Overstocks and returns make e-commerce unprofitable

BearingPoint study: most online retailers keep logistics processes as a core competence in-house, but have not come to grips with management of stocks and returns

Frankfurt, October 28, 2014 – A recent study conducted by BearingPoint among 30 of the leading German online retailers shows that most providers struggle with the management of stock and returns. These two areas are enormous cost factors and significantly affect profitability. 62% of the interviewees in the study see a considerable need to reduce stocks, and 42% say reducing the ratio of returns is one of the most important objectives of the company. Further research BearingPoint has conducted, suggests these results are not only representative of the German market, but are rather exemplary for the global online market.

According to the study, two thirds of online providers view logistics as a core competency in spite of the many challenges, and carry it out in-house instead of outsourcing it. Logistics includes incoming goods departments, quality control, warehousing, consignment, distribution, and returns. To keep control over the entire process, especially the guarding of sensitive customer and product data, and the belief it would lead to less damages and lower costs, are the main reasons online providers hold on to logistics, according to the study. Consequently, they prefer to handle their own stock management and the processing of returns.

Optimization potential offered by stock and returns management

The central question for providers is, how do we handle the increasing number of returns and manage the stock level. Especially the clothing industry needs to integrate intelligent IT-solutions, for example with learning algorithms, to produce better forecasts. There is a big spectrum of optimization possibilities through actionable, technical and accounting-orientated based returns management. They extend from individual product descriptions and evaluations to improved packaging and incentive modeling in calculations. And finally it is perfect and fast delivery that is ultimately the difference between competitors.

Matthias Loebich, Partner at BearingPoint

Customer counseling as added value

The study also concluded that customers will not be satisfied with the usual process of ordering and delivery. 69% of companies recognized that a user-friendly online shop positively influences the buying decision and customer satisfaction. For example, helpful tools for clothing are virtual dressing-rooms (augmented reality), individual view options, and blogs for customer evaluations (social commerce).

It is important to anticipate what style and size works to avoid returns, especially for online providers that do not own a real shop. In the area of shoes, the 3D-measurement of the interior of new shoes generates clearer indexes for fit than simple sizes alone. These data could be integrated in an IT-system connected with customer data. In this way, the system learns with every good or bad buy. With this information, the customer gets a warning signal and an alternative recommendation if he or she chooses the wrong shoe. This reduces multiple returns for the provider and the customer is much more satisfied.

Matthias Loebich, Partner at BearingPoint

The implementation of relevant IT-solutions helps to cope with the growing complexity. In stock management, the IT-solutions with learning algorithms calculate requirement forecasts based on actual and historical data. Inventory strategies are calculated instantaneously and are constantly updated.

30 leading German multi-channel-providers and pure online providers, all with a turnover between 10 and 500 million euro, and in the business segments of shoes and clothes, software and hardware, electronic and household goods, furniture and accessories, books and magazines as well as groceries, were interviewed for the study.

The study is available online at Online Retail Logistics

About BearingPoint

BearingPoint consultants understand that the world of business changes constantly and that the resulting complexities demand intelligent and adaptive solutions. Our clients, whether in commercial or financial industries or in government, experience real results when they work with us. We combine industry, operational and technology skills with relevant proprietary and other assets in order to tailor solutions for each client’s individual challenges. This adaptive approach is at the heart of our culture and has led to long-standing relationships with many of the world’s leading companies and organizations. Our global consulting network of 9200 people serves clients in more than 70 countries and engages with them for measurable results and long-lasting success.

For more information, please visit: www.bearingpoint.com