The real cost of e-commerce

This article is brought to you by Retail Technology Review: The real cost of e-commerce.

By David Upton, Managing Director, DA Systems.

Fraudulent goods lost in transit (GLIT) claims cost UK retailers over £400 million last year, with the average operational cost per claim estimated at over £40. And 93% of retailers believe fraudulent GLIT claims pose a serious threat for most firms in the sector. **

That's just fraudulent claims. When 'genuinely lost' items are added in the numbers are even worse. It's an ongoing problem and represents a new form of theft, dubbed 'digital shoplifting'. Some consumers clearly perceive this to be an easy steal, especially in a clunky or partially automated system. The cost of GLIT is mounting to levels where write-offs are costing retailers millions.

Many shrug it off as a necessary evil of doing business, however, some are starting to question the process, especially with e-commerce and m-commerce growing at their current rates. To put things into perspective, the British Retail Consortium earlier this year identified that the total cost of retail crime soared by 15.6% in 2012 to £1.6 billion. Security cameras and tags go some way to combating traditional theft in-store, but how can retailers tackle this modern digital problem?

It all comes down to proof and traceability. It's near impossible to prove delivery if there's no signature involved, or if the tracking system is too slow. This means retailers have to exercise goodwill over any GLIT queries because they don't have the right information – and that erodes margin. With a proper track and trace solution that works in real-time, they know the delivery status and can deal with fraudsters accordingly.

Not all GLIT claims are fraudulent. Some goods can genuinely be lost, for example where two parcels are stuck together or a parcel is lost on a conveyor when it drops down the side and cannot be tracked. Unfortunately there's little that can be done in this instance. However, with a proper track and trace system in the delivery network, it should not be too difficult to identify where problems are occurring and reduce the negative customer service impact. For example, if the last time a parcel was seen was in van no.23, the retailer can investigate and it gives them the opportunity to solve it before dealing with an unhappy customer.

When someone has signed for a package and then they say they did not receive it, this does create a customer services conundrum. For example, you sign for an iPod, put it somewhere and then forget and contact the retailer – you might have the evidence to say something was signed for, but you can't prove exactly what happened. Surprisingly, this happens quite often and some retailers will take the customer's word as gospel. Even with a photograph of someone's signature and a photo of them signing, they may accept the claim rather than alienate the customer. 82% of retailers find it difficult to distinguish between fraudulent claims and honest customers.

To be able to resolve queries, retailers need real-time data feeds to manage the doorstep interface and real-time integration between retailers and delivery agents. Without this, there is an opportunity for customers to make a fraudulent claim because having to ask them to wait for systems to update before being able to verify proof of delivery is an unacceptable delay.

The majority of items are low value and the customer service cost is probably more than the value of the goods, since the average operational cost per claim is over £40. So the cost of deferring the query for a whole day and then investigating what exactly happened to deal with the claim means retailers are reluctant to do more, so they accept the losses. Conversely, with real time systems, they would know exactly what had happened and can deal with it straight away.

Managing returns Collections from consumers have also always been a real challenge to complete in a cost-effective way. When managing returns, the biggest issue is the labelling of goods. For example, you buy two jumpers from Next with two sizes, intending to return one. You have to go through the returns process, including packaging the item and labelling it correctly. Some companies provide return bags and labels to make the process better but many do not, leaving the consumer to take care of labelling.

Retailers need to weigh up the cost of GLIT and introducing extra steps in their returns processes. For example, Next have a comprehensive system in place for packaging, labelling and shipping goods. It's great for customers and going through this network is safe so you can guarantee a delivery will be successful. Retailers need to include pre-prepared returns labels, but this requires the shippers to produce returns labels and put them into the outbound goods - which adds cost.

In the end it always links back to having real time integration between different suppliers and finding an easy and cost effective way to link all the organisations involved. Each carrier needs to have appropriate track and trace data. But there are so many carriers and all of them have different processes and labelling systems. What is really needed is a standardised way of doing things.  Maybe the answer is to use retail distribution partners to act as a broker to courier companies. They can enforce specific processes and mesh together the different retailers and carriers - so it doesn't matter what one you use. Provided you have the right documentation and proof, the goods will be accepted back into the retailer's distribution network.

It's all about the tech In the end however, technology can only do so much. It's just a fact of life that people will always try and break the system.  Appropriate technology makes the process of resolving and following up queries easier and more cost-effective, but if a minority of customers are absolutely determined to 'try it on', dealing with this becomes a question of judgement and customer service.  Evaluate how much alienating an individual customer is really worth. If they are a good, regular customer then it's best avoided, as their long term value may negate any short term cost (and every one you upset may tell 10 others about you!). However, by having a track and trace system in place means retailers have the information at hand to pinpoint what's needed, improve decision making and judge each situation in real time.

^{** According to The Digital Shoplifting Survey, undertaken by Retail Knowledge for consumer data and insight firm Transactis. It went on to find}