A good fit: are e-commerce contracts ready for the seasonal returns rush?

As I write, we are still nearly two months away from the Christmas holiday season.

Even so, the next couple of weeks will see the start of the busiest period of the entire calendar for retailers and logistics companies the world over.

In the days before consumers took to online shopping, the earliest hint of festive feeling on British high streets coincided with the opening of the first door on our advent calendars.

However, the advent of e-commerce has changed things completely.

Now, retailers gear up for their peak season well in advance of the 'Black Friday'/'Cyber Monday' weekend in late November.

There's no doubt that being a successful e-commerce brand has its rewards. The latest retail sales figures from the Office for National Statistics (ONS) show that UK shoppers bought more than a quarter of a billion pounds of clothing and footwear online each week during August - an increase of 231 per cent on the same month in 2012 (https://www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/august2022#online-retail).

Even so, one of the most dominant features of e-tailing is that a large proportion of what is delivered to consumers is subsequently returned.

In fact, as much as 40 per cent of clothes bought online are later sent back to retailers (https://www.goodhousekeeping.com/uk/consumer-advice/a30926876/environmental-cost-of-online-shopping-returns/#:~:text=Around%2040%25%20of%20online%20clothing,buy%20with%20burdening%20the%20planet.).

According to one piece of research, the whole process costs retailers some £7 billion a year (https://cross-border-magazine.com/uk-ecommerce-returns-costs-and-environmental-issues/).

With sums of that magnitude, it's perhaps not surprising that the returns conundrum is affecting balance sheets.

Earlier this year, ASOS was forced to issue a profits warning because of the twin impacts of the coronavirus pandemic and the cost associated with high return rates (https://www.theguardian.com/business/2022/jun/16/asos-warns-on-profits-amid-significant-increase-in-customer-returns).

That followed the decision by a number of its competitors to start charging for returns (https://www.bbc.co.uk/news/business-62140633).

ASOS, on the other hand, is determined not to follow suit, maintaining that free returns amounts to a unique selling point (https://www.reuters.com/business/retail-consumer/asos-warns-outlook-consumers-feel-inflation-pain-2022-10-19/).

Nevertheless, managing returns has become a critical issue and one which presents legal as well as commercial challenges that mirror how the e-commerce market has developed over time.

Not too many years ago, the contracts agreed between retailers and their logistics partners had a heavy emphasis on delivery success. If targets were missed and consumers left dissatisfied, service credits and even termination rights might apply.

At that point, returns accounted for a relatively tiny fraction of overall e-commerce shipments.

Greater volumes of unwanted items bring the increased potential for problems.

Even more than the thorny matter of whether to charge for returns - and the possibility that adopting such a stance might influence shoppers to take their business elsewhere - is whether returns policies are robust all-'round.

After all, consumers sending goods back want to be reimbursed promptly. That means processing returns swiftly, something which clearly places pressure both on retailers' in-house operations and companies engaged in what are known euphemistically known as 'reverse logistics'.

Dealing with returns is not purely a supply chain consideration either. Customer service departments too need to be key parts of the solution because poor returns operations can deter repeat business and damage reputations.

Just as the logistical involvement needs to be efficient, no retailer wants to have their returns policy fall foul of consumer rights legislation.

In a situation with such complexity, there is much to be gained by regularly reviewing contracts or terms and conditions which are in place to ensure that they remain up-to-date with the latest changes in what is a very dynamic market.

Is there, for instance, contractual certainty? By that, I mean that if something unfortunately does go wrong, is there clarity about who's responsible and what should happen?

It is a task which I and my colleagues have handled on behalf of several logistics providers as well as many household brand retailers.

Done effectively, though, it doesn't mean tying process up in legalities. It is easy to establish a good balance between contracts which provide a structure for relations between retailers, logistics companies and consumers, and the operational flexibility needed to speedily adjust to changes in things such as price and returns volumes.

When approaching the busiest period of the year, reviewing contracts and conditions might seem unimportant compared with the need to make sales and generate turnover.

Failing to do so, however, risks having January and its annual returns high become the kind of post-festive hangover which no retailer wants to endure.