Kai Li, REVOLVE’s Global mastermind, talks Dtc fulfillment optimization like no other

Southern California-based Revolve, which also owns www.FWRD.com, has always had customers outside the U.S., thanks to its visibility in Google searches and social media. But with Kai’s arrival, the company has undertaken measures to focus on worldwide customers’ experience, including reorganizing its international team. The company has opened logistics hubs to serve Europe, Asia and Oceania, offered free returns in certain geographies, and studied its customers’ behavior in various markets to better serve them. The results? Shorter shipping times, happier customers, and booming international growth rates.

Customer-first

According to Kai Li, Revolve’s VP of International, the company’s international growth strategy places the customer’s needs at the center of its approach. “You have to understand your value proposition and how it changes when you go into a different market,” says Li. “You re-evaluate in order to understand your customer, and make the customer experience a high priority. A customer in China is not identical to a U.S. customer in the U.S.”

Adjust your value proposition and surface content that meets their unique needs

Revolve uses local versions of its website in different regions, giving local consumers different options. “You adjust to the customer,” Li says. “In the U.S., people shop by styles. Asians shop by brands. We sort the most popular products on top when you come to the Revolve site. We use a weighted mechanism -- brand score, style score, size availability score. And we can customize that by region.” He adds that Revolve looks at a broad range of analytics, including conversion funnel metrics and shipping and logistics measurements, to make adjustments. “We iterate constantly,” Li says.

But today, we’re going to talk about how he has built the industry’s leading cross-border logistics management operations as an in-house “best kept secret”. If you haven’t caught my other interviews with Kai, you can find a nice one here on the Asian customer conversion funnel. But today we’re talking logistics so here are some questions and answers taken from the this logistics-focused interview.

Logistics/Shipping

1. Do you find your customers will wait for your product or need it asap?

If your products are unique and difficult to find, customers will wait for them. We have many products on Revolve that are pre-orders. In terms of shipping impact to conversion, it is easy to understand that the speed and cost of shipping impact conversion. Faster, cheaper or free are better. There is another aspect that we often forget: predictability, that is knowing when the package will be delivered can improve conversion.

2. Where do you house your inventory?

We ship to over 150 countries. All outbound shipments are shipped out from our warehouse in California. Our customers are always on the lookout for something different, we carry large assortments, more than a quarter-million styles, but shallow depth for each style, which makes splitting inventories difficult.

3. What is the tipping point for you to start housing inventory in a region?

There are Four factors that influence the decision to position inventory near customers:

1) Prediction accuracy – how accurately can you predict how much inventory will be needed, and for how long – it is a statistical question.

2) The opportunity cost of not selling that inventory to other regions. Generally speaking, the higher the prediction accuracy, the lower the opportunity costs; so these two factors are closely related.

3) The benefits of increased customer satisfaction. When you position inventory close to customers, shipping is faster, delivery dates are more predictable; your customers are happier, hence your conversion rate increases, repeat rate is higher, customer lifetime value increases; all these are positive values that encourage you to split inventory

4) Last, savings on shipping cost

Before we leave this topic, I want to point out, there are regulatory considerations. When you transact locally, you need to satisfy local regulatory requirements, for example beauty products need to obtain local certifications, apparel products need to have local sizes and labels. But, you can position your products in regional free-trade-zones or bonded warehouses to enjoy the benefits of regional inventory but transactions still count as cross border.

4. Shipping: You’ve mentioned that partnering with local shippers in country can save time/money. For example, talking about the difference between express and postal? Can you give some examples of how that has helped you in different markets?

There was a time when our daily volume to some regions was only a few dozen parcels, and the big global carriers didn’t want to offer us deep discounts. We worked closely with local carriers around the world to build customized lanes to increase shipping speed and reduce shipping costs. We arranged daily air cargo, with 100 lb minimum from Los Angeles to Sydney, London, and Hong Kong. Once cargo landed and cleared customs, we then injected parcels directly into local carriers. In the UK and Europe, we used DPD and Hermes, Australia we worked with TOLL, and in Hong Kong we worked with SF Express. This hybrid setup, cargo plus last mile premium carrier, enabled us to provide 3~4 days transit, at a fraction of the cost of global first tier carriers.

Take London as an example, you can get a parcel delivered for under $10 in 3 days. Today, there are many regional carriers that provide such hybrid services as off-the-shelf solutions. You don’t have to build your own anymore.

5. Return rate: Tell us why and how you discovered that a high return rate is actually considered a positive for your business. Why is that? What did you do to change it and is there a rate that is considered optimal?

I always remember one of my initial meetings with my manager Mike, our co-CEO. That was 5 years ago, he asked me about our return rate in the UK, I said about 15%. He said, “That is too low.” Obviously no one wants a high return rate, what he meant was there is a balance between attraction and friction. The inability to return a product, particularly women’s fashion products, creates purchase friction. A low return rate is an indication that our service in the region is less than adequate and prevented customers from trying our products. He was a strong supporter of offering free return services in the UK and Europe and many markets around the world. We now offer free return in more than 30 countries.

In terms of optimal level, there are so many factors that could impact it. Generally speaking, my analysis involves two steps:

1) I realize the return rate is not the same in different countries; using the fashion industry as an example, in Japan around 10% of products are returned, while it is 35% to 40% in Australia, 50% in the UK and 65% in Germany. We expect our return rate should be similar to the regional norm.

2) Given a specific return rate and the costs associated with providing return services along with the expected benefits in customer satisfaction improvement; on a net basis, do we at least break even. Generally speaking, you should always find yourself in net positive territory by offering local returns.

6. What is a duty draw back and do you file for drawbacks on returned goods?

Duty drawback is the refund of duties, taxes and fees collected during importation. For example, when I ship a parcel to the UK, I pay duties; when customers return it, after I export it out of the UK, I have the right to get refunded. We have a large scale of drawback operations around the world.

7. Do you leverage free trade zones?

Yes, but not yet at the full extent. Some of our regional return processing centers are located in free-trade-zones to avoid double duty.

8. You still ship globally from your warehouses in Los Angeles. Why have you resisted the urge to move inventory closer to your consumer?

There are a number of factors you need to have visibility over in order to make that calculation. For REVOLVE, regulatory and compliance issues have an impact. For example,

We transact everything cross border, so we don’t need to re-label our products to satisfy local regulatory requirements. as long as customers are the importer of record in the destination country, and the export of record is in the U.S., then local product level compliance requirements are waived in most cases. This applies to almost all countries, with a few random exceptions. For example, beauty and footwear products are difficult to import into MX; Italian customs have certain limitations on the number of units per parcel for beauty products.

Let’s talk websites

1. What store platform do you use? Why?

We have our own proprietary technology. We found it is more efficient and gives us more flexibility to support our customers, and makes us more agile.

2. Is Revolve.com the global site? Do you have in-country sub-domains like Revolve.fr etc. If not, why not?

Revolve.com is a global site. I do have multiple ccTLDs, which I inherited, and want to get rid of. Different cctlds are considered as different domains. I want to aggregate all the backlinks behind a single domain, which helps my ranking. We are not a dominant player like Amazon, which has plenty of backlines to endorse their ranking. Even for Amazon, if you visit Amazon and scroll all the way to the bottom, you will see they cross list all the sites. What they are doing is carefully sharing amazon.com link juice to other baby Amazons.

3. How do you deal with language and time zone barriers?

We offer local customer services in Europe, Asia and North America, in local hours and languages.

Now returns..

1. How do you handle returns from overseas consumers?

We have local return centers across 4 continents, Asia, Oceania, Europe and North America. Overseas returns are shipped back to Orange County, California via air cargo periodically, through special customs clearance procedures so we don’t double paying duty.

2. How do duty-draw backs work from the customer’s perspective? Do they just get a refund for the total paid including their Duties and Taxes and REVOLVE has to work out the reimbursement with the local government?

We refund customers in full, we then file drawbacks. It takes 2 to 18 months to get reimbursed depending on which governemnt customs authority you are dealing with.

3. Do you use any after-sales service companies in overseas markets?

We outsource return processing in overseas markets, so we don’t have to establish local entities, manage employees, etc.

4. Which countries’ return culture is the highest? Lowest?

Average return return rate in Japan is low. Germany, UK, US have high return rates.

We cover a lot more ground in the video interview so feel free to watch it at your convenience. If you have further questions, don’t hesitate to send me an email with some details and we can figure this all out together. Again, check out another Kai interview on Asian conversion funnel here.