How players profit in a world where ecommerce return rates reach 90%

In a recent discussion with a top live commerce MCN from China, I casually asked “what is the return rate for your category?”

“Guess?” The head of merchandising replied. 

“60-70%?” I asked, referencing some numbers I have learnt from a few adjacent categories. 

“Much higher than that – close to 90% now, which is not great” she said in a calm tone, adding “but we still manage to make a profit”. 

My obvious next question is “how?”.

It turned out that, to anticipate 900 units sold for a particular SKU, they would prepare only 100 units in stock. The profit is achieved through a combination of pre-sales, staggered delivery times, efficient logistic arrangements and other operational arrangements. 

Yesterday, when I was talking to the owner of one of the largest ecommerce packaging manufacturers, I told him this. He responded “no wonder the demand for our bags and labels have been growing much faster than the macro ecommerce numbers.” 

I am writing this from the city of Yiwu, half an hour away from Hangzhou by high speed rail. You might know Yiwu as the place where traders, brands and sellers from all over the world source goods. The city is much more than that – it powers the ecommerce in China. 

During the first half of 2024, on average 33 million ecommerce parcels every day were sent from Yiwu to other parts of the country. The city’s 1.9 million population works with more than 1.1 million businesses based there. 

Over the years, the city’s business sector has been a key enabler of various ecommerce platforms in China, from Alibaba platforms to Pinduoduo. As we drove past the industrial parks yesterday, we saw a lot of ecommerce logistics properties being built by Cainiao and SF Express. 

We are adding Yiwu to the agenda of the Momentum Works Immersion: ecommerce and live commerce in October this year. 

In the 1/2 day visit to Yiwu, we will:

1. Visit important supply chain and logistics facilities that serves cross-border customers;
2. Briefings and facilitations with business leaders to see the whole value chain and real operations of goods for ecommerce;
3. Closed door discussions with business leaders – understand how the *real*  evolution over the last decade will shape the future developments by major platforms; and 
4. Potential cross border business collaboration in supply chain, and operations

This will put the visits, sharings and networking you will have in Hangzhou in a much more concrete perspective, and answer some of your very practical questions about your ecommerce strategy and operations. 

What struck me the most these two days in Yiwu is a comment from one of the leading businessmen here: “Instead of complaining about the macro economy, my peers should really focus on upgrading their products to be more technologically sophisticated and competitive. If you do not, no matter how good your relationships are with your clients, you will lose out in the end.”

“Because your clients will need to compete against their competitors,” he added.  

If you want to find out more about this ambitious immersion happening 15-17 October 2024, leave your details here and we’ll reach out to you for a chat.