E-commerce firms seek to curb return rate to cut losses

The total return order volume in FY22 dropped to 14.86% from 16.10% a year earlier, according to a report jointly published by Unicommerce and Wazir Advisors.

Of this nearly 14-15% goes into logistics costs. Add to this, discounts on products which could range between 20-30%.
Of this nearly 14-15% goes into logistics costs. Add to this, discounts on products which could range between 20-30%.

E-commerce firms in the B2C segment are looking for ways to curb the high rate of order returns by consumers of general merchandise and lifestyle products bought on their platforms to narrow their losses.

Unless the high return rate – almost 15-16% – is checked, analysts reckon that most such firms may find difficult to post profits. The economics make this clear. The average order size is around Rs 200-300. Of this nearly 14-15% goes into logistics costs. Add to this, discounts on products which could range between 20-30%.

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Though there was some reduction in the return rate in FY22 mainly because of the companies cutting down on cash -on-delivery orders, it’s doubtful whether sticking to such a policy would keep on bringing down the rate further on a consistent basis as the rate in the pre-paid segment did not see any decline in FY22.

The total return order volume in FY22 dropped to 14.86% from 16.10% a year earlier, according to a report jointly published by Unicommerce and Wazir Advisors.

Their sample was 500 million orders. Here CoD return orders fell to 18.8% from 22.1% a year earlier, but pre-paid return orders remained constant at 10.4%.

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Kapil Makhija, CEO of Unicommerce, a supply-chain management portal which has clients like Myntra, PharmEasy, boAt, Lenskart and others, expects the declining trend to continue even this year as companies are trying to make faster deliveries of products. However, delayed servicing of orders is just one of the factors which fuels higher return by consumers.

For instance, fashion and apparel products generally have a higher return rate – around 25% compared to 8% in general merchandise — because the products displayed on the platform may differ from what is actually delivered. The touch and feel factor and ordering more for trial purposes could be other reasons.

Lakshminarayan Swaminathan, supply growth CXO at Meesho, said returns cannot be attributed to a single reason. “I don’t think CoD orders are the primary cause for return order, they in fact give a sense of security to customers. There are other factors like the touch and feel of a product and how different it is from online viewing to actual feel. Some users have a try and buy sort of a behaviour where they order in bulk, keep a few and return the rest – so all of these together result in orders being returned,” he said.

Sonakshi Nathani, co-founder of Bikayi, a Sequoia and Y Combinator-backed platform that helps sellers set up their e-commerce stores, said fashion and apparel sellers on her platform saw over a 40% return rate six months ago, which has now dipped to about 30%. “Now sellers on Bikayi ask buyers to make an upfront payment of `100 for a product worth Rs 500 which basically covers for shipping and to a large extent even reverse pickups, if any. That partial payment, once completed, shows there is a clear intent to purchase and the buyer is legit,” she explained.

She, however, added ‘there was still no escaping the loss from inventory pile-up and time spent in reverse pickups unless there’s a minimum of 1,000 orders per month which keeps the bottom line immune’.

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