Why Reverse Logistics is the Bane of the E-Commerce Sector The negative implications of RTOs—return to origin—for e-comm businesses, especially digital-first D2C brands, are many: monetary loss, the ageing of perishable stock, in-transit damage during call back and so on

Have you ever bought a pair of pants off an Instagram clothing store upon being drawn in by their cool, eclectic stuff but regretted the purchase a few weeks later when the item was delivered? Why? The pants didn't fit right even though you checked your measurements numerous times from numerous angles before ordering them. Invariably, the brand's policy states: "We don't offer exchanges/returns/refunds." Ready to forever swear off online shopping, especially from small businesses, you now fume over the loss of your hard-earned money.

You are not alone. The lack of (one or more of) services such as exchange, return and cash refund is a major difficulty faced by consumers who shop online, more so in the case of digital-first D2C brands than traditionally brick-and-mortar retail companies which have lately come online to become omnichannel players. Equally, return to origin (RTO)—i.e. "the non-deliverability of a package and its return to the seller's address," according to logistics unicorn Shiprocket's website—is one of the key challenges faced by e-commerce businesses today.

RTOs for D2C Brands: Causes, Implications and Preventive Measures

According to Gurugram-based supply and logistics company Delhivery, RTOs damage the profitability of D2C brands: "Higher RTO impacts a brand's unit economics: revenue lost from the order, money spent on customer acquisition costs, and money spent on logistics. To make matters worse, in-transit shipments could get damaged, which impacts their re-saleability."

"The D2C space is flourishing today because of risk-loving consumers who are more experimental in their choices than ever before. However, they cannot become brand loyalists if their expectations aren't met due to poor quality products, spoiled goods being delivered, damage incurred during transit and so on. In such cases, the customer demands for the product to be returned," states Arman Sood, the co-founder of packaged coffee brand Sleepy Owl.

There may be other reasons for failed deliveries: for instance, the customer's address is incorrect or unavailable online or cannot be physically found. Further, the customer's unavailability or refusal to accept the order despite the three mandatory enquiry calls from the delivery agent also aggravates the issue. The latter makes up for nearly half of the RTOs—around 10 per cent on COD and 5 per cent on prepaid D2C orders—faced by Bengaluru-based Khanal Foods, which owns Dogsee Chew and Himalayan Natives brands. The company claims to use an array of delivery partners such as Shiprocket, Safe Express, Delhivery and Bluedart and even Fedex, DHL, Vamaship, Kuehe Nagel and Gati on occasion.

In the FMCG space, calling back perishable goods is particularly challenging as it ages the stock. When these goods are initially dispatched to customers, they undergo wear and tear since they are subjected to many different conditions and people in the shipment cycle. Naturally, post the call-back, the stock loses its freshness, undergoes further damage in transit and isn't up to the mark for resale. Then there are other negative implications of RTOs for ecomm businesses in general: monetary loss, additional hassle of checking and repackaging goods after return to the warehouse/seller; loss of potential sales; etc.

To protect themselves against such scenarios, D2C brands often adopt preventive measures such as the unavailability of return, refund (especially for items on sale/discount) and the 'cash on delivery' (COD) payment option. Ensuring the timely movement of goods across all stages of shipping is also a proven method of avoiding RTOs. Moreover, men's clothing brand Beyours makes sure to track customers' shopping history and sometimes seeks the payment of INR 99 for COD order confirmation before dispatching purchased items. The company's RTO rate at present is around 10-15 per cent of total sales.

"Another important aspect to note is that courier companies may not have invested enough in training the delivery personnel, resulting in RTOs being initiated without the requisite delivery efforts having been made," points out Sood. Gourmet popcorn brand 4700BC, for instance, has learnt to prevent such issues using tech tools to monitor delivery personnel (such as image proof at pick up and drop off locations) and ensure regular communication between delivery agents and customers (such as tracking ids, message updates, and address checks using geocoding services).

Large Retailers: A (Somewhat) Different Story

With large resources and capital at their disposal, established retail companies contend with RTOs in ways different from those employed by small online businesses. For one, they practise more customer-friendly policies, as a result of which multinational retailers such as Sweden-based HnM typically allow exchanges, returns and cash refunds (excluding the delivery fee, in some cases) within 15-30 days of the consumer receiving the purchased item. As a general rule, RTOs on wearables are rather high.

"We sell garments and shoes, which customers usually try on in the store before purchasing. Buying these things online may sometimes be followed by the consumer disliking the shade, fit or texture of the delivered products. In those cases, there are returns amounting to 20-25 per cent (or even more) of total online sales. In offline cases, returns are much lower, around 1-2 per cent only. We willingly bear the cost of these online returns because it gets offset by the lack of other expenses, such as those of maintaining an offline store," explains Harkirat Singh, MD, Aero Club, which is the authorised online seller of Woodland. By comparison, most D2C brands usually report 8-10 per cent of returns on online purchases.

Although Woodland's official website states that returns on apparel and footwear are accepted on account credit only, Singh claims that the company has lately begun offering full cash refund on returned items and that its new policy is yet to be uploaded online.

"We have multiple logistics providers, courier services and delivery systems in place, which are both in-house and external ones as well as local and national ones. Being an omnichannel player, we have a central warehouse in Delhi and stores all over the country; hence, exchanges and returns can be easily done at any Woodland store near customers for online and offline purchases both. Positive consumer experience is our top priority," adds Singh. Woodland's parent company, Aero Group, has been a well known name in the outdoor shoe industry since the early 50s. Founded in Quebec, Canada, it entered the Indian market in 1992.

Logistics Partners: A Friend in Need

To fulfil their supply and logistics needs, e-commerce companies utilise various delivery partners such as Delhivery, Amazon Shipping Services, Bludart and Pickrr, among others. One of the most popular logistics provider, New Delhi-based Shiprocket launched a dedicated post-purchase order processing platform, 'Shiprocket Engage', in October 2021 to enable sellers using their app to minimize RTO rate efficiently and boost revenue, among other things.

"The platform manages businesses' NDR flows to automatically gather delivery re-attempt preferences from clients. This enables merchants to confirm orders, verify and correct addresses, increase prepaid orders, provide tracking notifications, and power the complete post-purchase experience using WhatsApp to ensure a smooth delivery process," explains Saahi Goel, CEO and co-founder, Shiprocket.

Operating with the awareness that small-scale businesses work with limited resources and manpower, Shiprocket claims to provide sellers real-time visibility of their RTO shipments so that inventory readjustment can be planned accordingly. The company also provides insurance options for damaged and lost goods to merchants to minimize their loss.

Evidently, solving the e-commerce sector's RTO woes will require not only general technological progress but also cooperation among sellers, consumers and logistics providers.