Online retail sales are here to stay. In the U.S. alone, sales will surpass $1 trillion this year and are expected to reach $1.6 trillion by 2027, according to a new Forrester report.
But along with all those new purchases comes an overwhelming amount of returns: a whopping 30% of online orders last year were returned compared to 8.89% in physical stores, according to Invesp. Returns are a huge expense for the industry. Apparel that is returned needs to be sorted, repackaged and often cleaned or laundered.
The key to driving down costs long-term is to decrease the number of returns by helping customers make more informed decisions using Virtual Reality (VR) and Augmented Reality (AR). And for the returns that are inevitable, Geek+ has cost-cutting solutions for those, too.
The Returns Process
To the logistic industry, once a client clicks the return button to send unwanted goods back to the sellers’ warehouse, the reversed logistics process begins. From the warehouse perspective, how to deal with the returns, how to enhance the efficiency of reverse operation, or more precisely: how to understand returns behavior in order to better manage the “30% law”, so that the seller can recover the asset value as soon as possible, is crucial to understand.
To answer these questions, we should start from the challenges that reverse logistics is facing presently.
Different from traditional logistics, which enables the product flow from the suppliers to the distributor or factory, reversed logistics starts from the customer side and goes back to the factory. In the reverse logistics process, there are two main challenges:
Return volume – A Finance Perspective
Return volume may fluctuate and become extremely high especially during shopping seasons, which will raise inventory cost and eventually lower the company’s Gross Margin Return on Investment (GMROI) – considering that the items will be moved back to stock and the seller’s entry will be reversed, too. Meanwhile, it would increase the inventory cost while decreasing the gross profit simultaneously.
So how do we decrease or prevent the return volume from a very early stage? How do we help consumers make more-informed purchasing decisions to lessen the flow of reverse logistics in the first place?
Low efficiency of manually verifying and inspecting – An Operations Perspective
The reason why the number of returns remains high can be mainly attributed to a cumulative result of variant costs incurred during the process, such as labor costs and warehouse/storage costs, which we can tie together for analysis. For instance, traditional warehouse operators spend time and effort dealing with the returned items manually, such as sorting out bulks of assorted goods into different categories again. Hence, we may be able to highlight another important aspect of rising reverse logistics costs, which is a warehouse operator’s manual labor.
Verifying and inspecting are crucial steps after the warehouse receives the returned goods. In most of the cases, operators still check the items by hand and then make the decision to approve, reject or scrap the existing item.
Overcoming these challenges will help employees across industries, from warehouse owners, to 3PLs, to retail distributors and fashion groups. As technology improves, we may consider using high-tech solutions to overcome the challenges existing in reverse logistics: Virtual Reality (VR) and Augmented Reality (AR).
The Solution: AR/VR Shopping
VR/AR gear can be helpful to provide the consumer an enhanced shopping experience, especially in the e-commerce industry. A 2019 survey from Google shows that 66% of people showed interest in using VR/AR technology to help make buying decisions.
For example, a person using the IKEA The Place app can virtually position IKEA furniture in different places within the room. The client can form an idea about how the furniture will look at home, which will prevent them from making a blind decision. This is an effective way to solve the item-returning problem from the origin.
The same can be done for apparel purchases using VR/AR in the future.
Augmented Reality fitting rooms
Another practical method is to apply AR technology to create virtual fitting rooms, which will benefit the apparel industry. If a consumer wants to buy clothes or shoes, he or she can capture a full-body 3D model of him/herself. Consumers can try and compare several clothes before finding the right one and as technology increases, consumers will get an increasingly accurate picture of the apparel they are considering for purchase.
As Shopify data shows, about 40% of consumers are willing to pay more for a product after experiencing AR service. Furthermore, if the retailer offers AR service, 71% of consumers will visit the retailer’s online store more frequently. Companies investing in AR options now may be able to curb the rate of returns over time.
Virtual Reality and Augmented Reality for warehouse
VR/AR gear can be used for various operation purposes in the warehouse, such as putaway and sorting, or so-called Vision Picking.
Vision Picking, or wearable gear to increase a worker's productivity, is playing an increasingly vital role in logistics and warehouse industry. Some warehouses have started to use VR or AR headsets to offer a more substantial onboarding training for employees, in training them for operating processes, maintenance and even safety. These VR and AR headsets are making warehouse workers' jobs easier and increasing productivity.
In a traditional warehouse, a worker would need to memorize the warehouse, read a spreadsheet, find out which row to walk down and then which shelf to take an item from. Today, AR headsets can reveal all of this information and more. Workers can be directed to the specific item that needs picking and will sound an error message if the wrong item is retrieved. AR headsets can read SKU information and reveal detailed information about the product so the worker doesn't need to guess.
The Geek+ Returns Solution
For warehouses that need a faster way to process returns, Geek+ has an answer. Applying a goods-to-person solution can:
1. Create picking outbound operations to meet the demand of outbound orders
2. Integrate warehousing inventory to meet the demands of SKU consolidation
3. Transfer stock to meet the demand of SKU unstacking
Based on practical experience gained by implementing intelligent returns solutions for our apparel industry customers, Geek+ can increase the efficiency of stock flow through efficient returns and fast putaway and consolidation. This solution fits into a multi-process apparel warehouse or can be used as a standalone solution.
The solution also provides strategic support for the consolidation system based on order prediction and intelligent consolidation algorithms to provide warehouse operators with inventory capacity warnings. When the inventory reaches the warning level, the system will send an alert for consolidation, and staff can begin consolidating the inventory as required. When the inventory is at its maximum capacity, the system will send a consolidation reminder or automatically generate a consolidation task.
The expense for reverse logistics is around $100 billion each year in the United States, the boutique research consulting firm Aberdeen Group reported. Supposing we apply the “30% law” here, if the logistic industry could lower down the number by 1%, then it can achieve a $300 million economic benefit per year, and this is the calculation only based on U.S. market data. For reverse logistics, the best of times that can bring adequate solutions may be already on its way.