Returns of retail merchandise have grown by 66% in the past five years, supported by a steep increase in e-commerce. US apparel sales through e-commerce grew by staggering 19.7% in 2015, compared to 1.1% in-store sales. The National Retail Federation reported an average return rate of 11% for apparel retail in 2015, with a 20% increase in returns during the holiday season.
With customer-friendly returns policies being imperative for any retailer, managing returns is a real challenge with high costs of handling returns and specific challenges of reverse logistics. Reverse logistics are highly complex due to factors like non-uniform product quality, lack of clarity over disposition options and inconsistent inventory management practices. It takes nearly 12 times as many steps to process returns than it does to manage forward logistics. With reverse logistics costs at an average of 8% of total sales for an average retailer, effective reverse logistics provides a competitive advantage. Liquidation of returned merchandise through secondary markets with focused marketing and sales ensures maximum value recovery of returned goods.
Top retailers can adopt the following practices for ensuring an optimal reverse logistics process:
Omni-channel returns: The increasing prevalence of omni-channel retail is forcing retailers to leverage multiple retail channels in enabling the returns process. Top retailers like Walmart and Home Depot are using physical stores and opening outlets/kiosks for returns of goods sold online. Along similar lines, Happy Returns is a startup that accepts in-person returns from participating online retailers at six malls in California, Chicago and Virginia. It uses the host mall’s concierge desk as “return bar” kiosks. The returned merchandise is sent to a regional processing hub, then on to retailers’ fulfillment centers, third-party logistics companies or liquidators.
Reverse auctions: Reverse auctions are used for secondary sales of returned goods. Having a private auction site for B2B returns liquidation provides more visibility, control over process and provides scope for performance improvement.
Real time processing: Since the speed of liquidation decides the level of value recovery, real-time processing of returned inventory enables value maximization from returns management.
Easy and flexible return options: Customers are increasingly being offered multiple options for processing their returns from on-demand mail, drop-off at convenient locations, to collection from the location of their choice. Metapack is a leading e-commerce delivery management technology provider, enabling flexible returns process for top retailers.
Returns policy: While a liberal returns policy is essential in driving sales, especially with high-end products, companies are increasingly trying to reevaluate their returns policy. For example, John Lewis amended its policy from 90-day to 35-day seamless returns, citing increased regularity of new product drops. Nordstorm has implemented a “with label” returns policy for high-end occasional wear to reduce the return of used merchandise.
Technology for inventory management: Leading companies capture and analyze customer and product-specific data from returns to improve product design and optimize processes and overall supply chain management. Trends in returns are also aiding companies in developing robust inventory management models. According to a recent IBM survey, 94% of retailers have shown interest in investing in cognitive computing. Predictive analytics and cognitive computing help predict future customer preferences and minimize return possibility.
An effective reverse logistics infrastructure provides significant competitive advantage to retailers with increase in customer satisfaction, brand loyalty and maximizing the recovery value of returned merchandise.