GETTING A RETURN ON YOUR RETURNS: HOW REVERSE LOGISTICS STRATEGIES CAN INCREASE REVENUE

The shirt you instantly fell in love with on Instagram and purchased through the app has arrived at your doorstep. One big problem: it doesn’t fit the way you’d hoped and the color isn’t exactly what you imagined. Back to the post office it goes. 

Returning unwanted items is an increasingly common scenario for consumers, and retailers are scrambling to accommodate them through reverse logistics. This is the process of moving returned goods from the shopper to one of three places: back to the seller, back to the manufacturer, or to a recycling center or scrap yard for capturing value or for proper disposal.  

Simply put, returned and excess inventory can negatively impact retailers’ supply chains. This is why implementing a reverse logistics strategy is crucial for maintaining an effective and profitable operation. 

The return rate for the retail industry in the U.S. and Canada averages 8 percent of total sales, according to retail analytics firm The Retail Equation. Purchases made through online sales, or e-commerce, account for a large portion of total retail sales and have an even higher return rate, ranging from 15 percent to 30 percent depending on the product type. 

The culture surrounding e-commerce has placed additional scrutiny and pressure on the return strategy. Without the physical experience of seeing, touching or trying on an item, e-commerce shoppers have become accustomed to buying multiple items, sometimes with the intent of returning some of them. Unsurprisingly, this problem becomes more prevalent during the holiday shopping season. (Case in point: A customer looking for pajamas to gift her mother orders the set in two sizes to see how big they run, then ends up returning one pair.) In 2017, approximately $107 billion in products were sold online during the busy November and December shopping period—that generated more than $30 billion in returned merchandise. 

FIGURE 1: 2017 U.S. HOLIDAY E-COMMERCE SALES AND RETURNS

_{Source:  Adobe, November 2017}

To put this in perspective, the average online purchase of $82 equates to 390 million packages being sent back into a distribution network that cannot effectively handle such huge volumes of returns. 

The solution to the reverse logistics problem is improved and expanded supply chain networks, creating tremendous industrial real estate opportunities as users add additional warehouses and distribution centers to support the reverse flow of inventory. Third-party logistics (3PL) operators and facility owners are benefitting from a rapidly rising rate of retail returns. In response, many retailers outsource their reverse logistics operations to cut costs and gain maximum efficiencies. 

Reverse logistics companies like Washington, D.C.-based startup Optoro work with retailers to help them optimize, manage, process and sell returned overstock inventory in an efficient, economical way. In fact, the tech company’s proprietary software supports comprehensive receiving, processing and routing of inventory for every disposition channel including direct to consumer, clearance, return to vendor, to recycle or to be donated to a charity. This seamless process has garnered partnerships with Groupon, Target, Staples and other large retailers. 

Reverse logistics companies like Optoro are not only helping those businesses economically, they’re also helping to reduce landfill waste. With consumers’ growing concern and interest in retailers’ sustainability efforts, implementing strategies that allow them to be transparent about how they reduce their waste streams is critical to a brand’s reputation. 

CBRE Research estimates that 3PL users occupy 700 million square feet of warehouse and distribution space in the U.S. and have been growing by 3 percent to 5 percent annually since 2013. 

With consumers’ unwanted items making their way back into retailers’ supply chains, it’s imperative for companies to take the proper measures to ensure that cohesive reverse logistics strategies are in place. In a perfect world, shoppers would be 100 percent content with their purchases. Until then, retailers need to get serious about the proper management of their returned items to ensure a seamless and cost-effective operation.on