The post-holiday spike in gift returns can potentially cause losses for retailers. Here’s how companies can mitigate the costs.
The eCommerce sector has exploded in recent years, with some studies estimating that global retail eCommerce sales will reach $6.54 trillion by 2022 — a more than 500 percent increase from $1.3 trillion in 2014. However, as the popularity of eCommerce continues to rise, a number of challenges are coming to the fore, including the necessity of a robust reverse logistics plan.
At a high level, reverse logistics refers to any operation that moves products from their typical destination to another location for disposal or for capturing additional value. This includes recycling, refurbishing, and product returns. There are seasonal fluctuations that come into play with reverse logistics — they tend to increase in volume after the holidays, when many more customers are seeking to return or exchange items.
The rise of free or low-cost shipping has altered consumer buying habits in a way that directly affects reverse logistics. For instance, it’s become common for customers to order multiples of the same item in different colors or sizes to ensure they get something that fits and then return the others. Not only is this model costly for businesses — especially for smaller ones that might not be able to take a financial hit — but it is creating a number of challenges for retailers.
Addressing Challenges in Supply Chain Management
Cost aside, the single biggest reverse logistics challenge is whether retailers will build or buy their returns process. If retailers choose to build their own reverse logistics supply chain, it’s essential to create and maintain a consistent distribution process. Consistency is important because how the product is handled once the retailer has regained ownership will drive a number of subsequent processes, from how refunds are disbursed to how the product is integrated back into inventory and warehouse management.
Investing in a third party logistics provider (3PL) streamlines this process by eliminating many concerns for retailers. However, the shift to multi-client operations comes with its own set of challenges. Integration and associated management of the customer experience means that data management becomes key. Once 3PL providers are in charge of the returns process, they — and not retailers — are directly engaging with customers.
Most 3PLs have some part of their business that handles returns and liquidation, but the risk is in building an extra degree of separation between the retailer and the customer. This isn’t inherently a problem, but it does require paying extra attention to ensuring that 3PL partners have the right information to act on the retailer’s behalf in a way that aligns with the retailer’s brand and consumer expectations.
The Role of Technology in Holiday Returns
Given that eCommerce operates in digital spaces, online retailers should consider leveraging digital solutions to optimize their return logistics supply chains. One solution that’s becoming increasingly popular is to use AI or machine learning to build profiles of buyers — much like how Amazon provides recommendations to customers based on previous purchases — with the goal of reducing the overall return rate.
Another way that retailers can optimize the reverse logistics process is to embrace voice picking technology. Because holiday returns are data-intensive, solutions that remove steps, reduce costs, and increase speed are essential to mitigate the loss that looms over reverse logistics. Implementing automated voice technology in the warehouse leads to reduced costs and burden on the retailer — and ultimately boosts ROI.
Reverse Logistics and a Sustainable Supply Chain
Reverse logistics supply chain sustainability is another factor for retailers to take into consideration. Fortunately, there are important steps supply chain managers can take to help reduce waste and maintain longevity.
One of the first (and most important) steps is for retailers to optimize distribution. This means ensuring that products are shipping from the right source of origin when en route to the customer. Not only does this cut down on the associated transportation and distancing costs, but it also requires fewer carbon emissions. Further, route optimization can help mitigate the return costs, should the customer not want to keep the item.
Another way that retailers can reduce waste is by not including return labels with original shipments. This not only cuts down on paper usage, but also requires customers to take the extra step to initiate a return. Going paperless when tracking the original shipment — and if necessary the return — can reduce environmental impact and create a more sustainable supply chain.
While retailers can’t control market patterns and seasonal return fluctuations, they can optimize their operational processes and standardize their business practices to maximize efficiency. This strategic planning, when paired with a well-coordinated supply chain, will help companies minimize the cost of returns while keeping their customers satisfied.