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Hidden Cost of Online Shopping – How Free Shipping and Product Returns directly impacts e-tailers profits

By August 1, 2019 No Comments

The eCommerce industry has revolutionised the way we shop. With “free shipping”, “ free returns” and even “try-before-you-buy” schemes, the sales strategy has become extremely customer-centric. In 2018 alone, 22% of all apparel sales took place online and this number is on the rise, every single year. While the customer is surely getting the benefit of free logistical services, retailers put up with a whole host of costs to run the business and increase sales. In this post, we’ll take a look at some of the latent costs borne by retailers behind the scenes and online.

1. Returns are the bane of eCommerce

One of the key criteria for customers to make a purchase online is the offer of “free shipping and returns” – and atleast 30% of products bought online are returned!

In fact, a whopping 79% of consumers expect ease of shipping and 92% of customers will buy from the brand provided the “returns” are free! Subsequently, retailers lose approximately $642.6 Bn annually from preventable returns. How? Simple – the returns and restocking process is far more complicated than direct sales. Once an item is returned not only do retailers struggle with supply chain costs, but also with quality control enforcement in their warehouses. Also often returned items cannot be resold at the original price due to damage, wear and tear or time devaluation.

Meanwhile, almost 41% of online buyers buy different variations of a product with the explicit intent of returning them.

Then there is the Return Fraud! In some cases, customers have been found returning stolen goods for cash! With brands offering “hassle-free” and “no questions asked” return policies, this problem is literally a ticking time bomb! To combat increasing security issues with fraudulent transactions and return fraud, brands are now doubling down on return policies and even banning some users from shopping on their stores – which in turn is impacting their sales. 

Download Report on Product Returns! 

2. Photography

The apparel industry has been taken over by fast fashion. With over 52 micro seasons to cater to, brands are optimising their photography workflows to reach maximum customers in their omnichannel strategy. Some brands are adding close to 300 products to their store, every single day.

Photography is a key element to customer acquisition on any platform/medium. High-quality photography is cash and labour-intensive, and is a key element in brand marketing, sales, image building and longevity. It leaves most businesses with a massive supply chain to optimise, logistical and post-production budgets to bear. 

But with innovation in technology & Artificial Intelligence, companies like FlixStock are transforming Image Supply Chain. They have significantly reduced cost and time spent on model photography, while enabling a faster go-to-market strategy leading to increased revenue.

3. Logistics

Ever wonder how your packages come so perfectly wrapped on your doorstep? Packing, repacking and cargo costs are a huge part of the eCommerce business and account for a significant expense in the logistics equation. Over 165 billion packages are shipped in the US alone each year! Packing, repacking, labelling, sorting, cargo and storage are part of the logistics supply chain which is the lifeline of any eCommerce store.

With brands offering free shipping, same-day delivery, two-hour delivery and so on, the logistics market size will rise to an extravagant $196 billion by 2020! Companies such as Alibaba and Amazon are increasing their warehousing spends significantly by investing in robotics, AI, drones, city-wide warehousing centres, to further cut down the delivery time and costs. Approximately 184 mn sq feet of space will be required to facilitate eCommerce logistics in USA by 2020.

4. Inventory management

Although logistics, manufacturing and warehousing have undergone significant technological changes to increase efficiency, companies are still holding on to more and more inventory. The amount of inventory with respect to average sales per day has risen by 8.3% over the past 5 years.

While businesses are using AI and machine learning to sort through large data sets for efficient forecasting and product management, they are increasing the range of products they stock, to meet long-tail customer demands.

With some smaller brands, inventory management is manual and the human error rate is high, almost at 46%.

Add to this- the disposal costs of unwanted/damaged/ out-dated products, inventory management is a critical factor in the eCommerce business and also a threat to our world.

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This is just the start of a series of issues faced by etailers across the globe. In subsequent weeks, we will bring you more insights, interviews, videos & more from our partners across the world. To keep yourself updated on eTail issues & technological advancements, sign up for our newsletter (twice a month).

Coming Soon: Technology adoption in Online Retail – from the leading etailers around the globe.

 

 

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