Daybreak - Online shopping is no fun without free returns. But Myntra, Ajio hate them

Episode Date: April 1, 2024

The entire logic of buying online instead of going to a store rests on e-commerce companies making it easy to return stuff. What if it doesnt fit me? What if it is damaged? Just ask for a return and someone comes to your doorstep and picks it up. However, as it turns out, e-commerce companies hate returns because reverse logistics are a costly affair for them.  Now, the likes of Ajio and Myntra are changing their return policies. Some are even blocking some customer accounts.  But are customers ready to give it up yet?Tune in.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. If you order stuff from e-commerce websites like Mintra and AGO, you're either a good customer, a bad customer or an ugly customer. Yeah, that is how e-commerce companies have been categorizing you and I lately. And no, it is not based on how much money you spend on these

sites. It is based on how often you return items. Now, I'm speaking for myself here, but I'm sure this holds true for most people that the whole point of not going to a store to buy clothes and ordering stuff online is the fact that e-commerce companies make it easy to return stuff. What if it doesn't fit me or what if it is damaged? Just ask for a return and somebody comes to your doorstep and picks it up. And it's all free. So no problem, right? Actually, there is a problem.

E-commerce companies hate returns. Because as it turns out, return or reverse logistics is a very costly affair for them. And now, it's come to a point where the likes of AGO and Mintra are changing their return policies and some are even blocking some customers' accounts. But the question is, are customers ready to give it up yet? Also, what about the logistics services companies like delivery and blue dart and shadow facts? Because for them, returns are a huge source of revenue.

Welcome to Daybreak, a business podcast from the Ken. I'm your host Nick Das Sharma and I Don't Chase the New Cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Monday the 1st of April. You know what a Flipkart executive told my colleague Noha Burberry? Let me tell you in their exact words. And I'm quoting,

At a Flipkart warehouse somewhere right now, a witchmaster or an e-card delivery executive is sniffing the returned apparel to decide which section to put it into, fresh, refurbished or scrap. It is gross. And if the customers think they are fooling us by returning you, used clothes, they are not. End quote.

By the way, E-Cart is Flipcott's own logistics facility. Mintra 2 has Mintra Logistics and AGO works with delivery, Ecom Express Express Bs and Shadowfax. Still, 10 to 20% of customers' orders are outsourced to 3PL or third-party logistics companies like delivery. And this is mainly because only they have services in certain areas. Now, coming back to the good, bad and the ugly. An Agio warehouse manager explained the categories to us. Apparently, a good customer is someone whose return rate is as low as 20%.

Someone with a 20 to 40% return rate falls under the bad customer bracket. And others with even higher return rates are branded as poor or ugly customers. So now that you know whether you're good, bad or bad. ugly, let us try to understand the why. And to do that, we have to look at the logistics of returns a bit more closely. So, a 3PL service provider like delivery or Shadowfax charges e-commerce companies anything between 40 to 100 rupees to deliver a forward side package, which is from the e-commerce company to the customer. But reverse logistics, which is from you back to the e-commerce company, costs it.

at least 15 to 20 rupees more per item. For example, a manager involved with AGO's supply chain team told the Ken that the cost of forward logistics for AGO is approximately $38. For reverse logistics, it pays an additional $22. Now, you may ask, why is it so expensive? Remember the E-Cart Wishmaster sniffing returned clothes? Somebody has to check the returned items.

3PL companies charge the brands 5 to 10 rupees for receiving an item, unpacking it, examining it and adding it to the inventory for the next customer. An executive told us that nearly 30% of the items come back as returns. And of this, 8% goes back to the inventory. The remaining will eventually go back but it would need some fixing like stain removal, stitching and button fix, etc. So, the more the delivery distance, the higher the fee e-commerce platforms pay these 3PL companies. And it is because of the same reason that e-commerce companies have divided areas for deliveries into five zones.

For a factory outlet located in Delhi, a customer who lives within the city would be in delivery zone A. Outside that area, up to a distance of 150 kilometers would fall under zone B. But this is only if the item is transported directly without stops in the middle. For example, between Delhi to Greater Noida or Bangal to Mysore. Every other place in the whole country falls under Zone D. And then, there are also far-off locations like Jammu and Kashmir, the Northeast States and the Andaman and Nicobar Islands. They all are under Zone E. Naturally, Zone E is also the most expensive.

So understandably, in all of this, while delivery companies are benefiting the most, e-commerce companies are losing out. So what are they doing about it? I will tell you in the next segment. The most extreme measure that we came across was Reliance's Agio. It is quite literally blocking off customers accounts. On average, Adju, which has nearly 20 million monthly active users, blocks 150 accounts every week.

A warehouse manager told my colleague Nuhar that it was an organization-level call after a meeting with the Chief Experience Officer or CXO. Mintra, meanwhile, altered its return policy in November 2022. And then it imposed a convenience fee of $2999 on customers whose return rates were thrice the average. The irony here is that Mintrae is that Mintraud. Mintra used to encourage customers to return items as a part of its customer acquisition strategy.

In June 2023, Mintra reduced the standard return period from 30 days to a fortnight. Flipcott, which Mintra is a part of, had already done this back in January 2020 when it brought it down to 10 days. But a former Flipcott category manager told us that this did not help because 80 to 90% of their customers, return the items within the first three days of purchase. During the same period, Mintra also introduced the concept of a no-return coupon. The idea was to give a 15% discount for items on the checkout page in exchange for customers giving up their power to return. Flipcott, meanwhile, began giving away low-value items worth between 100 to 150 rupees for free

if customers requested a return. Agio 2 provides a refund of 50 rupees on the complete order if the buyer cancels their return request. Now, all of this does seem to be helping because all these e-commerce companies are seeing a gradual drop in their return rates. But ultimately, the question that remains unanswered is this. What will shopping online be without free and easy returns? Because you can't just get your customers used to something so crucial that shapes their entire shopping experience and then suddenly take it away from them. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business

news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head to the Ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host. And today's episode was edited by my colleague Rajiv Sien.