In the age of e-commerce, the digital path to purchase has a side trail called “Returns.” Journalist Suzanne Kapner reports, “The share of online purchases that are returned averages 30% or higher, depending on the category, three times the rate in physical stores.”[1] As result, writes Chuck Johnston, Chief Strategy Officer of goTRG, “The shift to e-commerce … demands solid returns management processes and a smooth customer experience, while reducing costs and eliminating waste. Maximizing value recovery will be more important than ever with the expected high returns volume, while an efficient, easy customer return experience will be key to increasing shopper loyalty and driving sales.”[2] In the initial installment of this article, I discussed the magnitude of the problem and why having the right strategies in place is important. In the second installment, I discussed some of the options available to retailers for handling the logistics of returned items. In this final installment, I want to discuss some of the available options for retailers once they have returned items in hand.

Reverse Logistics Strategies

Constantinos Garoufalidis, a content provider at FreightCenter, insists, “To increase customer satisfaction and gain customer loyalty, you’ll want to make sure you’re a pro at reverse logistics.”[3] If you are not sure what reverse logistics entails, Ryan Semrow, Product Owner for Reverse Logistics at C.H. Robinson, explains, “Reverse logistics refers to any portion of the reuse of products and materials in a supply chain. True to its name, reverse logistics flows across the supply chain in the opposite direction of standard logistics. For instance, unsold goods being sent from a retailer back to a distribution center or the manufacturer would constitute reverse logistics. Customer returns also fit this definition and make up a large percentage of reverse logistics concerns that retailers and logistics organizations handle.”[4]

The first thing retailers should do is protect themselves against returns fraud. Journalist Elaine Dopson reports, “For every $100 in returned merchandise, retailers lose $5.90 to return fraud. It’s costing US retailers more than $18 billion a year, and happens when people return stolen items, claim an item never arrived, or use the item and return it later.”[5] And, according to Kapner, one of the problems noted by Dopson — claiming an item never arrived — is growing worse. She reports, “Retailers say they are seeing a sharp increase in a type of return fraud in which consumers claim they never received their online orders even though they did. The practice, known as ‘item not received’ fraud, took off during the pandemic, when warehouses were backed up and carriers were overwhelmed by a surge in e-commerce orders. In some cases, consumers are hiring professional fraudsters, who market their services on social media and advertise refunds of as much as $20,000 at chains such as Amazon. com Inc., Walmart Inc. and Target Corp.”[6] Unfortunately, Kapner notes, “It can be hard to separate legitimate returns from fraudulent ones.” When returns are legitimate, retailers have two options for handling returned items.

Option 1. Let Others Handle the Returns. Dopson, notes, “Returns management is a lengthy process. But it’s one you don’t have to handle in-house. Third-party logistics (3PL) partners handle the entire order fulfillment process — including returns. A provider offering reverse logistics stores a retailer’s inventory in a third-party warehouse. When customers return an item the 3PL has previously shipped, it arrives back at their warehouse. Their team inspects the item and processes a refund. The approved returned item is then put back on the shelf to be picked for another order.” Johnston adds, “The advent of returns drop-off sites, such as those operated most widely in the U.S. by Happy Returns, can offer contactless return options and also allow aggregation of returns which can drive out cost and waste in returns shipping.”

Option 2. Handle the Item Yourself. If you opt to handle returned items in-house, the returns process must be made an integral part of your supply chain. This can get complicated for omnichannel retailers that accept returned items both in-store and via returned shipping options. Garoufalidis writes, “While many consumers prefer to return items in stores, 13% of consumers surveyed stated they prefer returning items through shipping. To help make it easier for customers to return items who can’t bring it to the store, consider offering printing or emailing a return shipping label.”[7]

How to Handle Returned Items

The condition of returned items often dictates what retailers can do with those items. Garoufalidis insists, “Salvaging value off items in the reverse logistics chain is the purpose of reverse logistics for businesses.”[8] Semrow adds, “In reverse logistics there is always some risk of value loss. A well-planned program mitigates this risk to maximize the recovery value of assets.” Below are some of the options available to retailers and others involved in the reverse logistics pipeline.

Option 1. Put the Item Back in the Sales Pipeline. If returned items are in “like new” condition, they can be restocked for resale. If that is not an option, Semrow suggests considering a direct sales strategy. He explains, “Direct sales strategies rely on matching the liquidation lot to a group of buyers in a related industry. This allows for greater recovery when working with single liquidations and unique products.” He adds, “As for resale through the primary method, many retail companies provide an open box discount for these items. By grouping these items together and smoothly moving them back up the supply chain, you can put them in the best possible location to be redistributed upon purchase. If a box was returned unopened, it can be set upon the shelf or loaded into the processing area for direct resale.”

Option 2. Return the Item to the Manufacturer. Garoufalidis notes, if an item is in sellable condition, it can often be sent “back to the manufacturer or separate facility rather than [being returned to] the selling business.”

Option 3. Repair the Item. There is a large market for refurbished items. If feasible, Garoufalidis recommends “having the capacity to repair and resell damaged products.”

Option 4. Dispose or Recycle the Item. – Garoufalidis notes, “Some products can’t be salvaged. Their cost to repair or reuse is more than the value the product can give you. This is where recycling comes into play, and where you can make your supply chain sustainable and rid it of excess inventory and costs.” Semrow adds, “When pursuing recycling, find a logistics provider that can help you group items together to minimize the number of shipments to the recycling center.”

Option 5. Auction the Item. Semrow explains, “A private auction strategy focuses on selling inventories to pre-approved buyers in a competitive, auction house-style environment. Due to the competitive nature of these auctions, there is a higher chance you’ll be able to boost the recovery value of assets.” He adds, “This approach is slightly more hands on than the direct sales strategy, making it ideal for more irregular returns.”

Option 6. Donate the Item. Stephen Light, co-founder of Nolah, a sleep technology company, told Dopson, “We donate customer returns to charity or other institutions that need them. Not only are we addressing the issue of returns, but we are also helping people who badly need a product like ours.”

Concluding Thoughts

Garoufalidis sums up returns and reverse logistics processes this way: “The ultimate goal of reverse logistics and the reason it’s so vital to your overall shipping strategy is to salvage value from products that would otherwise go to waste or make customers unhappy. Instead of products being deemed unusable, having a reverse logistics strategy in place gives your products a better chance at being fixed and re-sold, or it gives you the opportunity to identify product defects early in the manufacturing process. This helps you increase revenue, manage unnecessary costs, find solutions and make for a better end customer experience.” If the circular economy every catches on, retailers and manufacturers with world-class reverse logistics strategies in place will be a step ahead of competitors. In the meantime, it will help mitigate the growing returns challenge.

Footnotes
[1] Suzanne Kapner, “Stores Have a Mission: Getting You to Keep That Thing You Bought Online,” The Wall Street Journal, 9 February 2021.
[2] Chuck Johnston, “How Retailers Are Bettering the Online Returns Experience,” SupplyChainBrain, 4 August 2021.
[3] Constantinos Garoufalidis, “Using Reverse Logistics to Increase Customer Satisfaction,” FreightCenter, 12 November 2020.
[4] Ryan Semrow, “What is Reverse Logistics and How Can It Help Your Supply Chain?” C.H. Robinson Blog, 18 May 2021.
[5] Elise Dopson, “The Plague of Ecommerce Return Rates and How to Maintain Profitability,” Shopify, 25 August 2021.
[6] Suzanne Kapner, “Return Scams Jump as Fraudsters Exploit E-commerce Boom,” The Wall Street Journal, 13 July 2021.
[7] Constantinos Garoufalidis, “Using Reverse Logistics to Increase Customer Satisfaction,” FreightCenter, 12 November 2020.
[8] Constantinos Garoufalidis, “What Is Reverse Logistics?” FreightCenter, 11 August 2020.