Returning goods in an e-commerce business is a common practice. But one of the most overlooked practices remains RTO, also known as Return to Origin. It happens with cases when a particular item is not able to reach the customers, and it is sent back to the retailer’s/ seller’s fulfillment center. It is not initiated by the customer, and it can become an operational headache and a direct cost for the seller. Business owners and customers alike need to understand the meaning of RTO, its implications, and the direct cost for the sellers. These factors can also have a significant impact on the e-commerce operations in South Africa and therefore, it is important to have a throughout understanding of this concept.
Return to Origin (RTO): Explained
As the name suggests, return to origin is a logistical process that happens when an article or product is unable to reach the customer and is therefore returned to the warehouse or its origin. There are a lot of causes that are responsible for this: customer unavailability, incorrect address, failed verification, refusal to accept the package, carrier errors, or wrong contact information. This is different from customer return because in that case, the customer returns the product. After all, it does not match their expectations. In the case of RTO, the goods are sent back before the customer has used or tried them on.
Why Does RTO Happen?
In order to reduce RTO, you must understand why it happens. It primarily happens due to the following reasons:
- The customer might be unavailable to receive their parcel, and there are no other safe drop-off options.
- If the customer doesn’t respond to their contact numbers or if the contact numbers are wrong, the parcel might be sent back.
- The customer might also reject the parcel at the time of delivery. The product might not be required anymore, or they feel the quality is not up to the mark.
- Sometimes customers don’t provide the complete address or provide incorrect postal codes. This is the most common cause of return to origin.
- If the carrier partner suspects a fraudulent delivery or fraud flags, they might hold and return the parcel.
- If the carrier partners face a misrouting or lost tracking, they might initiate a return to the origin.
- If the customer is unable to provide a verified ID or KYC for high-value items, the product might be sent back due to verification failure.
How Do RTOs Lead To A Direct Cost To The Sellers?
A Return to Origin can hit the sellers in the following ways:
Shipping Costs
Whenever an article is sent back to the origin, the seller has to cover the costs incurred due to return logistics. It would mean a complete shipping round trip, which includes both outbound and inbound costs. The cost can vary depending on the national/ international items and the weight of the package.
Processing Labour and Handling
In your order management system, you require processes such as restocking, reprocessing, refurbishment, unloading, and inspection. Due to the tying up of inventory and capacity, this adds to the additional labor costs and increases the time at fulfillment centers.
Impact on Cashflow and Inventory
As the returned items are stored at the warehouse, it prolongs their availability for resale. If there are cases related to a lean stock, it might create a stockout. It can also lead to a tying up of cash in transit and during the processing of returns.
Increased Insurance Costs
The sellers can also incur higher carrier pricing rates due to higher RTO rates. This can lead to an increased insurance premium and also force the companies to opt for a premium cover. All of these factors together can result in higher operational costs.
Financial Fee and Administrative Costs
The sellers can also incur some costs related to the transactions or chargebacks in case of failed deliveries. In the case of cash-on-delivery orders, the companies need to handle overhead cash handling and reconciliations.
Costs Related to Reputation and Customer Acquisition
Failed deliveries can severely hamper the user experience for all customers alike. They can often begin to feel that the brands are unreliable, and once their trust in the brand is gone, it won’t lead to future purchases and repeat transactions.
Reduced Profit Margins
When any product is returned to the seller, its cost becomes inclusive of the handling charges, payment processing fee, and the shipping costs. If the package is returned in a damaged condition, you might need to refurbish it or sell it at a discounted price. This further reduces your profit margin.
How Is RTO More Prevalent and Problematic in South Africa?
For underdeveloped countries like South Africa, an increased number of RTOs can impose greater problems. There might be problems related to informal settlements, rural addresses, and inconsistencies related to addressing systems. COD remains a preferred mode of payment in such countries, which can lead to a higher rate of returns and refusals for online orders.
There might be differences that might arise due to urban and rural route planning. Therefore, it becomes crucial to select the right delivery partner. As these areas are also prone to more thefts, the customers would not want to leave their parcels unattended, and it might lead to higher returns.
How Can A Company Ensure Reduced RTOs?
The brands can make use of various high-impact tactics if they wish to reduce the RTOs. The first step should be to verify the contact and address details provided by the customer. The company should always send email or SMS verifications. The companies should also make use of high-address verification tools. The autocomplete and geo-validation features can also help simplify the process. The companies should also offer customers more flexible slots for pickup and delivery. This would reduce the RTOs related to the unavailability of the customers. The companies can also send a reminder to the customers 24 hours before the delivery of the customers.
In order to avoid refusals, the companies can also come up with stricter COD policies. It should be limited to the verified customers, and the companies could also impose a small pre-authorization to avoid refusals. They should also improve their fraud detection strategies to stop the flow of high-value orders earlier in the logistics process. The customers should also be adequately educated regarding the delivery processes and the products in order to reduce their order refusals upon delivery. They can also make use of smart routing to avoid longer routes and high rates of failure.
How Can Companies Estimate The Direct Cost Impact?
In order to calculate the RTO cost per order, the companies can add both the average outbound and inbound shipping costs. They can also add the estimated reduction in resale value. To get a clearer picture, they can add the average processing labour/ handling cost per order. To gauge the total monthly impact, they can divide this cost by the total number of successful orders per month.
Why Is It Essential To Reduce The Return To Origin Cost?
An RTO can have a direct impact on the profitability and reputation of a company. Therefore, they are more than just an operational hindrance. To avoid RTOs. It is important to have better policies, smarter delivery options, and also superior ways to capture and analyse the data. To improve the customer experience and also protect their margins, the companies should choose the right delivery partner, measure the correct cost of an RTO, and apply targeted fixes. By incorporating all these practices, a company can ensure growth in both the operations sector and the number of successful orders.
