The double-edged sword of online retail
Article by Confluent vice president for APAC Damien Wong.
It is undeniable that online retail has had a good year. According to Singstat, retail providers in Singapore reported a year-on-year fall in sales by a staggering 51.2% in 2020 compared to 2019.
However, the proportion of online sales rose significantly from 5.3% in May 2019 to 24.5% in May 2020 — suggesting that while consumers are spending less in general because of the pandemic, consumers are increasingly shifting their spend online.
Unsurprisingly, the retailers who fared better during the pandemic were those who had a head-start in their digital capabilities. But, for many others, it was a race to catch up.
According to a global study by McKinsey & Co, the pandemic has vaulted consumer and business digital adoption five years forward in a matter of approximately eight weeks. It became clear early that only through digital optimisation could retailers survive the impact COVID-19 and lockdowns had on their businesses.
The acceleration towards a digital-first approach in retail, however, is a double-edged sword. As sales started to soar, so did the returns culture: consumers buying online, knowing they are likely to send some goods back. In fact, a global consumer survey by KPMG found that 40% of consumers stated an easy returns policy was the most important consideration for them when deciding which online retailer to buy from. This has since become an increasingly pressing matter for retailers to address.
To get the best of both worlds, a top priority for every online retail organisation is offering customers the flexibility they demand from returns policies while at the same time preventing costly financial losses. Businesses are turning to data in motion technology to help seamlessly navigate a comfortable middle ground.
Returns hit retailers three-fold
In an industry where margins are increasingly under pressure from rising costs, competitive pricing and the need to optimise the digital experience, returns hit retailers in three ways.
- First, returns raise the cost of fulfilment and logistics across the supply chain. A return often entails a 100% refund to customers — and the shipping costs double, as the items need to be sent to the customer and returned to the warehouse. This often results in a direct net operating loss.
- Second, lots of critical data supporting the supply chain, logistics and the buying and returns process could be scattered across many different platforms. This includes point-of-sale (POS), e-commerce platforms, enterprise resource planning and supply chain and logistics interfaces. To add to the complexity, legacy systems may run in on-premises data centres while customer-facing apps and interfaces may reside in the cloud. Some retailers are still managing returns through excel spreadsheets. As retailers strive to improve their customer experience, they must focus on improving the overall returns process.
- Third, returns impact reported revenue — and are such a problem that they now feature in many retailers’ annual reports as a key audit statistic. According to Statista, return deliveries in the Asia-Pacific region amounted to around US$255 billion in 2019 alone — too large a number to ignore, and one that has undoubtedly gone up as retailers increasingly shift online. As a result, retailers must begin to make provisions for returns in their financial statements, which can account for a considerable part of revenue.
The rising shopping returns challenge
So, what can retailers do in this new culture of online shopping returns? Just as investments in digital helped during the pandemic, they can also help to address this problem.
A data in motion platform helps retailers streamline the returns process by ensuring all the data sources across the value chain are directly speaking to one another. Every time a returns process is triggered, it’s then shared in real-time. The technology is the instant link across the retailer’s entire footprint, from e-commerce tools such as content management systems, supply chain and logistics technology and in-store technology.
Connecting these disparate data sources is beneficial on three fronts:
- By simplifying the data integration across different systems — from production to POS and beyond — the retailer can track the delivered item, the returns request online, and the courier company pick-up to receivables at the warehouse. They might even track new data sources, such as the social media sentiment analysis, once the return and refund have been processed. This significantly reduces data integration complexity and allows the retailer to build the best experience for the customer and drive efficiency and reduce costs.
- A data in motion platform provides an accurate real-time view of stock as it’s returned to the warehouse and potentially re-offered for sale. This helps the retailers update their inventory in real-time, maximising warehouse space and the supply of high-demand items.
- By implementing an event streaming platform, retailers can provide the foundations for running a modern business. The traditional mess of data integration across legacy systems can be replaced with a modern ‘central nervous system’. This makes it easier for retailers to build a real-time business as the retailer can get more specific insights into their financial position based on real-time events during the returns process.
A new way of thinking
The pandemic has only accelerated what we already knew: customer behaviours are evolving, and online shopping is rapidly becoming the status quo. And this is set to stay: according to data from OSOME, e-commerce user penetration rate in Singapore is projected to be 55.9% by the end of 2021 and would reach 67.2% by 2025, while the average revenue per user is expected to amount to US$839. To keep up and meet increased consumer demands, it is vital that retailers address the returns problem — and fast.
This requires a fresh way of thinking about connecting data sources across the business, which is why a growing number of retailers are taking advantage of data in motion platforms. Put simply: this should be a critical component of every retailer’s technology stack.