Why online retailers have three time the returns of traditional sellers

April 14, 2016

When the black, $128.95 Vince Camuto summer sandals size 6, with a 2-inch cork heel turned out to be too big, Sherri Theodore decided to return them to Nordstrom's online, where she had bought them a few weeks before. "They just weren't right for me," said Theodore, 61, a retired bookkeeper from Ardmore.

She reboxed the shoes and drove to the nearby Bala Cynwyd Shopping Center to mail them back at a UPS store there. Where do rejected items bought online or at a brick-and-mortar store end up when returned? Is there a special return heaven in cyberspace?In retail parlance, it's called reverse logistics.

Last year, $290 billion of sales were returned in the United States and Canada, with 8 percent of purchases from brick-and-mortar retail sales, and up to 30 percent in e-commerce returns, according to David Egan, the Americas head of industrial research for the national commercial real estate firm CBRE Inc., in his February 2016 report.

As a result, Egan said the space to house all those returned goods is becoming a growing concern for retailers, and creating a new niche in the commercial real estate sector.

GENCO, based in Pittsburgh and owned by FedEx since January 2015, is among the biggest in the returns business. The firm provides supply chain management and reverse logistics with warehouses throughout the U.S. and Canada that total about 40 million square feet of space.

GENCO manages warehouses and distribution centers for retailers and manufacturers - and it continues to grow as all returns spike, but particularly e-commerce ones.

"Returns are very different than fulfillment type of centers," said Ryan Kelly, vice president of strategy and communications at GENCO. "With reverse logistics, it's a cracker jack box, and you don't know what's going to be in the box."

Kelly said the returns are wiped of all personal information and either exported overseas for a fraction of the price or recycled."There are huge complexities, and why returns are so complex, and it is a huge market," he said.

The entire e-commerce industry is about $500 billion in sales worldwide, Kelly said.

What is driving this?

"When you think about returns, consumer behavior - such as shopping cart abandonment online without completing a purchase - it's because of the return policy," Kelly said. "The return policy absolutely impacts consumer buying behavior."

It does for Theodore. "A final sale when ordering online is a no-no in my vocabulary," she said, while recently trying on shoes at Lord & Taylor at Bala Cynwyd Shopping Center. "You can't touch, feel, and see certain items online as you can in a real store."

GENCO's Kelly said often it is easier for a purely online retailer to handle returns than a brick and mortar store because it has one centralized distribution center.

An online retailer can also offer the "virtual showroom," which is much bigger than a brick and mortar store.

"People order more online and that's why there's a higher rate of returns," Kelly said. "They know they will return some things and have every intention in the world to send what doesn't fit based on the (retailer's) return policy."

Nordstrom's easy return policy was a plus for Theodore. She said within two days of shipping the shoes back, the charge was wiped off her credit card.

She confessed that with other online purchases, she often buys more than one of the same item and in different sizes "just in case" one fits better.

"I do that with manufacturers I don't know that well, or I will try on an item in the store, and then go home and order it online, knowing it fits in that size," Theodore said.

She also buys online for her mother, who stopped driving four years ago. Her mom will pick a piece of clothing and often order different sizes. When the shipment arrives, she keeps only the items that fit and returns the rest.

"As long as retailers are willing to offer return policies that don't cost much to the consumer, then I would expect this trend to continue," Kelly said. "If they start charging a lot more, like restocking fees or getting rid of a 'no questions asked policy,' we will see a change in consumer behavior that could impact return rates."

Howard Rosenberg, CEO of San Francisco-based B-Stock Solutions Inc., a firm which works with retailers to improve their recovery rates when liquidating excess inventory, said having a solid means to address all aspects of reverse logistics is crucial.

Returns that come back can easily build up in a warehouse.

"The faster you get rid of the returns, the better because their value only goes down with time," he said. "You really want to avoid excess inventory piling up as a retailer.

"It's like sitting on a pile of cash - it's depreciating over time. You want that inventory converted to cash immediately and at the highest possible price to reinvest in the business."

Original post: http://www.philly.com/philly/business/20160410_Why_online_retailers_have_three_time_the_returns_of_traditional_sellers.html#pQtqOdxpHxQEjYXe.99




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