Unsexy Challenges of E-Commerce
E-commerce is a trillion dollar industry experiencing exponential growth. Amazon, the leading online retailer has become one of the biggest companies in the world with a market capitalization of $1.8 trillion. Besides Amazon there is Alibaba, JD, Rakuten, Zalando and Flipkart to name a few around the world. Close to home in South East Asia we have Shopee, Tokopedia and Lazada.
There is a lot of cutting edge technology associated with e-commerce.
- Huge warehouses with high tech robotic inventory management.
- Sophisticated logistics networks that promise same day or even one hour delivery.
- Artificial intelligence and machine learning for everything from chat bots to dynamic pricing, recommendation algorithm, fraud detection and marketing campaigns.
- Augmented and virtual reality
While these are exciting innovations trying to solve interesting challenges, below are some challenges that are not that exciting or sexy.
1. Returns
Returns is the largest challenge for e-commerce retailers. It drains companies of millions of dollars with unwanted inventory and extra labour. Forrester Research estimates $207 billion worth of returns in 2019. There is even an annual conference devoted to solving problems created by returns.
The common reasons for returning purchased items are wrong size, fit or color, damaged item, item not as described, not liking the item, change of mind and item arriving late.
Retailers are making returns really easy and hassle free in order to entice customers.
There are also cases of people gaming the return system. In one such case a 22-year-old allegedly scammed Amazon out of $370K with return shipments filled with dirt.
Apparels make up the biggest portion of returns for most retailers, considerably higher than any other category of products. Size and fit being the main reason as well buying different sizes and keeping only the one that fits. Firms like True Fit are trying to help reduce apparels return by using data and machine learning to better map a customer’s fit and preferences so they order and return fewer items.
We’re seeing more companies making money out of returns.
- Happy Returns has return centers at malls and inside stores servicing 30 popular online retailers in the U.S. and claims to save retailers 20-30% on shipping costs. It gets paid to aggregate all its returns, saving money on the last-mile delivery person. This against the common practice in the U.S. where online retailers pick up return items from customers’ homes.
- Third party companies that buy returns in bulk, repackage them and resell for profit.
- FedEx Supply Chain, FedEx’s arm that specializes in reverse logistics.
2. Unsold Inventory
Like returns, unsold inventory is a major headache for online retailers. Each year retailers and manufacturers send billions of pounds of excess inventory to landfills and for apparel they often burn it. In Germany alone 230 million unsold items are disposed each year.
And all these waste in landfills contribute to 15 million metric ton of CO² each year.
Expired food, fast fashion, broken & returned goods and oversupply are some of the reasons for millions of unsold products every year. Amount of inventory waste is growing as more shoppers go online where the rate of return is 25% compared to 9% for in-store purchases.
With pressure from environmentally conscious consumers and government legislations, retailers are trying hard to destroy less inventory. Opting to donate, reuse or recycle the goods. Some goods get donated or sent to developing countries and sold at steep discount. World Vision is a major non profit organization that helps retailers donate their excess inventory.
Some companies have made a business out of taking wasted inventory off bigger companies’ hands and disposing them in a safe and environmentally friendly manner. Stericycle has destroyed or recycled 80 million pounds of items for manufacturers or retailers.
3. Counterfeit goods
Counterfeit goods is a problem for all e-commerce platforms that allow third party sellers. While luxury goods like handbags, watches and sneakers come to mind immediately, there are counterfeits in almost any category of products. Electronics, cosmetics, apparel, jewellery, toiletries, pharmaceuticals, baby food and more. Some posing direct threat to consumers’ health.
Some do buy knowingly but most don’t. It’s getting harder to distinguish the fakes from the authentic ones when buying due to how convincingly real the stores of the counterfeit sellers are with near perfect images and descriptions. You only realise it’s counterfeit once you receive and use the item.
It’s becoming an increasingly difficult and costly task to weed out the counterfeits but to the credit of the online retailers its given serious attention. Amazon in its Brand Protection Report for 2020 stated that it blocked 10 billion counterfeit listings and spent $700 million fighting fraud. Alibaba via its Anti-Counterfeiting Alliance working with major international brands seeks to leverage big data and the latest in anti-counterfeiting technology to fight the counterfeit industry.
4. Fake reviews and ratings
To make e-commerce work, platforms need a rating and review system that helps consumers make online purchasing decisions with confidence. Reviews are the one big metric customers rely on to determine the quality and authenticity of a product.
Turns out many of the reviews can’t be trusted. The review system as of today is broken. Fake human like text that looks very realistic are getting harder to tell apart from the real ones. Fake reviews have boosted the sales of unsafe products and hurts profits of legitimate sellers.
Sellers have become extremely sophisticated in gaming the system employing various means to artificially inflate the rating and good reviews. Some of which include;
- Thousands of Facebook groups whose members offer authentic-sounding five-star reviews for a fee.
- Bots and click farms that upload negative reviews to take out the competition.
- Bogus accounts created by sellers to write positive reviews on their own products.
- Some sellers even track down customers who leave negative feedback on listings and entice them with incentives or harass them to delete those reviews.
Acknowledging how fake comments severely reduce confidence of consumers, many platforms have developed automated tools to identify and remove reviews that are obviously fake.
- Amazon uses powerful machine learning tools and skilled investigators to analyze over 10 million review submissions weekly to stop reviews before they get published. At the same time it has banned hundreds of thousands of its customers from leaving reviews.
- Following an investigation by UK’s Competition and Markets Authority (CMA), Facebook removed 16,000 groups related to facilitating fake reviews.
5. Selling expired food
Another problem for e-commerce sites is in the groceries department dealing with third party sellers who sell expired food. These food’s expiration vary from a few days to even more than a year. They include canned food, baby milk powder, fruit juice, biscuits, chips, flavoured water and many more. While some just become stale upon expiry, others can pose threat to health when consumed.
The data analytics firm 3PM Solutions specializing in the Amazon Marketplace analyzed the e-commerce site’s 100 best-selling food products and found that at least 40 percent of sellers have more than five complaints about expired goods. Investigations show that there are companies who buy near expired and expired products from wholesalers on heavy discounts and sell them on various e-commerce platforms.
With Nielson and the Food Industry Association in the U.S. reporting that online food and beverage sales will top $143 billion by 2025 it becomes ever more urgent to tackle this problem. Major platforms require a minimum shelf life according to the category of food and size to allow them to be listed by third party sellers. And it has to be stated on the product page to be visible for the consumers. But more needs to be done.
6. Plastic pollution
Billions of packages(weighing hundreds of millions of pounds) are shipped every year. These packages are filled with air pillows, bubble wraps and other plastic packaging.
Oceana, an environmental nonprofit group, found that an estimated 22 million pounds of Amazon’s plastic packaging waste polluted the world’s freshwater and marine ecosystems in 2019.
More than 85% of Amazon’s customers said they are worried about plastic pollution’s impact on the oceans and want packaging alternatives that don’t harm the planet. However globally only 9% of the plastics are recycled. Amazon has said it is trying to address this problem by developing recyclable packaging. And Amazon in India has entirely eliminated single-use plastic in packaging.
A number of companies are trying to solve the problem, from mushroom packaging to advanced fibers.
- Footprint uses biodegradable fiber based materials to make frozen food packaging, microwave meal trays, meat trays, cups, straws and more, with production process 30-40% cleaner from an energy and emissions perspective and nearly as cheap as plastic.
- Zero Grocery, a plastic-free online grocery store, delivers items in reusable containers, mostly glass jars and silicone bags. Customers then leave empty containers out to be picked up by a delivery person and brought back to Zero’s warehouse to be refilled.
Conclusion
However unsexy they may be, these are hard challenges need to be addressed to provide a good experience for the consumers, increase revenue as well as for legislative compliance.
