Major online retailers, such as Amazon and Walmart, have recently started leaving customers with purchases they would like to return to the store – and simply refunding them without asking for the item back, the Wall Street Journal reported (Kapner & Ziobro, 2021). When trading online, the cost of returning a product to a retailer can exceed the price of the order itself: it can cost $10-20 to process a single online return. In past years, large online stores encouraged shoppers to return online orders to stores on their own: first, this reduced their shipping costs, and second, when the customers came to the store, they could often buy some additional goods.
However, due to the pandemic, the percentage of such returns has decreased as a result of the reluctance of buyers to visit public places and restrictions imposed on the operation of the stores themselves. According to Narvar, the number of companies processing online refunds jumped by 70% in 2020 (Narvar, 2020, as cited in Kapner and Ziobro, 2021, para. 11). More than 50% of this increase resulted from the boom in online shopping, and more than 25% of it was due to the fact that customers avoided returning online orders through stores. Thus, retailers had to go to extreme measures: it is more profitable for them to leave an order with a customer than to demand the return of the goods.
Connection to Globalization Drivers
Technology and especially the Internet are one of the key drivers of globalization in trade. The digital transformation of society under the influence of the explosive growth of cross-border data and e-commerce has led to the next stage of globalization, a characteristic feature of which is becoming a new form of organizing economic relations – the digital economy (Arnason, 2019). A new phase of globalization has come with the growth of cross-border digital transactions through virtual goods and services.
Being ahead of the entire industry already before the coronavirus crisis, large trading platforms have gone far ahead from online divisions of retail chains and online stores of the middle segment. However, the news presented by The Wall Street Journal suggests that the development of infrastructures in the global retail sector is not as resilient as previously thought (Kapner & Ziobro, 2021). The traditional logic of businesses ‘infrastructures’ development and advancement does not respond to the threats posed by dramatic changes in consumer behavior. National and global restrictions directly or indirectly affect the way businesses operate.
On the one hand, online retail seemed to be the sector least hit by the pandemic crisis. The already existing and developing infrastructure does not meet the previous standards of globalization and, moreover, is not competent within the regions and cities within national states. Previously, online retailers worked with well-established logistics chains, including a vast network of their own and partner couriers, pick-up points, and fulfillment centers. With the advent of the pandemic, these chains have broken, necessitating new solutions. Until they are found, the globalization of trade has slowed down in this sector as well.
How Can Others Learn From It?
The cases of Amazon, Walmart, and other companies in this regard demonstrate two crucial points. First, alleviating the risks and damages of “failed” business infrastructures can be done through artificial intelligence. It is used to assess the need for a return: Walmart reported that it takes into account such data as the value of the item, the cost of processing a return, the likelihood that a returned item will be sold again, and the customer’s purchase history (Kapner & Ziobro, 2021). Second, the businesses’ operations disruption and change lead to new threats that require novel solutions. The latter often involves the development and implication of artificial intelligence technologies.
New business practices result in a variety of potential and real challenges. As The Wall Street Journal notes, scammers are already trying to make money on the new return method (Kapner & Ziobro, 2021). Most often, they claim that the product was defective, and then, using social engineering methods, they try to convince store employees to return the money without sending the product back. In another case, scammers tell couriers that they are afraid to sign for parcels during a pandemic due to fear of contracting Covid-19 and then declare that the order was not delivered to them. Companies try to combat these types of fraud using different algorithms: for example, they are more likely to suspect fraud if a customer’s account was recently opened. Because of this, advertisements for the sale of long-standing accounts appear on the darknet.
It is widely believed that the pandemic has presented a unique opportunity for online commerce to grow. On the one hand, all players note an increase in the number of online consumers. On the other hand, analysts argue that the industry was growing at an outstripping pace even before the Covid-19 pandemic, and the current situation only intensified the trends that emerged last year. This news, however, shows that online retailers were not ready for the challenges of the pandemic, and the previous logic of the development of their Internet infrastructure was defeated. The main lesson of this news is that any business should be prepared for severe disruptions in crises, even if the sector seems to benefit from the situation.
Arnason, M. (2019). International business in a new age of global disruption. Published online on TopHat.
Kapner, S., & Ziobro, P. (2021). Amazon, Walmart tell consumers to skip returns of unwanted items. The Wall Street Journal. Web.