With what is sure to be another high-volume holiday season quickly approaching, businesses are doing everything they can to prepare their supply chains to get products to customers efficiently and on time. On the backend of the holidays, however, another challenge looms: holiday returns.
The influx of ecommerce purchases during the pandemic caused return rates to skyrocket. According to a National Retail Federation (NRF) report, U.S. consumers made approximately $428 billion worth of returns to retailers in 2020. That’s a 70% increase year-over-year. This year’s holiday season alone is expected to generate an estimated $70.5 billion in returns.
Online return rates can be two to three times higher than those of brick-and-mortar stores, hovering around 25-30%. With this holiday season expected to follow online shopping trends, automated reverse logistics strategies can help companies keep the goods flowing while minimizing a hit to their profits.
What is Reverse Logistics?
Reverse logistics is a form of returns management wherein the supply chain operates backwards, moving and tracking product from the customer back to collection centers, consolidation centers, and recovery facilities. Once returned, items can be resold, repaired, refurbished, recycled, or thrown away. The purpose is ultimately to recapture value or properly dispose of materials.
For many companies, reverse logistics remains a major pain point. Due to a long list of conflicting priorities, reverse logistics often falls low on the totem pole and remains largely manual. Some businesses train employees to manage the manual process with precision, while others find returns to be such a headache that they outsource the process altogether.
In today’s ecommerce environment, it’s critical to have an efficient returns management strategy. The NRF report found that for every $1 billion in sales, the average retailer incurs $106 million in returns. This can seriously erode profit margin.
Businesses deal with high processing costs when it comes to handling returns because items must be accessed for damage, repackaged, and shipped to alternate locations for resale or refurbishment. According to Locus Robotics’ CEO, Rick Faulk, this can cost retailers between $10 and $20 per item.
There are also environmental detriments to the U.S.’s return addiction. Many items that can’t be resold end up in landfills. And yet, for companies that do their best to recycle products, the process can be extremely costly and time consuming as it requires them to comply with strict safety regulations.
Inefficient returns management can also have a direct effect on your bottom line. A McKinsey survey found that one-third (33%) of customers would not shop with a retailer again if that retailer had a difficult return process.
Needless to say, it’s imperative to prioritize a reverse logistics strategy as we approach peak season to manage costs, customer satisfaction, and labor.
How to Ramp Up Your Reverse Logistics for Holiday Returns
Labor, accuracy, and order turnaround are the main pillars of a strong returns management strategy. The goal of processing returns is to get the returned items either prepared for resale or scrapped as quickly as possible. Doing so requires a level of control, discipline, and visibility that many retailers are still striving towards.
To streamline returns, businesses can partner with a trusted 3PL to leverage reverse logistics software and strategies that automate manual processes. The right partner can help businesses minimize profit impact of reverse logistics, free up resources allowing companies to focus on other aspects of the business, and more.
Reverse logistics software is meant to manage every stage of the return lifecycle and automate the process of identifying optimal return paths that will maximize ROI. Today’s reverse logistics software uses machine learning to analyze products, return policies, and sales demand. It can also collect data on why products were returned in the first place to inform future product updates and reduce the number of returns moving forward.
The Bottom Line
Returns will be a huge part of this year’s peak season and will continue to increasingly influence and impact the supply chain year-round. If you aren’t giving your reverse logistics strategy the attention and resources it deserves and demands, now is the time. Visit our Value-Added Services page to learn more or speak with a professional to take the first step toward optimized reverse logistics today.