Returns: The Hidden Part of E-Commerce Logistics

How GCC startups can turn online return pain into profits

E-commerce in the GCC, worth $26.9 billion in 2018, could rocket to nearly $49 billion by 2022. But as established and new players compete for market share, one area of e-commerce that’s yet to be capitalized on is online returns.

Quite often, when the goods are delivered, the journey is far from over. Online returns are often referred to as the dark side of e-commercebecause they’re painful for all involved. Turns out, supply chains don’t work as well when they have to operate in reverse.

Returned merchandise is a hassle for consumers, and expensive for retailers. New solutions are needed – in packaging, labelling, pickup, shipping, efunds and other areas – so innovators who provide these could win big. Startups are already shaking up online returns elsewhere.

In the GCC, 30% of online purchases are returned. If this remains the same as the e-commerce market grows, the value of online returns could hit a whopping $6 billion by 2020. This presents a huge business opportunity for startups in the region.

Online returns: all pain, lots to gain

To provide a winning solution for the region, it’s crucial to understand the e-commerce returns pain points for GCC consumers and retailers.

Online returns are frustrating for consumers because there’s no standard way to return merchandise bought online. Consumers are left to fend for themselves. They must figure out the returns policy, terms and conditions, cost and method of return for each of their purchases.

Customers are expected to understand where to start the process depending on how they’ve made their purchase (this could be directly from a retailer, or through a third party website selling the retailer’s products), and often have to fill out vast amounts of information to process their request. Then they repack and label their returns and figure out where to drop their parcel off, or arrange for it to be picked up by the retailer or a third party. After the return is finally processed, they’ll get a full, partial or zero refund, but this can take up to 14 days.

In the U.S. and Europe returns are often free, with immediate refunds or store credits. Consumers can use drop-off points to return goods from a range of retailers, can arrange for courier or postal service pickup, or can walk returns into brick-and-mortar stores.

According to a report from Swisslog, the cost of handling online returns is typically three to five times higher than original shipping costs, making it the main driver of logistics cost increases for retailers. So many retailers would prefer that their customers keep or destroy unwanted purchases rather than try to return them.

In the European Union, and most other parts of Europe, it’s a fairly straightforward process to deliver across borders. But in the GCC, every border has its own customs point that requires compliance checks, which add time and cost to every delivery – and which are doubled in the case of a return.

Another major headache for GCC retailers is cash – a key differentiator of the region. Cash is king for GCC consumers, and they often use it to pay for online purchases upon delivery: 67% of all payments online in Saudi Arabia and 58% in the UAE are cash-based. In the event of a return, the seller needs a way to hand money back to the consumer, and then bear the financial burden if anything happens to the goods in transit.

GCC consumers and retailers both suffer from this complicated returns process and both groups want to see inventive new solutions.

How startups can light up the dark side of e-commerce

For the GCC, an ideal e-commerce returns solution would be a retailer-agnostic digital platform that consumers can use to request a return for their online purchases. It should come with a standard returns policy – better than anything already offered in the region – that puts the customer first. A policy that retailers signing up to the platform would have to adhere to.

The policy should be clearly displayed on the website, along with FAQs, and terms and conditions must be clear and easily understood, so that consumers know exactly how long it takes to receive a refund or account credit. Everything should be clearly spelled out in Arabic, and there should be dedicated customer support through chat, email and phone.

The platform should be flexible, offering the consumer the option to either drop off their purchase or have it picked up. Home pick-ups could work particularly well for the GCC because large extended families often live together or there is domestic help, meaning there’s often someone at home. Consumers should receive immediate refunds, less fees. Finally, returns would be consolidated for return to retailers.

The startup bringing the platform to market would need to partner with an established logistics player that can take care of the back-end of the process, ensuring goods are collected quickly and securely and delivered to retailers. Key to success would be a logistics partner with a cross-border network throughout the region to ensure ease, speed and compliance when it comes to border controls.

The $6 billion business opportunity

In the GCC, consumers have shown a willingness to pay the price for an online returns service if it guarantees quick and easy returns from their door. If consumers are willing to pay for convenience, the fulfillment and processing costs can be covered, leaving a healthy profit margin for the provider of the solution.

The best answer is a platform that is technology-driven and asset light. A lean and low-risk business model makes this opportunity an ideal proposition for SMEs. The flexible, agile nature of startups could also put them in the best position to take advantage of the huge scale-up opportunity offered, given the $6 billion potential of the online returns market in the GCC.

The market is wide open: there are currently no regional independent players. All returns are managed and processed by retailers.

It’s time for startups to transform the e-commerce returns market in the GCC and bring consumers, retailers and shippers into the light.