How to Navigate the Growing Pains of Reverse Logistics

July 23, 2019

Cross-border e-commerce represents about a fifth of the online market and is growing at double the rate of domestic e-commerce. According to a recent report released by Flow, sixty-seven percent of online shoppers in the 11 top global markets have made a cross-border purchase, with Brazilians, Australians and Canadians leading the pack for shopping from retailers outside their home country. But what happens in the event these global shoppers decide to return a product?

E-commerce merchandise is returned up to three times more frequently than items bought in stores, with a 30 to 40 percent return rate for shoes and clothing bought online. Some experts predict that the amount of returns will grow from billions to over a trillion dollars annually.

A recent survey found that forty-one percent of consumers ‘bracket’: they purchase multiple sizes or colors with the intention of keeping only those that work for them. In 2017 in the U.S. alone, return delivery costs amounted to 381 billion dollars and are expected to reach 550 billion U.S. dollars by 2020, a whopping 75% increase since 2016.

Seamless returns are good for business

Nearly 96% of shoppers in a 2018 survey of 1,300 U.S. online shoppers ages 21-65 said they would shop with a retailer again based on an easy experience when returning goods. Furthermore, over two-thirds of shoppers are deterred from shopping with a retailer if they have to pay for return shipping (69%).

Cross-border returns are complicated and expensive

With consumers demanding a hassle-free way to return items, the need to deal with reverse logistics has become a headache for e-commerce retailers. Many retailers offer generous return policies and often pay for shipping both ways. Handling reverse logistics issues can be cumbersome enough in the domestic sphere but is invariably more complicated in cross-border transactions.

Cross-border returns policies need to take into account regional laws, which vary by country. The EU is a single market with a period of 14 days within which goods purchased online may be returned or exchanged without incurring charges.

For the retailer, reverse logistics are more costly than forward logistics because of additional labor and restocking fees. In addition, after the returned goods are shipped back to the retailer, only about half are resold at full price, according to Gartner Research.

The cost of international returns may be much higher than the original outbound cost. Upon re-entering the U.S., for example, the item is now considered an import, so duties and taxes will apply. There can also be delays: if documentation and product descriptions are inadequate, then imports could be delayed for further inspection at the border.

So what’s the solution?

  • All the rules for facilitating reverse logistics in the home country are even more important in the cross-border sphere. Retailers should offer clearly worded policies, be clear about what can and cannot be returned, how and when money is refunded, and who pays for return shipping.
  • It’s important that customers have access to web-based returns processes, including self-service shipping labels and commercial invoices.
  • Retailers can minimize returns by providing accurate product descriptions, photos, and sizing charts.  Artificial intelligence can help consumers avoid buying the wrong size and visualize a product in their home. Retailers can alert customers that they returned the last pair of shoes they bought in a certain size, for example.

Pilot programs are currently underway to test new systems for streamlining cross-border returns.

Consumers might still opt to return a lot of product, but in the future consumers should expect a smoother process when that consumer in Brazil decides to return his sofa to Belgium.  To make this happens, retailers will need to develop a comprehensive cross-border returns solution that takes into account the customer’s end-to-end shopping experience while ensuring the unit economics work for the business.

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