High cost of returns puts pressure on eRetailers

A look into the main cost drivers of return deliveries.

In 2018, the contents of 11 million parcels were disposed after online shoppers in Germany had sent them back to the eRetailers. The eCommerce companies commonly dispose of all sorts of impeccable goods, including smartphones, tablets, washing machines, refrigerators, mattresses, and furniture. Recently, Germany’s Green Party proposed a ban of the practice, inciting an ongoing political debate on the matter.

 

 

While only 3.9 percent of total returns are disposed of, looking at the absolute numbers, the concerns might be justified. In the German eCommerce market, it is estimated that 1.7 billion parcels containing 4 billion items were delivered in 2018. One out of six parcels is sent back to the eRetailers, totaling 280 million return deliveries. The vast majority, 79 percent of total returns, is eligible for reselling as A-stock. A remarkable amount of 11 million return deliveries directly ended up in garbage.  In fact, the disposal of items often makes sense from a business point of view. According to estimates, the total cost of returns amounted to 5.46 billion euros in the German eCommerce market in 2018. On average, every returned parcel generates costs as high as 19.51 euros, comprising transportation costs of 9.58 euros and processing costs of 9.66 euros. While high transportation costs naturally come to mind as a pain point for eRetailers, nearly 50 percent of costs actually occur after transportation. In this way, processing costs dictate whether or not the disposal of items ends up being the cheapest option. This begs the question of what eRetailers consider the main cost drivers of return deliveries.

 

 

In a recent survey, eCommerce companies in Germany reported several factors that drive cost of returns. Unsurprisingly, transportation costs top the list. But eRetailers also frequently reported other factors regarding the processing of returned parcels. Alongside transportation costs, other main cost drivers are depreciation in value of items which no longer can be sold as A-Stock, the inspection and assessment of items, and the collection and identification of items. These factors shed some light on the lengthy and costly process of handling returns that inevitably requires considerable workforce. For consumers, the good news is that eRetailers shy away from increasing prices. 63 percent of eRetailers never increase prices to account for the costs directly associated with return deliveries. Furthermore, consumers often enjoy the benefits of a voluntarily extended time limit for revocation beyond the legally required 14 days. This shows eRetailers’ willingness to pay the price for returns in order to gain competitive advantages and might also be seen as an indication of intense competition in the eCommerce landscape in Germany.

 

 

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July 2019