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How retailers can keep growing returns costs in check

This images show someone returning a package.

While most retailers have recently recorded a decline in returns, the cost burden is still big, and many retailers are increasingly looking for ways to reverse course even further.

It’s retail’s unavoidable story, especially e-commerce: For each percentage of growth in sales comes more returned items from customers. It’s the double-edged sword that keeps getting sharper, year after year.

And while to some, the 2023 holiday retail season may seem already far away in the rear-view mirror, the true picture of the most recent season of holiday returns is only now becoming clear. The end of January marks the unofficial close of the preceding holiday retail season with the final act of returns. 

The National Retail Federation (NRF) expected holiday returns for 2023 in the U.S. to total around $148 billion compared to $171 billion for the 2022 holiday season, $151 billion during the 2021 holiday season, $101 billion in 2020, and about the same $100 billion for the 2019 holiday season.

While the rate of holiday returns year-to-year may be on the decline for the first year since the pandemic, these numbers fail to tell the whole story. In 2019, before COVID-19 upended consumer buying habits, retail returns for the entire year stood around $309 billion, or 8.1% of total retail sales. They peaked in 2022, more than double that 2019 figure, at $816 billion for the year or 16.5% of sales. In 2023, the total returns declined for the first time in years, at $732 billion or 14.5% of total retail sales.

So, while most retailers have recently recorded a decline in returns, the cost burden is still big, and many retailers are increasingly looking for ways to reverse course even further.

How pandemic changed returns game

It’s hard to believe that it’s been a little over four years since the pandemic changed things forever. Back then, lockdowns and distancing turned ecommerce into the next best option to in-person shopping. From there things took off. According to the NRF, before the pandemic retail growth in 2019 the year-over-year growth in e-commerce was at 3.5%; then in 2020 it jumped to 7.6%, then to 14.4% in 2021, and back to 7% in 2022. Growth in 2023 was expected to drop again to somewhere between 4% and 6%.

COVID’s enduring change to retail is reflected the most on the e-commerce side. It drove millions of consumers to online shopping, who would have otherwise hit up bricks and mortar shops. And while the rate of year-to-year growth may be slowing, there’s a huge new contingent of loyal e-commerce shoppers that won’t give up the new-found ease of digital shopping any time soon.

E-commerce has always been saddled by the returns problem. The more people shop virtually, the more likely they are to return items they couldn’t try on or “test” out before making the purchase. With the new pandemic “crop” of e-commerce consumers, returns will only become more problematic for those retailers that fail to optimize this side of their business.

It’s no longer a seasonal chore where the biggest hit comes during the holidays. Today, for a thriving e-commerce business, returns must be viewed as a year-round, always-on business strategy.

High costs = more restrictive policies

In 2022, for every $1 billion in sales the average retailer lost $165 million in returns, a number that gets bigger and bigger with each passing year. The pandemic saw a lot of returns policies eased, but as the emergency faded, retailers have increasingly looked for more ways to reduce their burden.

The expenses associated with accepting a returned item can oftentimes exceed the item’s resale potential, with shipping costs eating up a huge chunk of that value. Add on top of that the cost of manpower for processing and other key actions within the returns pipeline, it’s no wonder retailers are looking for better options.

Some have implemented fees for returning items while 58% of retailers went to “returnless” or “keep it” returns protocols in 2023. Others are offering store credit in lieu of refunds and some are encouraging shoppers to bring unwanted items back to the physical store. It’s a tricky balance, keeping customer loyalty front and center while putting stronger policies in place to right size the business. Thankfully in the world of retail, customer loyalty isn’t exclusive of a restrictive returns policy.

So how do we balance these business needs while maintaining strong customer relationships?

Maximizing returns at crunch time

For all the tips that can be covered in this context, one thing stands out: Getting returned merchandise through the system quickly and back to stock for potential resale is paramount. For this reason, returns need to be treated with the same urgency as outbound orders.

Focusing on “forward fulfillment” is the key to achieving this velocity, especially when it comes to the annual crush of holiday returns. This means having a strong third-party logistics (3PL) partner that can help manage returned goods, redirecting them to a new destination for processing, repackaging, and resale. Streamlining the returns process in this way, reducing transportation costs, and speeding up the return-to-market cycle, is the end game. Certainly, retailers can achieve this on their own, but a strong 3PL eliminates the hassle and gets it there quicker.

There are other things retailers can do, too: 

  • Be prepared: Preparation is key for success during the hefty return season after the holidays. Planning for an influx is critically important. This means having a clear and efficient returns process, which includes a dedicated team to handle returns, a clear returns policy, and a streamlined system for processing returns. 

  • Analyze the data: It’s essential to understand why the product is being returned in the first place. Analyze the data on returns to identify patterns and trends. This can help businesses understand the reasons for returns and take additional steps to address them. 

  • Communicate with customers: Communication is key when it comes to handling returns. Shoppers expect transparency during the returns process and to be kept informed. Communication builds trust and loyalty, giving customers confidence that your business will take good care of them. Having the proper tools and a robust returns plan will alleviate future problems. Make sure customers know what to expect.

  • Automate where possible: Automation helps streamline the returns process and can reduce the burden on staff. Simple tools can include using barcode scanning or RFID technology to track returns, automated emails or SMS texts to keep customers informed, and analytics tools to identify return trends and patterns. 

  • Look for opportunities: Businesses constantly evolve to improve the customer experience. In December 2023, DoorDash and Uber announced a new service: a return Package Pickup service that lets a driver pick up one to five packages from the customer’s doorstep and drop them off at a FedEx, UPS, or USPS location for them. Ensure your customer knows every convenience imaginable to guarantee you’re providing the best customer service possible. 

While returns remain a significant challenge for online shoppers and stores alike, they can also be an opportunity with the right approach that addresses returns all year round. By being prepared, analyzing the data, communicating with customers, looking for opportunities, and automating where possible, online retailers and stores can handle returns efficiently. More importantly, focus on the relationship you’re building with your warehouse fulfillment center or 3PL. They’re your secret weapon in handling returns easily while building customer trust and loyalty. 

In just a few short months, the ramp up to the 2024 holiday season will begin. Now is the time to review your returns protocols, take a deep dive into the 2023 season’s data, and build a more efficient system for the season ahead.

By Tom Behnke

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Boxzooka Press

Avoid Supply Chain Dominos by Navigating the Disruption Du Jour

Shipping Containers

By Tom Behnke, Total Retail

It can feel, at times, like a game of dominos. When there’s a global supply chain disruption, like those we’ve been seeing in recent months on the Red Sea and the Panama Canal, e-commerce companies and, ultimately, consumers feel the downstream ripples.

For those working on the inside, it’s nothing new. There have been plenty of similar events in recent years. During the pandemic, which had its own challenges for supply chains, events like the running aground of the large container ship “Ever Given” in the Suez Canal provide one of the best examples of how one event can add “insult to injury.”

Another occurred not long after Ever Given — severe labor shortages at vital ports like the one in Long Beach started to inject another complication.

The period during the pandemic truly was a perfect storm for supply chains. It gave a real-world case study on how seemingly separate and, on their own, manageable snags can combine to upend supply chains from the plant all the way to the customer’s door and how difficult it can be to unwind once started.

Today the pandemic’s worst effects have passed and now, as the world becomes an increasingly complicated place to do business, we’re seeing yet again how an “isolated” problem in one corner of the world can have an effect on billions.

‘Floating’ Economy at Risk in Turbulent World

A staggering 90 percent of the world’s trade is transported by ship, so the effects can be quite dramatic whenever a “choke point” becomes congested or there’s some other interruption on the “high seas.” For consumers, sometimes it’s noticeable in the lack of inventory in a particular category. Almost always, there’s an added cost from the delay, which is absorbed by the merchant and often passed to the customer.

As global trade grows, more ships burn more fuel and pay their crews more to be out at sea longer. This alone brings increased costs, but add in disruptions such as we’re seeing in the Red Sea region and it means those increased costs are unavoidable.

On top of this is growing uncertainty about the future of trade on the “high seas,” a notion that has propelled maritime traders for centuries. Today, as seen in the Red Sea area, forcing carriers away from the Suez Canal and instead around Africa’s Cape of Good Hope, terrorists are challenging free trade in their backyard and affecting consumers downstream.

Higher Costs Trickling Down

Last year saw relatively inexpensive ocean freight. Believing that pandemic volumes would carry into 2023, carriers bought bigger ships. As it turns out, this actually had the opposite effect. It resulted in too much supply, coupled with lower demand; the resulting cost of a 40-foot container from Shanghai to Long Beach stayed below $2,000.

As these latest snags throw yet more wrenches into the mix, container prices in the first month of 2024 doubled and in some cases even tripled. The world container index most recently had the price of a 40-foot container pushing $4,000.

The primary trade route between East Asia and North America has been especially challenged recently. As China prepared to shut down for the Lunar New Year, there was a rush to get products loaded and shipped. Then there’s the Red Sea. Some carrier traffic is being diverted through the Suez to avoid the Panama Canal, where drought has caused lower water levels. Others are going around the tip of Africa to avoid the threat of attacks and piracy. Suddenly a lot of vessels are taking more time to complete their cycles.

Be Supply Chain Aware 

As the world’s carriers work around disruptions, it’s important that any company working within the supply chain stays on top of it every minute of every day.

Visibility and Communication

Being in the know, understanding the situation and knowing how it may impact operations and product availability is key. Follow disruptions and understand their residual impact. If you can’t figure it out, reach out to your suppliers and ask questions. The more quickly action is taken the more effectively disruptions can be worked around.

Reimagine Warehouse Operations

Consider moving away from major distribution sites in metropolitan cities to several large hubs served by strategically located distribution centers. Having several major hubs within a two- to three-day delivery time of 95 percent of American households is the model that’s cost effective and service-oriented. This allows retailers to make up for lost time once delayed ships make it to port and product finally starts closing in on its final destination.

Find a Strong Partner

A third-party logistics (3PL) provider can be a strong solution for those with the resources. A true 3PL partner offers turnkey solutions and advice around warehousing, inventory efficiencies, SKU depth, and velocity, purchase planning, and other vital operations. Hire a 3PL with its finger on the pulse of the entire supply chain.

Technology is Your Friend

Technology is evolving all the time, and adapting to the latest warehouse management systems (WMS) technology is paramount. The upgrades can be daunting and pricey, but that shouldn’t deter any company working within the supply chain. A worthwhile WMS must help you grow your business and keep issues within your supply chain visible at all times.

If anything has been learned since 2020, it’s just how intricate our supply chains are and how one seemingly “unconcerning” issue in a faraway corner of the world can have a major impact down the chain on the other side of the globe, especially as additional disruptions arise.

No matter the supply chain sector we work in, being experts on the supply chain at any moment in time is critical in overcoming the hurdles that are thrown our way each and every day.

Tom Behnke is an advisor for Boxzooka, a cloud-based warehouse management software platform and fulfillment distribution center, and vice president of sales and marketing.

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Optimizing Warehouses – Blend of Art, Science, and Humans

A picture of a large warehouse fulfillment center.

Today, warehouses in the supply chain are more complicated than ever, from meeting constant and growing customer demand, especially in the e-commerce sector, to an ever-growing selection of products and even globalization. Warehouse operations that are in tip-top shape have never been more important.

An inefficient warehouse will negatively impact every other part of the business, from sales to customer service and daily operations. Naturally, a highly optimized warehouse provides benefits and profits to the business as well as a “positive halo effect” across the entire supply chain.  

Warehouse optimization refers to the process of improving the efficiency and effectiveness of a warehouse’s operations, layout, and processes to maximize productivity while minimizing costs. The primary goal is to streamline the flow of goods through the warehouse, enhance order fulfillment speed, reduce errors, and utilize resources more effectively.

This has become a hot topic in light of the explosion of AI, Artificial Intelligence, software, and other innovative new tools. Machine learning and robotics, in particular, are changing the landscape for the future of material handling. If you scan the agendas at industry events like Modex, Manifest, and ShopTalk you’ll find dozens of speakers and hundreds of companies leveraging the remarkable possibilities. Not surprisingly, SDCE references AI almost 5,000 times when you search the publication’s website. 

At the same time, we may be in the “too much, too fast” segment of AI product development when it comes to logistics. The best warehouse operations also value the insight and expertise of human beings, who should always be the backbone of a successful model.

“A tech-only layer on top of the current logistics industry just doesn’t work.,” Ryan Peterson, CEO, Flexport, Wall Street Journal, December 2023. “I still think at the end of the day, there’s a strong role for people with a lot of expertise.” 

Compliance is an important area that must remain on the radar because it’s not one where AI can be fully trusted. This requires 100% accuracy, something only a real expert can understand and back up.

Given this landscape, let’s consider the foundational aspects of warehouse optimization. This means an eye for innovation that supports the business and is sensitive to not bankrupting the company. As you build your plan to optimize your warehouse(s), it is prudent to incorporate a blend of automation, technology, and human interdependencies to create process efficiencies.  

Best Practices for B2B and B2C Commerce.  

Efficient Layout 

Warehouse optimization starts with an efficient layout that meets your needs now, with plans for future growth. Do you have a clear highway for material handling equipment that is safe and effective? Map the flow of inbound inventory and products for efficient staging and put away. Storage areas should be designed with SKU velocity in mind with automation tools that have predetermined the slotting strategy, bin sizes, and replenishment cycles. Be mindful of the human traffic and number of footsteps to access production/assembly areas. At the heart of the layout should be a detailed inventory management plan managed with a WMS. 

5S – “The Toyota Way”

It’s not old school, it’s ‘the’ school. Sort, Streamline, Shine, Standardize, Strive, and the 6th S is Safety. These principles of LEAN Six Sigma manufacturing can be quickly incorporated into your existing warehouse operations. In fact, these tasks should become cultural, with every employee in sync with the processes that create efficiency. Standardization is an area that lends itself to machine learning and automation tools. 

Know Your Staffing Requirements

Labor management planning is essential for productivity and cost management. Warehouse managers are better equipped when they have specific productivity, quality, and throughput targets that are measured and monitored daily. Labor management is a data-driven exercise that requires effective leadership techniques and communication channels.  

Technology Gaps and Automation Strategies

Identify the gaps in your current technologies for warehouse management with an eye toward automation. 

“There’s a time and a place for automation when a business reaches a certain scale that requires it, especially to try to eliminate repetitive, non-value-added activities.” Suggests Nick Pellegrino, COO, Boxzooka, Multichannel Merchant.

The time, cost, and effort of implementing new technologies and new processes to optimize your warehouse can deter you from moving ahead. A roadmap with a budget and an ROI will take some of the risk out of implementing new tools. 3PLs with multi-client facilities are constantly examining new tools for more efficient store, pick, pack, and ship processes. We’re 30 years into barcoding and scanning for accuracy, and there is a long list of choices for put to light, pick to light, voice picking, robots that follow pickers, goods-to-person robotics, and automated storage retrieval systems, to name a few.   

Data-Driven Decision Making

“In God We Trust, All Others Bring Data.”  

Supervisors, managers, leaders, and all employees need data to support their suggestions and plans for optimization. The days of “gut feel” decision-making and “we’ve always done it that way” attitudes are not productive management tools. Consider the large number of tools that might help you manage your facilities. Inventory management tools, WMS, TMS, labor planning tools, forecasting tools, intelligent slotting tools, quality assurance processes, regional distribution analyses, space allocation tools, and inventory density monitors – with so many choices, management teams need to be disciplined in choosing and using the best tools for their shop. 

Supply Side Strategies

Finally, do you have a handle on the supply-side equation and the flow of products into your building? Being active in these upstream activities with vendors, transportation providers, clients, and suppliers is equally important to keeping your warehouse efficient. The sequencing of inbound materials to be able to store, stage, and assemble outbound products is essential. Warehouse optimization is the essential link between supply and demand in your business.    

Conclusions

We’ve highlighted a handful of techniques to help optimize warehouses. As the industry becomes more integrated with new forms of technology and automation tools, warehouse management experts will keep finding more efficient means to operate their facilities. Having the right blend of human-integrated automation systems is ultimately the quest for improving customer satisfaction and maintaining a competitive edge in the marketplace.  

By Tom Behnke

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Boxzooka Press Ecommerce Fulfillment

Same-day Delivery Expectations are Growing. How Can Online Retailers Compete? 

A man delivers groceries to a woman at her home.

Same-day delivery has been around for a while – think flowers, Dominos, and auto parts. UberEATS, DoorDash, and your local grocery store dramatically expanded the same-day food delivery sector during the pandemic. And, thanks to Amazon, Target, and Walmart, people are receiving more than food every day to their front door. 100 million Prime members in the USA are spoiled with same-day options on virtually anything. Forgot a birthday? No problem, let’s see what we can get today.  

These heightened consumer expectations make it difficult for online brands and retailers to compete. Most eRetailers have a “same day shipping” option with a cut off time for purchases to be packaged and shipped using an overnight ship method (FedEx, UPS, DHL) to arrive the next day. Expensive, but effective and a cost that the consumer can choose.

It is worth noting that a customer may incorrectly view same-day shipping and same-day delivery as one and the same. These mistakes are easy to make, particularly with orders placed on mobile devices (+50% these days). It is important to make the delivery promise distinction clear at checkout so there is no confusion. Transparency is a best practice to help build customer loyalty. 

Same-day delivery options are less common for most online retailers and can be expensive. Amazon Prime is $139 per year – not free, but it feels like it when the option for same-day delivery pops up. In major metro areas in the USA, a handful of same-day couriers are available (check Google in your area). In most cases, these services cater to high-value items with a limited delivery area.    

Here are a few of the best practices for online retailers to consider to meet the rising consumer expectations. 

Offer Fast Shipping or Free Shipping – Not Both

eCommerce retailers can offer fast shipping options on every order as long as fulfillment operations are capable of shipping on the day the order is placed. Retailers generally offer Free Shipping at a price point that makes sense for the order value. Consumers understand these choices and are more tolerant of slower delivery when they get a “deal.” Setting expectations for the delivery date is important, and providing an expedited shipping method for a premium is a common practice. 

Prompt Delivery Updates and Tracking Information

Retailers are motivated to provide consistent and reliable updates to order status and delivery updates. Mobile purchases are the routine and naturally demand a steady flow of tracking messages. When presented effectively, order updates and tracking information are positive experiences that enhance your brand. For example, getting your company’s order tracking information via UPS or FedEx does not promote your brand as much as the carrier’s brand. There are methods for presenting tracking information in a window with your branding and messaging.  

Retailers that are not providing enough updates can be disappointing customers and opening the door to negative reviews.  

Optimized Warehouse Operations

Managing a productive warehouse operation or having a top-tier 3PL is necessary for meeting the expectations of today’s e-commerce shoppers. Warehouse operators must have their buildings optimized for workflow to minimize order processing time and get orders fulfilled accurately. There are dozens of opportunities for leveraging automation in fulfillment operations to streamline repetitious processes for material handling, packaging, and shipping. Same-day order processing has become the industry standard, which means people, processes, and technologies have to work flawlessly every day.  

Leverage Technology Wherever Possible

Today’s consumers have high expectations for quick answers and clean websites and apps. Having your technology platforms and partners effectively integrated is important to providing real-time updates and positive user experiences. Brands need to be thoughtful about what technologies (e.g., OMS, barcoding, AI, WMS, TMS) are integrated into fulfillment and transportation processes to enhance accuracy and speed.  

For instance, have you considered implementing route optimization software for delivery efficiency? There are several sophisticated Transportation Management Systems available to help manage the complexity and costs of shipping methods.  

Regional Distribution Centers Reduce Delivery Time and Expense

Having your products closer to your customers naturally cuts down on shipping time and expense. For most customers, 3-to-5-day delivery times are acceptable. Distribution Centers positioned for East Coast and West Coast order fulfillment can leverage less expensive transportation services and make the delivery promise.  

There are several important techniques for managing inventory to optimize your distribution network. Brands with low numbers of SKUs can manage split inventory with fewer complications than brands with high SKU counts. The goal is to make sure the majority of your products are fulfilled completely from the “local” warehouse and avoid any split shipments (one item from one warehouse and one item from another warehouse).  

Continuous Improvement

What mechanisms are in place for regular evaluation and improvement of fulfillment processes? How do you gather feedback from customers to enhance the overall delivery experience? Are your operations positioned to scale with the business? Having a continuous improvement mindset is a necessity to keep meeting customer expectations while controlling costs.  

Addressing these questions, businesses can develop strategies to not only meet but exceed customer expectations in this world of same-day delivery and information at your fingertips. 

Boxzooka is a quality-focused 3PL with great technology, lean operating processes, happy clients, and a vibrant culture.  

By Tom Behnke