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

Journal article, 2021

Purpose – This paper investigates 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/approach – We analyzed 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. We then tested a digital product fitting technology with the retailer’s products and estimated how such technology could affect product returns.

Findings – The 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%. Our 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/implications – Virtual fit verification using digital product fitting is key to retailers to reduce fit-related returns. Digital product fitting using 3D-scanning is more appropriate for some products, but it is unsuitable for products that are difficult to measure and scan.

Original/value – The 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.