Reverse logistics in 2021: How to brace for the increasing impact of returns

Consumers were expected to spend nearly $235B this holiday season, according to CBRE. And with that spend comes returns.

Reverse logistics in 2021: How to brace for the increasing impact of returns

We’ve all been there: Smiling weakly at yet another “festive” cat sweater, gifted to you by Aunt Margie. Getting the AirPods case already have three of. The set of glassware that doesn’t match anything in your kitchen. That work of “art.”

Sure, the holidays come with great intentions—but that also includes the intention to return things we didn’t want. Consumers were expected to spend nearly $235B this holiday season, according to CBRE. And just under a third of purchases, about $70.5B’s worth, are expected to be returned.

Pair that with shipping and mail delays from overloaded providers, like the delays in the U.S. Postal Service that caused millions of gifts to arrive at their destination later than planned, and already-difficult reverse logistics become even trickier for many businesses.

The problem is that reverse logistics—the process of transporting goods back from the customer to the business—is costly and labor-intensive. It means spending time and resources on a product that’s no longer an asset but a liability. It creates an outsized impact on your business, and the impact has only increased since the start of the pandemic.

In this article, we’ll cover everything from the basics to the best practices and how to prepare for 2021’s continuing e-commerce boom.

 What is reverse logistics—and why does it matter?

Reverse logistics refers to the processes behind the return of goods, from their destination (in a consumer’s hands) back to their origin (the merchant) or a third location (like a distribution warehouse).

Although integral to a business’s success, reverse logistics is a big, expensive problem—and it has been for years. And recent years have brought new trends to the forefront, like increased e-commerce sales, cross-channel returns and the return of bulky goods. And those trends have been amplified by COVID-19.

 Returns cause headaches for a number of reasons

For customers, returns are pretty easy. But they don’t see what happens after they drop off the item at the post office or customer service counter. Jennifer Smith, writing for The Wall Street Journal, reported that “once an unwanted item is packed up and removed from the customer’s home, retailers must assess its condition and decide whether to resell it, liquidate it or send it to a landfill. Rejected goods may end up traveling hundreds of miles back to a warehouse, tacking on considerable transport costs.”

Here’s why it’s a headache:

  • Returns are (really) costly for businesses. Returns cost the retail industry trillions of dollars each year between the cost of shipping, warehousing, replacements and more. Simply not offering free shipping/free returns could help if it wasn’t such a huge factor in purchase behavior. According to research by FedEx, as reported by RetailWire, “34 percent of consumers [report] lack of free returns shipping as a top reason for cart abandonment.”
  • Returns aren’t eco-friendly. In an article in The Guardian, logistics company Optoro reported that 88 percent of consumers believe returned goods are resold as new. However, the majority of returned items cannot be resold, ending up in landfills. “Landfill waste from returns alone contributes 15 million metric tons of carbon dioxide to the atmosphere,” Optoro said.
  • Returns put a more intense push on inventory and supply chain efforts. An increase in e-commerce purchases obviously increases the number of cross-channel returns—which are far more complicated for retailers than meets the eye. Say you buy a coat online, and it doesn’t fit; you might decide to go to the store to try on another size and return the original coat. The retailer now has to enter the coat back into the system...and now has a surplus of inventory in-store.

 The impact of returns during COVID-19

COVID-19 added a supply chain shock factor no retailer wanted. And the rising amounts of purchases and subsequent returns will affect both in-store and e-commerce businesses.

E-commerce purchases enable in-store returns—even during the pandemic. Data analytics company Inmar, Inc. found that close to 60 percent of consumers still prefer to return online purchases in person.

When a retailer has to quarantine/disinfect each product that’s returned, they need a whole new set of safety protocols in place for returned goods, ultimately upping the cost for the retailer—and the environment. As a result, more and more retailers encourage their customers to keep or donate things that they want to return.

Stay-at-home orders have also caused an upswing in the buying of bulky items, like office furniture and exercise equipment. Those typically have a lower rate of returns. But this year, bulky item returns are up 200 percent, according to reverse logistics company goTRG.

One solution: A more relaxed returns policy. With many stores closed, retailers remain prepped for sudden surges in returns by adopting more relaxed returns policies to try and quell an all-at-once uptick. When you extend your returns policy, a customer doesn’t feel pressured to love a product right away, mitigating urgency-fueled returns.

 As e-commerce sales soar, so do returns

Returns from the holiday 2020 season are expected to increase by as much as 73 percent (compared to the previous five-year average).

During 2020’s shutdown, consumers showed continued resiliency—even with their spending habits. Online sales in the U.S. increased at a steep rate in 2020, especially during the winter holiday season. Numbers for the 2020 season are still being tallied, but The National Retail Federation (NRF) projects holiday e-commerce numbers to reach an increase between 20 and 30 percent, and totals could reach up to $218.4 billion, up from $168.7 billion in 2019.

On the contrary, there was a deceleration in retail sales globally in 2020. According to Business Insider’s Global Ecommerce 2020 report, “Brick-and-mortar [sales] has been downgraded to account for demand shock, an unprecedented shift towards digital buying and anticipated challenges as physical stores gradually recover from closures and interruptions to cash flow and supply chains.” This insight tells us one thing: e-commerce will only grow, and a smooth reverse logistics process will only become more important to retailers and their customers.

 How to brace for impact in 2021

Reverse logistics is a complicated beast, but retailers have several tech-enabled options that can help.

Work with third-party logistics providers (3PLs). 3PLs offer several reverse logistics services to businesses big and small. Along with offering a solution for transportation and storage issues, 3PLs can pick up returns and take them back to a warehouse or other restocking site, offer supply chain and inventory management, handle customer refunds and more. In one example, waste-free meal delivery service Oco Meals uses a 3PL to pick up used meal containers from its customers and return them to Oco to be refilled.

Consider a frictionless solution. A frictionless solution looks like using software to automate the return and exchange process, providing shoppers with a seamless self-service experience or allowing customers to choose from several convenient options to make their return. Frictionless returns may seem counterintuitive—if the process is easier, won’t that increase returns?—but in reality, it’s quite the opposite. So, e-commerce returns company Happy Returns recently partnered with Inmar, Inc. to offer an end-to-end returns solution for retailers.

Happy Returns and Inmar’s solution offers consumers “the option for customers to return items, box-free and label-free, to one of Happy Returns’ 2,600+ Returns Bars around the country, which are physical drop sites located in retail stores.” Returned inventory is then “shipped to returns facilities in reusable containers instead of individual packages,” increasing the sustainability factor, which is a big deal to today’s consumers.

Adopt a fully integrated e-commerce platform. Tech-driven tools can help ease the pain of reverse logistics. Some examples include a virtual POS (vPOS), which allows you to manage all POS terminals on a single store server, reducing friction on the backend and lessening “wrong size or product” returns. And a loyalty program through your POS will nurture existing customers—and loyal customers are less likely to make a return.

The reality is, reverse logistics is a crucial part of a business’s success. (Was it Shakespeare who said, “The customer is king”?) As complicated as reverse logistics has become, increasingly intuitive technology and solutions are here to help.