In 2018, retail consultant Steve Dennis predicted that e-commerce returns would become a drag on retailers’ earnings.
“As e-commerce captures a growing share of all retail sales, omnichannel brands that have high return rates and high return handling costs find themselves in the unenviable position of seeing their marginal economics deteriorate — what I refer to as the ‘omnichannel migration dilemma’ — as their online business grows,” he wrote at the time for Forbes.
What Dennis saw and others ignored was a growing problem in a world of free shipping and free returns.
“While Amazon (NASDAQ: AMZN) has added to the problem, there are dozens of other venture-capital-funded pure-plays that have made free and easy returns a centerpiece of their value proposition,” he wrote. “The good news [for traditional retailers, not consumers] is that it is increasingly clear that many are having difficulty profitably scaling and are not viable enterprises over the long term. As more of them fail completely, scale back or get acquired by a traditional retailer, the pressure to maintain unsustainable pricing and policies will subside. I predict we will see a lot of this activity over the next year or so. Whether this will have a dramatic effect on mitigating the escalating costs remains to be seen.”
In 2021, the time has come and brands are now trying to get a handle on e-commerce returns cost. Many, though, are still struggling with how to do that. A recent survey found that 75% of consumers had been offered a refund without the need to return the item.
“It is actually cheaper to give shoppers the refund versus having to facilitate the return,” the survey noted. “Both the shipping and other operational costs that go into a return tend to be more expensive than the actual item shoppers purchased so retailers are willing to just take the loss on the item and avoid a bigger loss in facilitating the return.”
There are options, of course, and Chris Jarvis, CEO of ReturnBear, thinks the reverse logistics experience can lead to increased sales if done properly. Jarvis told Modern Shipper that as e-commerce trends toward what could be a 25% share of overall retail sales, it will result in about an 8% margin erosion for brands. Returns further exacerbate that problem.
“Now you have 300 million people with things in their hand and 20% to 30% of them say they want to return this,” he said. “We then ask the customer to be the head of logistics, and they put it in the mail and then they wait three to four weeks for their Visa bill [to be credited].”
Jarvis, who was most recently chief logistics officer for last-mile delivery firm GoFor, joined ReturnBear about four months ago. Formed through a collaboration between Boston Consulting Group and the Ontario Teachers’ Pension Plan, Toronto-based ReturnBear is looking to blend the physical and digital worlds to create a return experience that is profitable for retailers and beneficial for customers.
“To save the big brands of the world, I think there is definitely a rethink there and we need a supply chain that works efficiently,” Jarvis said.
Saying that for reverse logistics to work, “you literally have to be in every neighborhood in America,” Jarvis pointed to ReturnBear’s ultimate goal — to create an incentive for the e-commerce consumer to return items to a central ReturnBear location and let the company handle the logistics and costs of that return.
“The work we are doing is quite deep, it’s quite retailer-centric, it’s quite logistics-centric,” he said, noting that the cost to return a single item can be $10 if handled by the consumer, but by aggregating returns, ReturnBear can reduce that to as little as 25 cents per unit.
“At a minimum, I can aggregate 50 shoes into a box [before sending it back to the retailer],” Jarvis noted before pointing to a benefit ReturnBear offers retailers. “How do I best get this inventory into your forward inventory, or better yet, your customer?”
About 90% of the items ReturnBear is currently collecting are resellable while the remainder may need some refurbishing or are just unsellable. ReturnBear works with retailers to ensure those resellable items are shipped to locations where they can be sold. Most of ReturnBear’s early focus is on footwear, apparel and accessories, but it is these items that can also be season-dependent. A winter sweater returned in February may not be sellable in April, so speed of getting that sweater into an inventory position where it can be resold quickly is key.
“Our key metric is how fast can we get items back into the forward supply chain,” Jarvis said.
ReturnBear is currently in two locations but will be expanding nationwide in Canada by the first of the year through an agreement with large mall operator Cadillac Fairview (CF). Jarvis cited a ReturnBear survey that 75% of Canadian shoppers would prefer a one-stop, multiretailer returns location, and while 88% of Canadians live within less than 1 mile of a Canada Post location, the survey found most did not want to drop off items for return there.
“We can’t be any more convenient than Canada Post,” Jarvis said. “But customers said going to Canada Post was an errand. There is no other interest there. … But if you can take them to a mall, they liked that.”
With no need to package the item for return (ReturnBear handles that), and the opportunity to engage with other brands in a mall setting, Jarvis sees the strategy as a winning one for consumers and brands through lowered reverse logistics costs. Cadillac Fairview does as well.
“CF is excited to be partnering with ReturnBear to offer a convenient, multiretailer return option for Canadian shoppers, while helping alleviate the costs associated with returns for our partners,” said Sal Iacono, executive vice president of operations, Cadillac Fairview. “At CF we’re always looking to offer solutions that bridge the physical and digital worlds to make the customer experience better, and we are thrilled to bring this service forward as a way to help retailers based at our properties and beyond.”
“Our customers today are direct-to-consumer customers. The mall loves it because we are bringing pure-play e-commerce customers to the mall. For me to be able to tell them that 50 customers that bought [online] are now in the mall, that’s a win for them,” Jarvis said.
Jarvis said ReturnBear is in talks with national retailers to bring them on board and “that will get us to a position mid- to late next year where we will start talking about expanding to America.”
Click for more articles by Brian Straight.
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