In Supply Chain
Person Shopping Online Grocery Shoppers Ecommerce

Paradigm-shifting questions seemingly pervade every decision in the retail space today. Will brick-and-mortar stores exist? Can a retailer compete with Amazon online? How do I drive store versus web traffic? How do I plan for a supply chain when I am not exactly sure where the last mile is? And, of course, how will the Presidential election impact the economy and my business?

The great news is that, if we pay attention to some of the supporting strategies such as how we handle, optimize and leverage returns and returns policies, we can adjust for the bigger paradigm shifts as they come.

While we do not have an answer for the election, and most every retailer has an ecommerce plan, there exists a few medium term as-close-to certainties. The great news is that, if we pay attention to some of the supporting strategies such as how we handle, optimize and leverage returns and returns policies, we can adjust for the bigger paradigm shifts as they come.

  • Ecommerce is growing. This is not a prolific statement, but an important underlying fact. Ecommerce represents roughly 10.6 percent (Dept. of Commerce) of total retail sales in the U.S. up from 9.7 percent last year and will continue to grow by double-digits for the foreseeable future. This does vary wildly from grocery at 2 percent to apparel at 15 percent to electronics and appliances over 25 percent, but all segments are far outpacing the market growth.
  • Ecomm returns also vary, but are roughly three times the traditional bricks-and-mortar store levels. Returns policies and execution are differentiators. 92 percent of shoppers state they will buy again if the returns process is easy (business2community.com). In addition, according to a Kurt Salmon survey, most consumers expect a credit within a week, but less than a fifth see their credits within that time. The return policy can sway the order point choice or even the product choice if the consumer feels there is a risk of a return.
  • Fraud, abuse and mistakes have significant costs. The savings of bypassing a store distribution center can easily erode when multiple parcel shipments are required to fulfill the final purchase.
  • Ecomm cost-to-serve should not be calculated in the same manner as traditional models. For example, call center requirements are not often considered a supply chain cost, but in ecommerce, they can represent hidden and uncontrolled profit leakage.
  • Vendor-Retailer relationships will change. As certain vendor segments look to go direct-to-consumer and the cost to service a return increases, vendors and retailers will need to find a new equilibrium on cost sharing in the channel.

What conclusions can we draw in this ever-changing market?

The math tells us that if our Ecomm sales are 10 percent of revenue, going to 20 percent, and our traditional store return rate was 5 percent, the return rate today is likely 6 percent. When you achieve the goal of 20 percent ecommerce sales, your overall return rate will likely be 7 percent. This is a 40 percent increase in returns volume. If not managed, the cost to serve this channel could skyrocket as you lose leverage on your well-oiled forward and reverse supply chain, your customer service network, and the ability to drive in-store traffic.

If not managed, the cost to serve this channel could skyrocket as you lose leverage on your well-oiled forward and reverse supply chain, your customer service network, and the ability to drive in-store traffic.

Ultimately, retailers and manufacturers alike need to change their mindset from “reverse logistics” or “reverse supply chain” and figure out how to optimize their ROI on Reverse Commerce. This will require an adaptable network, supporting technology, and, more important, data to control and reduce the cost to serve within this growing channel.

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