00:00:07 The role of returns in the e-commerce industry.
00:00:44 Paul Bello background and introduction to Revers.io and their platform.
00:01:53 Unlocking new markets with easy returns.
00:03:32 Using returns as a marketing strategy.
00:05:46 Forecasting returns in the supply chain.
00:08:00 Importance of gathering return data and its uses.
00:08:46 The three types of returns and how Revers.io technology helps.
00:10:01 The challenges with integrating returns in traditional ERP systems.
00:12:50 The ethical and ecological aspects of managing returns.
00:14:01 The challenges of forecasting returns in the fashion industry.
00:16:01 Predicting top sellers in fashion and skyrocketing growth.
00:16:36 Environmental impact of parcel returns in the fashion industry.
00:17:19 Reducing pollution with local initiatives and eco-friendly return methods.
00:18:16 The complexity of ecommerce-driven economy and ecological impact.
00:21:36 The future of leasing products instead of purchasing and managing returns.
Summary
Kieran Chandler interviews Joannes Vermorel of Lokad and Paul Bello of Revers.io, discussing the impact of easy product returns on e-commerce and supply chain optimization. They address the challenges in managing returns and the environmental impact. Vermorel highlights the importance of accurate forecasting for demand and returns, while Bello suggests better data collection on return reasons. They also explore reducing pollution through local pick-up and redistribution initiatives. Bello proposes a future shift towards leasing products instead of purchasing, as seen with cars and smartphones, requiring effective return management and technology utilization.
Extended Summary
In this interview, host Kieran Chandler discusses the impact of easy product returns on the e-commerce market with Joannes Vermorel, founder of Lokad, a supply chain optimization software company, and Paul Bello from Revers.io, a company specializing in reverse logistics.
The ability to return products easily has transformed e-commerce, enabling customers to shop for items that were previously only available in physical stores. This shift has also led to challenges from a logistical perspective, with some retailers estimating that over 30% of products purchased are now returned. Revers.io addresses this issue by providing a platform that connects all reverse logistic stakeholders, ensuring full traceability for both customers and support teams. The platform automates physical and administrative flows to save time, money, and increase customer satisfaction.
According to Vermorel, easy returns have created new markets in the e-commerce industry. For example, Zappos pioneered the idea of ordering multiple shoe sizes and returning the ones that didn’t fit, creating a multi-billion dollar market for selling shoes online. Similarly, Zalando unlocked a multi-billion euro market for online fashion in Europe by being extremely aggressive with returns. This approach has led to higher return rates in countries like Germany, where return rates for fashion items are over 60%, compared to France’s 30%.
Bello agrees that the main benefits of an easy returns policy include transforming returns into a marketing argument rather than just a cost. This shift has been evident in the last two to three years, as more retailers and e-commerce platforms recognize the need to address returns as a key component of their marketing strategy.
The conversation revolves around the difficulties retailers face in keeping up with large players in the market, and the complexities introduced by high return rates.
Vermorel highlights the importance of forecasting in managing supply chain uncertainties, emphasizing the need to predict not only demand but also the number of returns and their timing. Returns can be highly predictable, and leveraging historical client data can help optimize forecasts. For example, if a client orders the same model of shoes in two sizes, it can be inferred that there will likely be a high return rate for the extra size. Vermorel explains that this information can be used to better manage stock, treating returns as supplies over which retailers have no control.
Bello addresses the distinction between returns due to personal preferences and returns of defective products. Many retailers are currently unable to gather data on the reasons behind returns, often only providing a return shipping label and a sheet of paper for customers to send items back. This data, if collected, can be valuable for several reasons, such as negotiating with suppliers, adjusting website content, and providing better guidance to customers on product sizing to reduce return rates.
The interviewees suggest that there are three main types of returns: those within a 15-day window where customers can return products for any reason, defective products, and sizing issues. Understanding and anticipating these different types of returns is crucial for businesses to optimize their supply chain and remain competitive in the market.
Paul Bello explains that Revers.io’s technology helps companies process returns more efficiently by absorbing data on why a product was returned and using the appropriate workflow to return it to the supplier, warehouse, or repair center. This reduces the cost of returns and shortens the time it takes to refund customers or replace products.
Joannes Vermorel adds that returns must be considered in supply chain optimization to avoid overshooting stock levels. He highlights that traditional ERP systems often treat returns as second-class citizens, sometimes inaccurately categorizing them as negative sales. This lack of granularity makes it difficult to distinguish between different reasons for returns, such as customer dissatisfaction or product defects.
The interviewees also discuss the challenges posed by integrating ERP systems. Paul Bello mentions that Revers.io was accelerated by SAP to help address issues related to returns management. One of the main challenges is how to revalue a product once it has been returned and put it back into stock if it is not damaged. Some retailers and players simply destroy returned products because it is more expensive to refurbish them.
From an environmental and ethical perspective, better returns management is crucial. The interviewees agree that the fashion industry, in particular, faces unique challenges when it comes to forecasting returns based on customer taste. Joannes Vermorel explains that while forecasting new product sales is difficult due to the lack of historical data, returns in fashion are relatively predictable, as customers have habits and show patterns in their return behavior.
The conversation touches on the environmental impact of returns, with Kieran Chandler asking if the current trend of sending parcels back and forth for trying on different sizes is sustainable. Paul Bello believes that returns are now a fact of consumer behavior and the focus should be on how to manage them more efficiently and sustainably, rather than trying to reduce them.
They explore initiatives to reduce pollution, such as local product pick-up by bike and redistributing returns to nearby shops or warehouses, which can also lower the ecological footprint. Vermorel argues that e-commerce might not be worse than traditional shopping methods from an ecological standpoint since it offers more control over fuel consumption for deliveries and returns. He highlights the complexity of comparing e-commerce with the hypermarket model, where customers drive their cars to shop, which doesn’t account for the indirect environmental impacts.
Bello suggests that the future might see a shift towards leasing products rather than purchasing them. This model is already popular for cars and smartphones and could potentially expand to other products like washing machines and clothing. Effective return management and utilizing technology will become increasingly necessary in this new paradigm. The conversation concludes with an example of Urban Outfitters allowing customers to rent clothes and return them after a month, indicating the potential direction the market may take.
Full Transcript
Kieran Chandler: Today on Lokad TV, we have Paul Bello from Revers.io. He’s going to talk to us a little bit more about the role of returns in the e-commerce industry. Paul, thanks very much for joining us today. Perhaps you could start by telling us a little bit more about Revers.io and what you guys do.
Paul Bello: Thanks for inviting me. Revers.io is a software platform that manages all your reverse logistics. We’ve created a platform that connects all your reverse logistic stakeholders to ensure full traceability for the customer and the support team. We basically optimize all the physical and administrative flows to save time and money and increase customer satisfaction. And this is all about improving the ease with which a customer can return a product.
Kieran Chandler: We’ve noticed that with omni-channel habits, you can buy a product in a store and return it online, and so on. This has created a lot of challenges for retailers and pure players. We’re going to discuss some of those challenges a bit later. Joannes, from the supply chain perspective, what’s your experience with the role of returns?
Joannes Vermorel: I’ve observed that returns have literally created new markets. In the US, Zappos pioneered the idea that you can order shoes with multiple sizes, order three sizes, and return two. They created a multi-billion dollar per year market for selling shoes online, which was once considered impossible. Zalando in Europe also created a multi-billion euro market for fashion by being extremely aggressive on returns. In Europe, Germany has much higher return rates than any other places, and I attribute that to Zalando, who educated the German market to buy more stuff and return everything they don’t appreciate. They have also gotten very efficient at dealing with returns. So, returns have been key to unlock markets that were considered inaccessible to e-commerce before.
Kieran Chandler: Paul, we talked about this ability to purchase multiple pairs of shoes, only keep the one that really fits, and send back the rest. What are the main benefits of an easy returns policy?
Paul Bello: As mentioned earlier, in Germany, the return rate is more than 60 percent in the fashion industry, while in France it’s around 30 percent. The strength of Zalando or even Amazon is to transform returns into a marketing argument. Before, returns were just considered a cost, but now they’re treated as a marketing strategy.
Kieran Chandler: Is this a recent shift, or when did this start being introduced?
Paul Bello: We were created about ten years ago, and we’ve really seen the evolution of the market. I think that over the last two or three years, there has been a huge change as more and more retailers and pure players realized they need to adapt.
Kieran Chandler: So, let’s talk about things from a supply chain perspective, this idea of being able to return so many products so easily, and what kind of supply chain challenges that introduce.
Joannes Vermorel: First, it creates a wide area of uncertainty. You know, traditionally, you would forecast demand and that’s it. But the reality is that you need to forecast everything that is uncertain about the future. When you have double-digit percentages of returns, that means returns need to be forecasted as well. The good news is that returns are highly predictable. Just intuitively, if you see that a client is ordering three pairs of shoes, the same model with two sizes, it’s not super difficult to guess that you will have a 2/3 return rate, if not a 100% return rate because they try the three pairs and decide they don’t like them and return all of them. But you need to forecast when it’s going to be returned because that’s the renewed availability of the stock. So you need to forecast if it’s going to be returned and when. You have two dimensions, and you can leverage historical data about the client. If you have a client that is ordering a couple of times a year and is a heavy returner, you can leverage that. That’s what we do at Lokad. The idea is to forecast demand, forecast returns, not only how many returns but exactly when they will come, and then optimize what you need to keep in stock. Returns, from a supply chain perspective, act as supplies over which you have no control. When you pass an order to your supplier, you know roughly when it’s coming, and it’s something that you trigger. The returns, it’s not you who triggers them, your clients do. So it requires an optimization model that takes into account all these factors.
Kieran Chandler: The thing I really struggle with here is the fact that sometimes you’re returning a product because you don’t like it, just a matter of taste, and sometimes you’re returning it because it might be defective. From your perspective, how do you differentiate between those two types of returns?
Paul Bello: Return is a complex process, and as you were saying, for now, a lot of retailers or players are not able to monitor and gather the data of why the product was returned. We see many actors that are just putting a return shipping label with a sheet of paper on the package, and basically, you can return whatever you want, but you don’t gather the data of why it was returned. This data is very important because you can take this data and use it to negotiate with your supplier, change the content on your website, for example, to warn the customer that they should take a size higher than expected, and so on, to reduce your return rate. There are three kinds of returns: the withdrawal, where you have 15 days to return your product, whatever the reason; the defective product; and the cases where you have an issue with the product.
Kieran Chandler: When you receive a damaged product, you have to deal with all the technical issues and warranty problems that can arise during one or two years. How does your technology help with this process?
Paul Bello: Our technology, Revers.io, allows us to first absorb the data on why the product was returned and use the correct workflow to return a product to the supplier directly, or to the warehouse, or to the repair center. This reduces the cost of a return and also reduces the delay in refunding the customer or replacing the product. It’s all about efficiency, especially as returns are now such a massive part of e-commerce.
Kieran Chandler: So, Joannes, at Lokad, returns must be a part of the standard optimization process. How do you work with this?
Joannes Vermorel: Absolutely. Whenever there is a channel where we observe returns, we need to take that into account; otherwise, we just massively overshoot as far as stocks are concerned. The trick is that, frequently in classical ERPs like SAP, returns are treated as complete second-class citizens. In most setups that were done a couple of years back, returns are just negative sales, which is very poor in terms of information.
That’s why it’s interesting that there are layers like Revers.io entering this market because you really need to enrich the data. For example, if there is a problem with the quality of a product, you cannot assume that the returned unit will be back in your stock; it’s a defect, and it’s lost. You need to differentiate between “I don’t like it” and “it’s going to be a defect.” Most traditional ERPs treat returns as complete afterthoughts, just as negative sales, which is far from good enough.
Unfortunately, this complicates our life at Lokad because we frequently have to extrapolate a lot of things about returns, such as the delays, since we don’t necessarily have a proper matching with who has returned what. We know it’s been returned, but is it someone who ordered yesterday or three weeks ago? It’s unclear. This is where we see a lack of clarity in ERP systems.
Kieran Chandler: So, Paul, you’ve observed these real challenges with integrating ERP systems. Is that why you’re working with SAP?
Paul Bello: Yes, exactly. We were accelerated by SAP because they had some issues managing returns and had a lot of questions from customers about how to manage their returns. They needed new tools, which is why we were accelerated by SAP a few months ago to tackle this challenge with them.
The main challenge is also how to revalue a product once it’s returned, as Joannes mentioned, and put it back in stock if the product is not damaged. There are a lot of retailers and players that end up just destroying the product because it’s more expensive to evaluate it or refurbish it. So, there is a question of ethics and ecology as well.
Kieran Chandler: Very important topics for now are to basically have better management of returns and to do something with them. Another challenge I really see, especially in the fashion industry, is that a lot of the time, you’re forecasting for these returns based on taste and what people actually like. How easy is that to forecast for when you compare it to something like maybe a medical product which is actually in need?
Joannes Vermorel: In fashion, what is very difficult to forecast is the potential selling potential of a new product because you’re launching new products all the time, and that’s very hard to assess. Now when you’re thinking about returns, something that is extremely informative in terms of data is that you know that somebody purchased one unit this day. Compare that to before launching the collection, where all you have is product attributes like the shape, size, fabric, color, and price point, and you’re supposed to tell whether you’re going to sell twenty units or twenty thousand units. The scale of uncertainty is huge. However, when it comes to returns, the scale of uncertainty is much smaller. The best in fashion will still have about ten percent returns, and the worst will have ninety percent, but there is a big difference between the two. Clients have habits, and you don’t need much history to see that some clients are returning half of what they purchase. With just four purchases, you can see that returns are fairly predictable in fashion, much more so than forecasting pre-collection top sellers. If people were good at predicting top sellers, the fashion companies that could do that would skyrocket in growth.
Kieran Chandler: From an environmental perspective, you’ve got all these parcels going backwards and forwards just because somebody wants to try on a few extra sizes. Can you see this willingness to carry on promoting that continuing over the future?
Paul Bello: I think that returns are a fact and now a habit for consumers. I’m not sure that the question is whether returns will decrease, but it’s more about how to manage returns properly and locally. The real matter is how to reduce pollution and improve return processes through different initiatives. Some initiatives, for example, in Paris or other major cities, include home pickups of products by bike and returning the product to a local hub inside the city. Then, the product is shipped to the closest shop or warehouse, which reduces the ecological footprint without reducing the number of returns. This is the kind of initiative that we can set up with different local actors and that will be appreciated by retailers.
Kieran Chandler: Is redistributing the stock around that network a real challenge from a technical perspective?
Joannes Vermorel: It’s clearly complicated, but I would also point out that it’s not very different from the initial distribution process.
Kieran Chandler: It’s clear that having an e-commerce driven economy returns included is naturally something that is worse than what we had before. You see, because the thing is when you have e-commerce it means that the last kilometer is completely under your control, so you know exactly how much fuel you’re spending to actually do this delivery to the client and you know exactly how much fuel you need to bring it back and everything, so it’s from an engineering perspective. Everything is under control.
Joannes Vermorel: Look at what is the alternative solution, which I would say the IPO market model, the hypermarket model is everybody takes is here’s a her own car to drive to the store, and you can assume that people are efficient with their car, but you know you don’t have an engineering team that is going to tell you exactly how you should be super efficient with the way you drive your car to go to a store. I mean, the situation we have in Paris, with like being one of the most densely populated city in the world, where you have stores that are literally, you can just walk to pretty much any store, it’s kind of unique. It’s relatively atypical if you look at the situation worldwide. So if you think at the net impact for the planet, situations where people have to drive to get some things that they want to buy is much more than normal. Paris where you can walk anywhere is very unusual. I mean, you maybe have a few dozens of metropolis in the world where you can do that, but the rest is you take your car. So first, you see there it’s not clear for me that you naturally have a net loss. It’s just that when you take your car, companies do not come into the balance. Your car is not measuring how much fuel their customers are spending when they drive to the hypermarket. So you would say, “Oh, I have a very low impact in terms of ecology.” Right? You don’t know because there are plenty of things that are just indirect that you don’t measure. And again, I’m not blaming them for that, but I’m just saying that the situation is a lot more complex than it seems. And overall, I would have more trust in the fact that e-commerce companies who see all of that as a cost are very, very inclined in optimizing everything about it. So even if it’s very difficult, it’s under control for them. It’s like a vital matter of competitiveness to do something about it. You know because you and they, and you don’t even have to trust that they want to do the good thing for the planet. It’s just that fuel is expensive, especially with.
Paul Bello: I agree with Joannes that there are indirect costs that are not being accounted for in the traditional model. And we see that as well in the reverse logistics space, where companies are not accounting for the environmental cost of shipping returns. And so I think that this is where data is going to be incredibly important because we need to be able to measure the impact of these different models, and we need to be able to do it in a very precise way. And so, when we look at the e-commerce model, we see that there are advantages in terms of being able to optimize the last mile, but we also need to be able to measure the environmental impact of those deliveries. And that’s where I think that companies like ours can come in and provide that kind of data so that we can make informed decisions about which model is actually better for the environment.
Kieran Chandler: The level of tax that we have in France for gasoline is quite high. Clearly, you don’t want to have people driving thousands of kilometers for nothing; it’s pure waste. We’re going to have to start wrapping things up now. I will leave the last word to you, Paul. Would you say there is a way that easy returns now exist? Would you say that in the future there’s going to be a day where we actually never need to even go to a shop at all?
Paul Bello: I wouldn’t say that we won’t need to go to the shop at all, but I think we will not have to buy something at all, at least for a physical product, not for food and so on. What we see in the market now is that we can lease a car, a smartphone, even a washing machine, and so on. I think this is what’s going to happen in the coming years. We will stop buying things for ourselves but will more likely lease the products of tomorrow, like washing machines. We will use them, and if there’s a problem with it, we will have dedicated customer service people to help us. After three or four years, we will just give back the washing machine and get the new one, similar to what we do with phones.
Kieran Chandler: You can see that happening?
Paul Bello: Exactly. I think it’s going to be for more and more products. It was popular for cars and smartphones, but I guess that tomorrow, even with clothes, as with some companies that are launching and that basically let you rent your clothes, or with everything that you can have in a house. I think this is really the future. In this kind of scenario, a good management of returns and knowing exactly what you should do with the product when it’s going to be returned, thanks to technology, it’s going to be more and more necessary. It’s not going to be just useful, it’s going to be very necessary.
Kieran Chandler: Yeah, now, some of the Urban Outfitters recently released was being able to rent your clothes in the States and return them after a month or so.
Paul Bello: Yeah, so who knows?
Kieran Chandler: Okay, I’m going to have to leave it there, but thank you for your time today, and thank you, Joannes. That’s everything for this week. Thanks very much for tuning in, and we’ll see you again next time. Bye for now.
