and reselling through secondary markets, liquidation to recover value, donation to charitable organizations, or recycling to minimize waste. This shift would mark a pivotal moment in returns management, where the emphasis changes from reversing a transaction to optimizing the lifecycle of products in a manner that reduces environmental impact and maximizes value.”
Using technology to enable more intelligent routing of returns is also vital, to refund customers and get them buying again, and to route returned stock to the most cost- and sustainability-effective end market. “There is a big untapped potential around trying to move away from one customer returns journey to building segmented journeys,” says ParcelLab’s Buxhoidt.
RLA’s Sciarrotta agrees. “One way is [for manufacturers and retailers] to work with carriers and postal operators to be hyperlocal and find partners in their community who can do something with the goods that are being returned,” he says. “Carriers have to provide more of a solution to the returns problem.”
“Carriers need to shift their mindset and understand that it’s not just about taking these goods all the way back across the country to the shipper,” he continues. “It’s about giving them options locally. If the carrier can reduce the amount of shipping and make it so that the retailer or manufacturer can resell it in the local market faster, then they might get more of the retail value back than if they have to ship it all the way back to their warehouse, and those costs are added in. If they want to survive and grow, carriers are going to have to do more than just move the goods.”
Second-hand marketplaces
ZigZag’s founder and CEO, Al Gerrie, says that carriers and postal services also need to do more to incorporate marketplaces and the market for pre-loved items, into their offerings. “The rental and resale markets are growing, and postal operators have another opportunity to remain relevant for younger consumers, who are buying on marketplaces in their droves,” he explains. “Carriers need to act quickly to attract marketplaces with a solid returns proposition and digital experience that the consumers are demanding.”
Clément Nageotte, marketing director at Geopost, which owns carriers including DPD, Seur, Chronopost and Speedy in Europe, says understanding the scale of the challenge is key. “Carriers have a role to play in educating consumers that returns also have a cost, and retailers and carriers should work more closely to better understand consumer behaviors leading to returns, and therefore their expectations when it comes to returns.”
He says this requires retailers to share more with carriers, particularly if they want to move to additional services. “Full service of returned goods requires closer collaboration with retailers and brands, and retailers to revisit their value chain for unwanted goods. This also requires more data sharing, beyond a mere parcel number.”
Getting into returns management, rather than simply just returns shipping, isn’t easy. Asendia’s Scurfield advises that a strategic approach for posts and carriers is to start domestically or with a limited set of countries or regions. “By doing so, they can gradually gain valuable experience and insights, refine their processes and evolve their services as they become more proficient in handling returns,” she says. “Additionally, forging partnerships with other posts and industry players can be advantageous, giving access to user-friendly cross-border returns solutions that are already set up across many countries.”
It isn’t easy, but it can be done. “You need technology to receive, inspect, match and track these returns, and you need to have the knowledge of how to handle this product through the infrastructure,” says DHL’s Malouli. “It’s about having the bandwidth to address this opportunity and pushing it up into your list of priorities. That is changing and many carriers are working on this and are starting to look at what they can do.”
Read the latest issue of Parcel and Postal Technology International here.