It’s an exciting time in retail, especially with the rapid rise of e-commerce sales. It’s estimated that global online retail sales will reach $6.17 trillion by 2023.
While this is good news for omnichannel retailers as products go out to customers, the reality is that a significant portion of those products is returned. This results in a massive and costly reverse logistics issue, as products make their way back through the supply chain.
Today’s retail leaders rely on new technology to address and mitigate many of the challenges they face with reverse logistics management.
What is reverse logistics?
Reverse logistics refers to a product’s journey back through the supply chain after being sold, to be either re-sold, repurposed, or disposed of.
When items come back to brick-and-mortar stores or online channels, retailers must ensure their returns can be recovered and dealt with efficiently.
Impact of reverse logistics management done wrong
Because retailers don’t operate in a bubble, if they are unsuccessful at handling returns, especially e-commerce reverse management, it will lead to negative outcomes in key areas.
Here are just a few areas of concern:
1. Profitability
Returns impact the bottom line because it costs retailers to store, process, and reclaim any possible value from returns.
2. Customer expectations
Customers want convenience. This includes hassle-free returns or they will shop elsewhere.
A recent consumer insight survey noted that 84% of consumers say the returns experience influences their opinion of the retailer–positively or negatively.
3. Supply chain
The supply chain of old no longer fits today’s omnichannel, e-commerce needs. It’s simply overloaded with products going out and coming back through the reverse logistics process.
4. Environment
Many thousands of items (clothing etc.) could end up in landfills both nationally and overseas. Today’s consumers are seeking brands that reflect their environmental values, and strongly support retailers who conduct business in environmentally sustainable ways.
Retailer challenges in reverse logistics
Returns can throw off the delicate balance retailers must maintain for success. Beyond the obvious refunds to consumers, retailers must deal with:
1. Costs due to product return management
- Product verification
- Repackaging
- Reshelving/storage
- Disposal
- Loss of revenue from discounts (seasonal items)
2. Rise of e-commerce leading to increased volume of returns
- Thousands of one-off returns that no longer have a place in the warehouse.
- Influx of after-season returns that have lost market appeal.
- Online shoppers buy multiple items, keep one and send the rest back through the supply chain.
- Lenient return policies encourage shoppers to buy knowing they can easily make returns.
An estimated $428 billion in retail merchandise was returned in 2020, as recorded by the National Retail Federation and Appriss Retail
3. Varied nature of returns
Clearly, not all returns are the same and must be treated differently in the returns management process. They often require different approaches and investment of time and resources from the retailer.
- Damaged goods
- Product recalls
- Warranty returns
- Inventory returns
- Reusable containers/packaging
- Reusable goods
- Seasonal items
- Hazardous materials
4. Supply chain capacity issues
The supply chain is experiencing a shortage of:
- Drivers
- Shippers
- Warehouse staff
The American Trucking Association estimates that transportation providers need about 80,000 more drivers to meet existing demand. That shortage could double by 2030.
Due to the above aspects, retailer profits and revenue take a hit every time a product is returned.
Consequently, to reduce, if not avoid, product returns altogether, savvy retailers are engaging in a number of solutions.
Solutions and reverse logistics examples
They say for every problem, there is a solution. Here are some solutions retailers are using to address the issue of returns.
Replace manual processes with robotics and automation
Warehouses use automation and robots that move, store, and sort returns to increase the speed of processing them; which is valuable especially as the volume from e-commerce returns is overwhelming for employees.
Improve e-commerce buyer experience
Retailers are developing apps to allow consumers to “try on” items before buying them to avoid buyer’s remorse and minimize returns.
For example, popular DTC eyewear brand Warby Parker lets potential buyers virtually try on frames through its app before buying.
Online retailers are also providing much more detailed product descriptions, so customers better understand the product before placing the order.
This is also complemented by the retailer sharing customer reviews, tracking your online searches and purchases with them, and making recommendations based on your search criteria.
For example, if a customer always searches for size XS in tops, 6.5 in shoes and size 6-8 in dresses, the company will remember that. When the customer visits their online store next time, the site will show results that are available in those sizes.
Apply AI and predictive analytics to reverse logistics
Leading retailers are using innovative technology like AI-based analytics to hold on to profits while fostering sustainability.
When talking about using AI in their return management strategy, Ikea’s America Retail President and Chief Sustainability Officer, Javier Quinones said:
“… [AI solutions] will enable us to eliminate much of the waste created in the reverse supply chain, from minimizing the carbon emissions released in return shipping to finding the best next homes for returned items.”
Let’s take a look at the AI solution in a bit more detail.
Benefits of AI-based analytics for product returns
Technological advances in AI-based analytics and inventory management systems are essential tools for directing returned products back through the supply chain in efficient, cost-saving ways.
One AI reverse logistics example is when a return is initiated by a customer online. Based on the customer’s description of the condition of the item, the AI solution will generate a label to identify which locations–stores or warehouses–have demand for the item.
The customer uses the label for a relatively hassle-free return.
This one AI solution solves multiple retailer challenges.
You benefit as you:
- Save on logistics/labor time and cost– Reduce the return path a product takes with a streamlined approach.
- Reduce inventory costs– Product is not returned to a store that doesn’t have demand for it, thereby avoiding markdowns and carrying costs.
- Sell the product again faster– By sending the product in a timely fashion to a location that has demand for it, you increase the chances of it being sold again.
- Forecast and Plan Returns– Increase visibility into potential returns, providing the ability to adjust plans, new purchases, and replenishment.
- Reduce impact on environmental waste–Products could be re-sold as opposed to going to a dump.
Ultimately, AI-based analytics help you make intelligent, timely decisions by automating your returns process.
Getting reverse logistics right with AI
Returns have always been a headache for retailers. They are inevitable and continue to grow. Industry estimates for conventional retail that 5% of purchases get returned; and jumps to a whopping 25% to 30% for e-commerce returns.
Progressive retailers who use AI as part of their reverse logistics management strategy lessen the impact of returns on their profits, satisfy customer expectations for quick and easy returns, support an overwhelmed supply chain, and help the environment.
Want to learn more about streamlining your reverse logistics processes? Contact our Team.
