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

Purpose – This paper investigate how fit uncertainty impacts product return costs in online retailing and howdigital product fitting, a pre-sales fitting practice, can reduce fit uncertainty.Design/methodology/approach – The paper analyzes the current performance of a retailer’s e-commerceand 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 werebuilt on 2,229 return transactions from a Scandinavian fashion footwear retailer. A digital product fittingtechnology was tested with the retailer’s products and resulted in estimations on how such technology couldaffect product returns.Findings – The cost of a return is approximately 17% of the prime cost. The major cost elements are producthandling costs and transportation costs, which together amount to 72% of the total costs. If well calibrated, thefitting technology can cut fit-related return costs by up to 80%. The findings show how customers reacted tothe fitting technology: it was unable to verify fit every time, but it serves as a useful and effective support toolfor customers when placing orders.Research limitations/implications – Virtual fit verification using digital product fitting is key to retailersto reduce fit-related returns. Digital product fitting using three-dimensional scanning is more appropriate forsome products, but it is unsuitable for products that are difficult to measure and scan.Originality/value – The paper contributes an empirical estimate of retail supply chain costs associated withfit uncertainty, as well as theoretical understanding of the role of pre-sales fit verification in avoiding productreturns.