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Although key to retailers’ success, reverse logistics is an expensive endeavor that potentially costs trillions of dollars each year. As e-commerce continues increasing in popularity, so do return items. In addition to the headaches returns bring to e-commerce providers, generous policies can lead to serial returners or consumers who regularly buy and return items, draining retailers’ pockets in the process.
The thing is, whether purchasing in-store or online, consumers expect retailers to provide hassle-free returns. Although many shoppers prefer returning online orders to a physical store, UPS found ease and free return shipping are the leading reasons shoppers ship purchases back to a retailer for a refund.
By tracking and managing tagged products throughout the supply chain—from their digital birth certificate to final destination—and implementing processes that increase visibility, retailers of all types can better manage reverse logistics challenges and keep rising costs at bay. Let’s take a look at some of the issues surrounding reverse logistics and how new technologies and processes can help.
Returned Goods Drain Retailers’ Finances
More than $112 billion in merchandise was expected to be returned following the 2021 holidays, according to an eCommerce Bytes article. And while brick-and-mortar retailers have to refund their fair share to customers, online purchases are returned at double the rate of in-store ones. Further, CBRE found e-commerce returns cost companies an average of 59% of an item’s original sales price. In other words, returns are a financial drain.
According to the eCommerce Bytes article, it’s estimated that fewer than 10% of returns make it back to primary shelves or the original manufacturer. Instead, returned goods often end up in the secondary platforms/liquidation channels where items are repurchased by resellers or consumers. Some returns are tossed away, and others are refurbished, repackaged or upcycled.
The profit margin of selling a returned good is so small that some retailers are actually looking at returns from a customer experience viewpoint instead. I’ve observed that some of the largest retailers are adopting a quick fix of allowing customers to keep or toss away the product they want to return rather than manage a disruptive reverse logistics process. For instance, a consumer will go online and start the return process for a 40-pound, open bag of dog food. Knowing it’s more cost-effective to process a return without asking for the dog food back, the retailer reimburses the shopper anyway instead of taking the return.
Pursuing this, however, could be a slippery slope. When this policy moves to more expensive goods, it could actually encourage return abuse. In fact, one study found that 30% of shoppers deliberately over-purchase and then return unwanted items. Retail behemoths like Amazon flag accounts hitting concession limits and could refuse returns on orders from serial returners, but smaller retailers might not have the sophisticated systems in place to follow suit.
Further, there are other, more sinister types of returns that financially strain retailers: counterfeit goods and returns fraud. For counterfeit goods, a consumer purchases a real and a fake Gucci bag and then tries to return the fake one. For returns fraud, a shopper buys an expensive and a sale item, swaps out the tags and attempts to return the cheaper item for the costlier one. Without an effective track-and-trace strategy in place to authenticate an item, the thief just might get away with either scenario.
Traceability Is Key
Increasingly, brick-and-mortar and e-commerce retailers are investing in strategies and technology that tracks items throughout the supply chain, including the reverse logistics process. By incorporating tagging and tracing, they’re gaining visibility and making it easier to get the merchandise back on the market.
Traceability technology can simplify the reverse logistics process by making it less labor-intensive and easier to accept returns like this more efficiently. (Full disclosure, my company offers this type of technology, as do others.) The financial stress of writing off inventory can also become less likely, and inventory could actually generate a profit once it’s resold.
Another benefit track and trace can provide is merchandise-related data. Was the size-small sweater mislabeled, or does its manufacturer commonly have sizing-related issues? Invaluable data gleaned about goods and their suppliers can help retailers understand many things, including whether a certain supplier’s merchandise comes back frequently.
Revamp Your Processes
Technology aside, retailers can decrease the number of items going through the reverse logistics process by tightening up their returns policy. They can refuse to refund the purchase of an item—in-store or online—that comes back without a receipt and make clear that certain items, such as bathing suits, undergarments or even alcohol, are ineligible for return. Before going this route, however, they need to be sure this policy is crystal clear at the point of purchase.
Further, they can consider running analytics to find out whether certain SKUs are returned more than others. If so, retailers can flag these returns and take the time to investigate the item for return abuse. Also, like Amazon, if certain shoppers have a pattern of frequent returns, they can refuse these consumers’ future returns but let them know before doing so.
Lastly, including a smart label, an item identification slip with more advanced information than conventional bar code data inside the package being shipped to the customer can help improve return logistics. Better organized workstations when specific returned products go to a certain person will allow them to easily spot an item that is an imposter good.
The bottom line is this: reverse logistics can be a necessary but costly process that retailers need to satisfy today’s demanding consumers. And if retailers’ return processes are clunky, inefficient and financially draining, it could be time to incorporate technology and processes that help smooth it out instead of letting returned items go by the wayside.