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Recovering value from e-commerce returns

How can companies reduce e-commerce returns or recover value from them? Read how effective returns management can reduce waste, generate revenue, and foster a circular economy.
How can companies reduce e-commerce returns or recover value from them? Read how effective returns management can reduce waste, generate revenue, and foster a circular economy.
17 April 2024 •

E-commerce returns, effective management, and the ‘five Rs’

Anyone who has shopped online has likely returned a purchase at some point – shoes that do not fit, a gadget that does not meet expectations, or a gift that is no longer needed. The list goes on and on.

Many online shoppers enjoy a returns process that is easier than ever. But the sheer volume of e-commerce returns is giving online retailers real headaches. Returns hurt their bottom lines and hamper their sustainability efforts.

Clothing brands and retailers are well aware of this problem, but most consumers are not. Return rates of online apparel purchases reach over 50 percent in some cases. Research has shown that nearly 90 percent of consumers think that e-commerce returns are put back on the shelf and resold. And very few realize the impact of returns on the environment, resulting in millions of tons of carbon emissions worldwide.

There is no way to stop returns altogether, but how can e-commerce businesses both reduce returns and recover value from them? The answer is by more effectively managing the process before and after the sale and leveraging the ‘five Rs’.

Source: The Guardian

What is e-commerce returns management?

E-commerce returns management is the logistics of handling returned online purchases. But it also includes measures to reduce or prevent returns (more on that below).

A returns management system involves the logistics of accepting returned items, inspecting them for quality, restocking usable goods, and processing refunds or exchanges. Effective returns management ensures operational efficiency and significantly enhances customer satisfaction and loyalty by offering a seamless, hassle-free process.

Returns management must be customer-centric and seen as an essential element for competitive advantage and sustainability in the digital marketplace. The best systems aim to achieve the following:

  • Increase customer satisfaction and loyalty
  • Avoid costs
  • Reduce costs
  • Recover value

To achieve these goals, e-commerce returns management must be preventive and reactive. According to DHL eCommerce Global Online Shopper Survey, 40 percent of online shoppers want free returns and better product descriptions.

Preventive returns management

Preventive e-commerce returns management is the first line of defense against the escalating costs and the environmental impact of returns. By implementing strategies to avert returns before they occur, companies can significantly mitigate the adverse effects of additional transport and disposal of returned items.

The goal is to minimize the return rate, reducing the need for reverse logistics and lowering costs and emissions. While retailers may have limited control over factors such as production defects or mistaken orders, they can influence return triggers like product misrepresentation or technical incompatibilities. This means they can significantly reduce the likelihood of returns by improving product descriptions and providing clear communication. Avoiding misleading advertising and inaccurate product information will prevent consumers from returning purchases for reasons like color or capabilities.

Reactive returns management

For those returns that cannot be prevented, it is up to retailers to have an adept system in place to handle those goods. However, an effective e-commerce returns management system goes beyond the logistics. It is about restoring customer satisfaction and recovering value by reintegrating products into a circular system to minimize waste and loss.

Regulations are also a factor. In the European Union (EU), for example, all retailers must accept returns within a two-week window without a reason. This raises the stakes for efficient returns management.

Fundamentally, reactive returns management involves a series of steps:

  • Providing a return label
  • Processing returned goods, including quality checks and careful documentation to determine responsibility
  • Recirculating returned items (more on that below)
  • Communicating with the customer about refunds, replacements, etc.

Each step in the e-commerce returns process is designed to turn potential losses into opportunities for brands to recover value, build loyalty, and demonstrate their commitment to sustainability. Although specialized reverse logistics is essential, efficient returns handling must be seen as a vital component of customer service and environmental responsibility.

"Flexibility and transparency are crucial for customers, but sustainability is also becoming an increasingly important issue.", said Pablo Ciano, CEO of DHL eCommerce.

The 5 Rs

A significant percentage of online returns are products in excellent condition, could be repaired or refurbished for resale, or contain valuable materials for recycling. Here is a quick look at the 5 Rs: reduce, repair, resell, refurbish, and recycle. For more on the subject, check out Reverse logistics explained.

Reduce

For online retailers, the ultimate goal is to minimize returns, which is why many employ the preventive measures outlined above. Many innovative e-tailers are also using technology to reduce returns.

For example, fashion retailers use virtual reality and artificial intelligence to show buyers how the clothing would look on them, and companies like IKEA provide in-app tools that enable people to see how furniture would look in their homes.

Reduction can also include packaging. Packaging has no intrinsic value, so reducing it lowers costs while preventing waste. Luckily, sustainable packaging solutions are in high demand, and there are many ways to integrate greener packaging practices.

Repair

Damaged or defective items can often be repaired or refurbished and resold, which is why the market for repaired goods has become big business. However, the process must be managed quickly and efficiently to make it cost-effective.

Some third-party logistics providers (3PL), like DHL, can carry out a range of repairs to returned goods right at the fulfillment facility. For example, we repair shoes and carry out professional-grade cleaning on returned items for an online fashion customer in Europe. Similarly, we provide an end-to-end repair service for a major telecom customer.

An effective e-commerce returns process that includes repairs allows companies to put suitable products back on the market quickly. Because we run the supply chain for many customers, we can handle both the forward and reverse supply chains as one continuous flow. This extends the life of products, diverts waste from landfills, and provides brands and retailers with an additional revenue stream.

Resell

The resale market is also on the rise, with new businesses emerging to seize opportunities. That is no surprise, considering our research on circularity showed significant opportunities in industries like faction and electronics.

Reselling presents an opportunity to sell products that are still highly functional – and e-commerce returns often fall into that category.

We have seen lots of players emerge in the ‘digital resale-as-a-service’ business – offering to resell e-commerce returns on behalf of brands and retailers. With global sales of second-hand goods expected to increase, the appeal of the business model will likely continue.

Effective e-commerce returns management plays a decisive role here, with innovative logistics companies offering value-added services such as cleaning, relabeling, and repackaging. A logistics partner often allows a brand to offer its own resale program. Done right, the entire process creates a frictionless experience for end consumers – a smooth customer journey that ends in high satisfaction.

Refurbishment and recycling

The circular economy presents massive opportunities for refurbishment and recycling, particularly of returned electronic items. More than 50 million metric tons of e-waste is generated globally every year, along with the significant quantities of the valuable rare earth minerals, gold, and copper they contain. Annual losses are estimated at around US$62.5 billion.

The journey toward circularity is one that many industries must take, and e-tailers with robust e-commerce returns solutions are poised to benefit from this shift, particularly those in the fashion and consumer electronics industries. Here again, third-party logistics providers can help take advantage of the opportunities presented by more circular business practices. We are well-equipped to develop and operate circular supply chain solutions that enable the appropriate reuse, reprocessing, or recycling of used electronic parts. This simplifies the complexities of the circular supply chain by offering an all-in-one solution, which reduces complexity in the reverse logistics process and increases economic feasibility with greater yields and improved visibility.

"Electronic waste is considered one of the fastest-growing waste streams of our time. By simplifying the process of a circular supply chain for customers and consumers, we unlock untapped economic value for tech businesses and enhance the commitment to environmental responsibility.", said Scott Allison, Chief Customer Officer, Service Logistics, DHL Supply Chain.

Recovering value from e-commerce returns is about orchestrating the intricate flow of goods

When it comes to e-commerce returns, it is clear that the journey does not end with the simple act of a return. Instead, effective returns management opens a gateway for brands to recapture value, fortify their relationships with customers, and embrace the larger shift toward sustainability and circularity.

In this context, logistics players like DHL can be pivotal allies. With our logistics expertise and global network, we are the ideal facilitators of this new relationship and its many new moving parts, doing what we do best: orchestrating the intricate flow of goods.

Through the strategic management of preventive and reactive returns, coupled with the innovative application of the five Rs, e-commerce business and their logistics partners are crafting a future where returns travel within a circular landscape rather than land in the trash.

This story was first published on DHL Delivered and was republished with permission.