The Challenge of Retail Returns and Reverse Logistics

With over 91% of customers considering returns policy as an important part of the buying decision, product returns are definitely an active part of the New Normal.

Stock Mall
Getty Images

The rise of e-commerce has never been a secret in the global supply chain corridors. What had once begun as a value add to the existing brick-and-mortar retail model and was seen by some as a passing fad has now far outgrown the rate of growth showcased by its traditional counterpart.

E-commerce has been the fastest growing route to market for most retailers and for more than a handful of consumer goods companies. 

If this wasn’t enough, the pandemic has further accelerated its growth. Consumers spent $861.12 billion online with U.S. retailers in 2020, up 44% from $598.02 billion in 2019, according to the latest Digital Commerce 360 analysis. Online spending represented 21.3% of total retail sales last year, compared with 15.8%, the year prior. The situation in the UK was no different, with the rate of online growth over 37% in 2020, which was six times of 2019.

While this meteoric rise of e-commerce has brought together opportunities like never before, it has also brought along some challenges that we cannot look away from. Many of the established brands in the UK and the United States filed for bankruptcy last year. Some of the leading brands flirted with the inevitable, before owing to a change in ownership. Many others were not so lucky.

One of the biggest items on that list contributing to these challenges is the returns and reverse logistics, which could be a particularly damaging process if let loose. While this has always been a large area of concern due to a variety of operational and commercial reasons, the shortage of staff and of delivery and collection infrastructure has worsened the situation.

The latest shift in consumer behaviour has not only increased the share of e-commerce in industries like fashion and beauty, but it has also further increased in categories like home and garden and electricals. From the returns volume perspective, not only has this further increased the share, but has also made the handling of products more complex. There have also been many news articles referring to large ecommerce providers destroying millions of items of unsold and returned stock.

There are five key challenges contributing to the issues of returns -- cost of refurbishment, resulting miss of fashion peaks for returned products, the cost of logistics, poorly designed processes and sustainability issues. While these challenges are still very valid in 2021, three more challenges are contributing to the issues:

  • Availability of the right warehouse and transport infrastructure to support efficient returns management.
  • Absence of digital infrastructure to support the right visibility and decision making.
  • A lack of focus on returns when it comes to developing a robust supply chain strategy.

Returns, by definition, are not sustainable and lead to process inefficiencies and margin erosion. But, with over 91% of customers considering returns policy as an important part of the buying decision, product returns are definitely an active part of the New Normal.

However, with careful management of the returns process, development of the right logistics and digital infrastructure and developing a sound returns management strategy, we can most definitely soften the blow on our environmental footprint and our bottom lines.