There are some changes we experienced in 2020 that are here to stay. By all accounts, the rise of e-commerce is one of them.
Customers new to online shopping at the start of the coronavirus pandemic experienced a level of convenience they’d never known before. Now, up to 40% intend to continue post-COVID.
That created a big spike in e-commerce demand, a space that was already experiencing steady growth. Online sales were just under 12% of all retail sales before the pandemic; now, they're 16%. In last year’s second quarter U.S. consumers spent $211.5B on e-commerce. E-commerce has become normalized.
Buying things has always equated to a certain percentage of them being returned. Factor into that people buying things sight unseen, and you’re going to have more returns. In fact, e-commerce sales have up to a 30% returns rate, which is even higher with holiday purchases. Bringing those individual items back into warehouse inventory is very complicated and also expensive. Along with normalized e-commerce, comes greater logistics challenges — both outbound and inbound.
What are the costs associated with returns? One is depreciation, which varies across different product types. For example, apparel loses 20-50% of its value over an eight- to 16-week period. It’s a sizable and straightforward cost to consider.
The biggest and more complicated cost is the labor required to bring products back into the warehouse. Unlike stock replenishment that comes from manufacturers in neat, QC-ed pallets, returns come in individually and directly from consumers. They have to be inspected by a person, cleaned, and returned into physical and digital inventory. This is a highly labor-intensive process at a time when warehouse labor is unreliable due to COVID fears and restrictions. Furthermore, most of this role used to be performed by retail store labor. Consumers brought returns into stores where associates managed accepting products back into the system. Warehouse associates simply had to put the item back on the warehouse shelves. Now, the warehouse has to manage every step of bringing in a larger volume of random goods that arrive in a variety of conditions.
Automation can dramatically reduce the costs of bringing products back into the warehouse, known as reverse logistics. The biggest component of these costs is the hourly wages spent on people taking a product from its re-entry back to a shelf in the warehouse. This is a rote, and therefore highly automatable task.
There are two ways the right automation system can save time and money associated with processing returns. First, mobile robots are used to transport goods from induction to inventory. This eliminates time (and wages) spent by having people walk across the warehouse to transport those goods.
Second, the right system not only automates but also optimizes. It does this by using artificial intelligence to make the movement of your labor — people and robots — much more efficient. It does this by calculating the most direct routes to take instead of traveling the full length of every aisle. It also determines the optimal schedule for moving goods back into inventory, considering all of the other tasks in the warehouse and schedules for getting new orders out the door. For example, processing returns during times when there are fewer orders to be picked results in a more efficient deployment of labor.
E-commerce returns have often been viewed as a problem that retailers tried to minimize. It can actually be a competitive advantage when returns are managed proactively and strategically. The volume of online returns will rise proportionately along with online sales. Using automation to streamline reverse logistics will translate into a better user experience and higher customer satisfaction. That’s going to be very valuable at a time when the competition for customer loyalty and retention is more intense than ever before.
Lior Elazary is founder and chief executive officer of inVia Robotics.