NATHALIE SCHOOLING: How reverse logistics can make or break e-commerce businesses

As e-commerce grows in popularity in SA and competition increases among online retailers, there is intensified pressure to make product return policies as quick and easy as possible for customers.

With global research showing that returns by online shoppers are rising year on year by about 40%, a slick and effective “reverse logistics” capability is just as important as competitive product pricing and fast delivery.  Figures show that compared to the cost of goods sold, returns from customers now account for an average of 7%-10% of sales revenue.

As online shopping matures in SA, the expectations of consumers increase too. They demand convenience from every aspect of their online shopping experience, including easily returning the goods they don’t want. So e-tailers wishing to remain competitive need to take this part of the customer journey seriously.

Costly burden  

Unfortunately, some local e-commerce platforms regard returns — part of a process known as “reverse logistics”, in which goods go back along the supply chain to the original supplier and then onwards from there — as a costly and unwanted burden.

Consequently, customers are sometimes charged for returns, or the process has been made unwieldy and complicated to deter shoppers, which can lead to major frustration.

But buying online often means returns are sometimes inevitable. Research cited by courier company DHL, for example, indicates that half of all clothing items bought online are returned.

This isn’t unreasonable, given that online shoppers can’t try them on in a changing room before they buy. But if the process of sending back the clothes they don’t want isn’t hassle-free, they either won’t shop online again, or they won’t shop with that e-commerce platform.

So effective returns management shouldn’t be a chore or a cost centre for the business; it must be seen as a critical part of a customer acquisition and retention strategy. It must be a core customer experience competence that will ultimately grow the company. Consider that, according to a survey by Deloitte and Arvato,  a well-managed reverse logistics process has the potential to reclaim up to 32% of original product value.

In the SA context, we do need to acknowledge, however, that there are specific reverse logistics challenges. For example, pickups in far-flung rural areas are difficult because of infrastructure inadequacies, and customers may find it difficult to communicate with the company because of phone and internet connectivity difficulties, worsened by load-shedding.

Circular economy

While it is the rising tide of consumer e-commerce that has brought reverse logistics to the fore, it encompasses all aspects of product returns in the business-to-consumer (B2C) and business-to-business (B2B) environments.

A 2022 “Middle East and Africa Reverse Logistics Market” study by Data Bridge Market Research shows that other prominent market segments for product returns include consumer electronics, pharmaceuticals, automotive products and luxury goods.

Together, all of these reverse logistics segments combine to help create the circular economy. This envisages the supply chain as a closed loop, rather than being one-directional from the manufacturer to the end user.

In the circular economy, products that are unused, unwanted or damaged (typical reverse logistics scenarios) are repurposed for other uses rather than simply being discarded in landfills or incinerated. Goods that cannot be re-used in some way are disposed of using new and more sustainable end-of-life recycling solutions.

Research shows that this circularity can slash emissions by up to 40% and is more cost-effective than any other approach to decarbonising the supply chain. It also drives innovation and growth.

One of the industries that has come under heavy fire from legislators, environmental groups and the public for not having effective reverse logistics is the fashion sector — particularly fast fashion.

Clean Up Kenya, an NGO, complained in February that fast-fashion clothing from the EU was being dumped on the Kenyan market and was of such poor quality that the items ended up being burned or on landfill sites. In July 2023, the UN warned that vague language and sustainability practices in the fashion industry created mistrust among consumers. 

For any business in the B2C or B2B environment, effective reverse logistics must feed into the circular economy. Not only is it a moral imperative, but organisations are increasingly under scrutiny for their sustainability credentials, and any misstep in this regard can affect the bottom line and organisational reputation.

Harnessing technology

So, how can a business implement reverse logistics cost effectively and in the best interests of their customers? Technology such as automation, AI and machine learning should be harnessed.

To truly streamline the returns process, businesses need to be gathering ongoing customer insights to find out where the customer concerns are, as well as understanding bottlenecks in the logistics process, and technology is a great enabler for this. We are seeing an upward trend in companies using machine learning to increase visibility and predict supply chain disruptions. We are also noticing the benefit of  advanced technologies in breaking down silos and communication barriers across the supply chain.

Closing communication gaps in this process, I believe, is the ultimate source of effective returns management, and where businesses should be focusing their energy. The most important communication gap to close is with the customer. They are the ones you need to be empathising with throughout the “often frustrating” returns journey.

• Schooling is the founder and CEO of nlightencx, a company specialising in customer experience