Dive Brief:
- Retailers are obliged to accept returns, though the cost of doing so can reach up to $260 billion dollars, CNBC reported last week.
- Approximately 8% of all merchandise is returned, surging to 10% over the holidays to match increased sales. Because the products returned can rarely be resold at full price, that equates to a matching loss of 10%, a significant portion of profits. Online return numbers are even higher, clocking in at 30% overall, or 40% for clothing.
- Best Buy has attempted to mitigate losses by listing in-store returns on its website, enabling re-purchase from anywhere the retailer already ships. It has also increased its degree of protective packaging to ensure less damage during shipping.
Dive Insight:
Adjusting inventory levels to manage the forward supply chain, ending with the consumer, is tough enough during peak sales season. Yet, as the CNBC report shows, increased sales — particularly online where size, fit and product quality are difficult to personally judge — lead to increased returns, and the nightmare that follows.
Every retailer handling returns wants to recoup its losses, but the best way to do so isn't always clear.
The reverse supply chain, like its forward counterpart, must receive inbound goods, send them to reverse logistics centers, evaluate product quality, repackage and resell the product to a used goods buyer. Optimally, the retailer could resell every product at 100% of its value, but the process is far less efficient than that.
Even if a company accounts for the correct volume of returned goods, the product diversity is often a problem. A retailer handling its own returns, for example, will often find a room full of single, damaged products it must reprocess at the end of the week. Many companies profit from taking over this process altogether, selling their expertise in reselling, reprocessing or emergency recalls.
Some retailers, like GameStop and AutoZone have adapted their distribution strategies to take advantage of in-store returns. But sellers of less durable goods may benefit from looking at the auto industry, which has a long (perhaps unfortunate) experience with returns.
One proactive strategy relies on forecasting. Recording supplier and carrier data per returned or recalled product, and aligning it with a reason for return may help decrease rate of returns in future years by rooting out future dissatisfaction. Simply, if UPS-carried products outnumber DHL or FedEx in a diverse type of product, demanding better safety packaging is an option. If the supplier is the problem, a restocking fee may be beneficial.
At the end of the day, the supply chain manager cannot control for customer satisfaction, but they can control for packaging, excess inventory, and determine reverse distribution strategies.Treating returns as a problem to be fixed, rather than an inevitability, can go a long way.
