The supply chain world has witnessed an explosion in e-commerce orders during the past year, largely driven by the Covid-19 pandemic. That, in turn, has led to a spike in product returns. The activity is unlikely to die down anytime soon. Most experts predict that online sales—and thus, returns—will continue to grow, even after the pandemic subsides. Among them is Tony Sciarrotta, the executive director of the Reverse Logistics Association (RLA).
The association Sciarrotta heads up is a global trade organization dedicated to providing information and resources to companies managing the ever-more-difficult task of processing returned goods. Its members include retailers, manufacturers, and companies that offer solutions. Sciarrotta spoke recently with DC Velocity Senior News Editor Ben Ames about the challenges and opportunities of reverse logistics.
Q: Reverse logistics is a subject we don’t normally hear much about. But it’s made the headlines recently as companies struggled with a flood of post-holiday e-commerce returns. Was that a surprise to retailers and parcel carriers, or could they see this one coming?
A: That’s a great question, because it’s related to a lack of forecasting software in the industry. You hear about SAP and Oracle and all the great systems like that. You don’t hear anything about reverse logistics software—forecasting, processing, etc.
The reason it was a bit of a surprise—though not a complete surprise—is online returns are two to three to four times higher than in-store returns for simple reasons. If you’re going to buy a shirt, an L.L.Bean size 15/34 is different than another brand’s. And so, people do bracketing: They buy a size bigger, a size smaller, and maybe two colors. And so suddenly, you may have 10 items go out, two items kept, and the rest sent back. That’s a simple example of the surprise that some retailers did not understand was in store for them.
You also have issues of interoperability. The electronics product that you bought: You take it home or it comes to your house, you put it into your system, and it doesn’t connect or doesn’t “talk” to the other components. So, those issues drive returns higher as well.
In the old days, all we had was the famous Super Bowl returns period. People would buy a big-screen TV, use it for the Super Bowl, and take it back to the store. That was an expensive period. But nowadays, there is this trend of high e-commerce sales with proportionately higher returns.
Q: Aside from sheer volume, were there other factors this year that made this returns peak different from other years?
A: Absolutely. There were financial issues, and there were quarantine issues. First off, returns are supposed to be limited to maybe 30 days after the purchase, and you run a financial book based on that. And now suddenly because of the pandemic, you’ve given them 90 or 120 days to return items, so you’ve got that liability on your books for a much longer term. That’s driving the financial people, the CFO world, crazy.
And then part two: If you took things back to a Walmart or Best Buy store, or shipped it back, you had quarantine issues in the early days. Nobody knew where the virus would live. Could it live on clothing inside a box for two days? It just wasn’t known. And retailers in the brick-and-mortar world were taking things back and putting them in a separate area and leaving them there for a while.
And then there was the issue of returns that were simply being credited to the consumer—they were being told to keep it. And again, imagine the financial implications of that. So, it was a very different returns peak this year because nobody really took all of those factors into account, especially the quarantining of the products.
Q: How did those constraints affect returns operations?
A: Imagine a truck backing up to a warehouse where there are long lines of conveyor belts. Products are loaded onto these belts and have to be opened and inspected. Do they work? Does the clothing have stains? If so, what are the stains from? Can the items be resold? Can they go back to stock as new? You have to physically touch this stuff, and you have to make a decision on each item.
Products also do not come back packaged the same way and in the same box they were originally shipped in. Imagine a ceiling fan that you buy at your local hardware store only to find that you can’t get it to work once you get it home. Do you ever put it back in the box with the blades in the right spot? No, it sticks out of the box. And that’s exactly how it gets processed all the way down the line.
And then, just imagine the flow where you used to have people literally standing next to each other so they could process hundreds of units per hour. Now, you’ve had to cut out people to space them out [for social distancing]. Instead of 10 people in a 12-foot space, you’ve got three people. That’s a disaster in a reverse logistics operation. It’s just impossible to keep up. There are so many challenges.
Q: That would be difficult. And for a lot of the reasons you mentioned, returns are known for being one of the most expensive parts of the e-commerce cycle. What steps are companies taking to control those costs?
A: Not enough. And the problems are worse because of the silos that exist. Not every organization understands the holistic end-to-end costs of reverse logistics. Shipping costs are allocated to one area. Repair costs go to another area. The cost of reselling at a loss goes to another area. So, nobody really puts all of the costs together.
Some companies are saying it’s costing more to take it back than the product is worth. So, they just give a credit. But that’s a nightmare too, because they’re destroying brand equity by telling people to just keep the item. The consumer has to throw it away or give it away. Or they may auction it off on eBay or sell it at a flea market.
Q: Where should companies focus their attention?
A: More than anything else, they should focus on improving the customer experience. Basically, you have to make sure that people actually get what you tell them they’re going to get, and then try to exceed their expectations. Amazon and some other online retailers are very good at that. They deliver exactly when they say they’re going to deliver. The product is packaged safely in the box. And it does what it says it’s supposed to do.
When I worked at [healthcare technology company] Philips and we did a survey of consumers, we found that 75% of the returns were being generated because people said, “It didn’t do what I expected it to do.” That’s a customer-experience issue discussion. On the returns side, I, as returns director, was being blamed for taking too many things back from retailers whose liberal returns policies were making it too easy. But I was able to use actual customer feedback to fight back a little and tell them, “But you need the customer experience to be better. You need to give them an instruction book that they can read in English, not in 12 languages. You need pictures. You need to make it easier. You need the clothing to be the size it’s supposed to be. And showing it on a model on the website is a bad idea, period. Because when I get it at home, it never looks that good.”
These are all customer-experience issues, right? It’s got nothing to do with whether it fits or not. It’s more, “You showed it in green on the website, and when I got it, it was more chartreuse than green.” So, these are customer-experience steps that companies can take, but unfortunately, most of them are not doing it yet.
Q: That’s so interesting. Also, I’ve noticed some trends, like extending the returns window, as you mentioned earlier. Another is partnering with storefronts, such as a UPS Store or a FedEx Office outlet, to make it easier for consumers to ship products back. As we start to emerge from pandemic conditions, are any of those changes here to stay?
A: Absolutely. Some of those changes are definitely here to stay—certainly, those partnerships are. For instance, the Amazon partnership with Kohl’s is brilliant. You go to the back of the store to drop the package off, they give you a coupon, and you look at it and say “Wow, I get a discount off something today. Maybe I’ll shop a little bit.” That’s a brilliant partnership. That’s definitely here to stay.
The longer windows—that’s a huge risk, and it’s because items like clothing or electronics become outdated really fast. In the apparel industry, a consumer may have until June to return winter clothing and get their money back. It’s a huge loss then. And electronics—it seems like those things change capacity and versions every three weeks. That was a joke in the early 2000s with digital cameras. You could buy one—let’s call it a two-megapixel camera—at retail. Then, within three months, 12-megapixel cameras would come out and you could take your old one back and exchange it. So those long windows are actually very dangerous for retailers to use—except that they’re forced to, to be accommodating to customers during the pandemic. So, I hope the long windows go away, but I hope the “convenience factor” for consumers stays.
If you’re an online retailer or a brick-and-mortar retailer and you live by a policy of “satisfaction guaranteed,” it means you could take anything back anytime from anybody. The last company that had “Satisfaction Guaranteed” as their slogan on the front door was called Sears. And so, I hope that explains why some of the steps that have been taken really need to be followed closely.