Reducing retail supply chain costs of product returns using digital product fitting

Abstract

PurposeThis paper investigate how fit uncertainty impacts product return costs in online retailing and how digital product fitting, a pre-sales fitting practice, can reduce fit uncertainty.Design/methodology/approachThe paper analyzes the current performance of a retailer's e-commerce and return operations by estimating costs generated by product returns, including product handling costs, tied-up capital, inventory holding costs, transportation costs, and order-picking costs. The estimated costs were built on 2,229 return transactions from a Scandinavian fashion footwear retailer. A digital product fitting technology was tested with the retailer’s products and resulted in estimations on how such technology could affect product returns.FindingsThe cost of a return is approximately 17% of the prime cost. The major cost elements are product handling costs and transportation costs, which together amount to 72% of the total costs. If well calibrated, the fitting technology can cut fit-related return costs by up to 80%. The findings show how customers reacted to the fitting technology: it was unable to verify fit every time, but it serves as a useful and effective support tool for customers when placing orders.Research limitations/implicationsVirtual fit verification using digital product fitting is key to retailers to reduce fit-related returns. Digital product fitting using three-dimensional scanning is more appropriate for some products, but it is unsuitable for products that are difficult to measure and scan.Originality/valueThe paper contributes an empirical estimate of retail supply chain costs associated with fit uncertainty, as well as theoretical understanding of the role of pre-sales fit verification in avoiding product returns.