As the ease of buying goods online grows, so does the rise in returns. Reverse logistics costs can amount to nearly 60% of an item’s sales price — but there are a growing number of ways to mitigate these costs.
Consumers returned an estimated $428 billion worth of in-store merchandise in 2020, representing about 10% of total U.S. retail sales, according to the National Retail Federation (NRF). Meanwhile, e-commerce returns more than doubled from 2019 to $102 billion. Online shopping is a significant driver of retail returns thanks to the ease of buying goods and friendly return policies.
The COVID-19 pandemic accelerated e-commerce growth as stores temporarily closed during the early days, and later consumers shunned stores as many waited for vaccinations. As a result, e-commerce sales peaked during the second quarter, increasing 44.5% year-over-year and representing 16.1% of total retail sales.
Since then, e-commerce sales have moderated. For the third quarter of 2021, they increased 6.6% year-over-year and represented 13% of total retail sales, due to the availability of vaccines and consumers returning to stores.
But the costs of returns are high. A lack of collaboration between finance and reverse logistics (RL) departments in many companies is preventing improvements to the financial bottom line.
The value add of RL operations can be challenging to measure and report. However, as long as finance drives the numbers and RL cannot quantify its value add, finance will win. In fact, a returns operations manager should have a finance manager as a best friend.
Technology solutions are on the rise. One example, ReverseLogix, offers a plug-and-play system that is configurable. Customers can select from modules for returns initiation, returns processing, repair management, warehouse management and inventory optimization. Automating these processes can save up to 15% in returns costs, according to Benjamin Gordon, managing partner at Cambridge Capital.
Similar technology solutions are Optoro, Returnly and ReBOUND.
Reducing the number of returns and increasing asset recovery is also beneficial to bottom lines as well as the environment. Some RL startups such as Reconemx and FloorFound are moving into this space and offering such solutions as “re-commerce.”
For example: Nearly 10 million tons of furniture end up in landfills every year. Through re-commerce, FloorFound retailers have found a 25% recovery of this revenue, accoring to founder Chris Richter.
Outlook:
Returns management is essential from a cost perspective as well as an environmental perspective. While emerging technologies are a plus for any organization, simple solutions — such as representing online the accurate size of a product or encouraging customer reviews — can also help reduce the number of returns. As e-commerce grows, retailers will need to manage returns costs appropriately to avoid financial losses and landfills.
