Matthew Robertson, co-CEO, NetDespatch
Matthew Robertson, Co-CEO, NetDespatch

Return to Santa: tackling the growing challenge of parcel returns

In a few short days, the most celebrated delivery expert in history will be making his once-a-year round delivering presents to all the good girls and boys in a single night. Those in the retail sector might raise a wry eyebrow and note that Santa is lucky – he only has to deliver the presents. He doesn’t have to wrestle with the process that is causing one of the biggest headaches for the industry: returns.

Return to Santa

Returned items are now estimated to cost UK businesses in the region of £60bn a year, with the so-called “serial returners”, who return more items than they keep, having a major impact on the retail sector. This year the value of returns following the buying bonanzas of Black Friday and Cyber Monday are estimated to reach £2.4bn, with a 79% increase in returns reported on Monday 4 December, and this trend predicted to continue into January.

It’s clear that the purchasing model is changing as consumers buy more than they need on the basis that they can return unwanted items – taking advantage of the free returns service that is now the expected standard.

This is a particular issue in the fashion sector, as shoppers bid to replicate the in-store dressing room experience by ordering products in multiple colours and sizes to avoid disappointment over a product that doesn’t fit or suit them. The Instagram impact is guilty here, too. According to Barclaycard one in ten shoppers have bought clothing online simply to wear for an insta photo, then return.

As customers increasingly prefer to buy online rather than in-store, retailers are competing to provide this kind of service and build loyalty among their customer base, but it comes at a high price. Some estimates put return rates regularly as high as 30%, with some sectors touching 40% - the costs of which must be borne by the retailer.

Initially, retailers may have been prepared to sacrifice some profitability in return for the loyalty generated by a flexible returns service – fashion site ASOS has discovered that its gold standard returns process actually results in returners spending more than the average customer. However, for most businesses this is unsustainable in the long term as purchase volumes continue to increase. As we head into 2019 I believe that we’ll see more innovation around managing the returns process to reduce cost and waste.

Reducing returns rage

Even though returns volumes continue to increase, we know from NetDespatch research that consumers consider returning items to be the most frustrating aspects of the online shopping experience. Small surprise, therefore, that we’re seeing a lot of research and innovation around making the process easier. At the Hermes Innovation Lab in Leeds they have integrated their delivery network to the Alexa Skill voice-enabled assistant. Customers can now initiate the returns process simply by asking Alexa. While right now this involves the customer receiving a bar code to print at a local ParcelShop, it’s not too much of a stretch to imagine that shoppers will soon be able to directly request a courier to pick up their unwanted parcel from their preferred location.

For customers that don’t yet have Alexa helping them out in the home, simple and accurate instructions and labelling for the returns process are essential – and that’s something that our platform at NetDespatch can help businesses large and small get right at the outset – but there’s a lot more to consider. What happens to the goods once they’re returned? Can they be resold, recycled or - worst case scenario – must they be destroyed? (with the huge negative reputational consequences of such waste). What should the pricing model be?

Big data and artificial intelligence offer answers

There are already some forward-thinking start-ups using insights from big data, artificial intelligence and machine learning to improve returns management. Disposition engines use real-time information to make decisions about the fate of returned stock based on data such as customer demand for the item, the cost of refurbishing it, the implications for recycling or disposal. This way the returned item is managed in the most profitable way, reducing the cost of returns to the retailer.

As the challenge of returns grows ever more acute, in 2019 we’ll be looking to disruptive innovators to bring AI and big data to the table to solve the problem.

Environmental concerns start to have an impact

It’s clear that ecommerce is becoming a two-way flow of goods between buyer and seller. This means that the delivery network is under strain in both directions as the volume of items flying back and forth increases. Not only is this a major logistics (and reverse logistics) challenge, it also has an impact on the environment, and signs are appearing that while consumers want their purchases delivered and collected quickly and conveniently, they are starting to be more concerned about the environmental impact of the service – a whole new interpretation of the phrase “buyer’s remorse!”

As responsible consumers seek a more sustainable way to shop, we can expect to see more pressure on retailers and their delivery partners to develop more environmentally friendly networks and use big data to optimise everything from delivery routes to congestion management to improve efficiency – both economical and environmental.

It may be a little way off, but I can see a future where consumers are offered a “green commerce” option that may be slower, but that clears their conscience over the effect of their buying – and returning – habits on the planet.

Reducing the cost, inconvenience and environmental impact of returns is one that is likely to gain more traction as ecommerce continues on its predicted rise. It’s a challenge that is ripe for disruptive intervention and the innovations that are starting to appear are a positive sign that we are heading in the right direction.

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