Revamping Reverse Logistics to Make it a Service Differentiator as Returns Season Beckons

Ecommerce, Retail

It’s the dawn of a brand-new year after what has been an eventful peak retail season for businesses across the US. The retail year 2023 was characterized by a resilient consumer economy that continued to buy despite concerns of a faltering market in the wake of high-interest rates and elevated producer price concerns. Businesses that braced for a lukewarm retail season were in for a surprise, as Black Friday sales set the tone for the remainder of the quarter, consistently exceeding economists’ expectations.

One of the interesting trends of 2023, and perhaps the last few years, has been the timeline of holiday deals and discounts that retailers put up for the peak season. There has been a clear shift in the pattern, with businesses offering early Black Friday deals that start a few weeks before the actual date and continue through the rest of the year, culminating in the end-of-year sales.

The impact of this extended sales period on the returns segment is intriguing. Considering the ‘buying season’ starts much earlier, companies are actually seeing returns coursing back to their distribution centers in the middle of the peak buying season. Consumers often purchase items before Black Friday due to attractive deals, only to return them if they find better offers on the same products from other retailers or brands later in the season. With total returns in 2022 standing at $816 billion in the US, returns logistics is a serious challenge, necessitating innovative strategies and robust systems for retailers to handle product returns efficiently.

As a retailer, perfecting the returns process starts with evaluating your return policy. This could be as simple as making the policy more prominent on your website during the peak retail season, ensuring customers are informed well in advance when making purchases. For retailers with a physical store presence, there needs to be thoughtful planning around optimizing staffing — both with handling returns and providing the in-store return experience. If customers make it to the store to return an order, there is an opportunity to offer an experience that could result in an exchange or a new sale.

The reasons for product returns during peak retail season tend to differ from the rest of the year. For one, a vast majority of peak season returns do come back in grade-A condition, as they were gifts or unused items that were being returned as the customer sensed prices dropping at the tail end of the buying season.

And so, processing such returns will need to be tweaked as well. Can a newly returned item, in impeccable condition, be repackaged with just a minor cleanup? If that isn’t possible, maybe establishing a secondary re-commerce site could be beneficial, aiding in inventory clearance, recouping costs, and injecting capital back into the system.

Then comes the need to understand the seasonality of products being returned, which is essential for making strategic decisions about routing products to specific distribution centers or stores. For instance, the holiday season sees consumers order fashion merchandise for various times of the year. If someone in Minnesota receives a T-shirt in November and returns it because it doesn’t fit well, the retailer needs to decide if it makes sense to stock it in the Midwest or reroute it to a distribution center where it is more likely to be resold.

To build such a capability, companies must forecast returns better — both the frequency and probable products. This makes data visibility paramount, as it is necessary for grasping historical trends to model future returns. The gap here, especially from a technological standpoint, is that many companies still rely on siloed systems or manual processes for managing returns.

This has to do with the disparity in technology investment between returns processes and forward fulfillment. While the latter has attracted a lot of investment and tech providers to enhance the consumer experience, the returns segment has not been so lucky. On the contrary, customers today expect the same level of ease, service, and visibility in their returns process as they do when making a purchase. Stuck between escalating consumer expectations and the lack of tech prowess to handle the situation, this dichotomy creates significant operational and strategic bottlenecks for retailers.

At ReverseLogix, we aim to replicate the customer experience of the purchase journey in their returns process. This involves keeping customers informed and providing an accessible portal or website experience for initiating returns, offering various options like returning it at the store, dropping it off at designated parcel stations, or even mailing it back. Once the return is initiated, maintain communication by updating customers with the receipt, returns processing, and the refund or store credit timeline.

Leveraging technology is key, as it collects data points throughout the returns process. For example, comprehending why a customer returned an item is vital — was it a sizing issue? A defect in the product? Or perhaps a change in customer preference? Collecting such information allows businesses to provide a great customer experience while informing broader trends and influencing decisions around inventory and return policies.

Once a product returns to the warehouse, the focus shifts to speed and efficiency. In the past, some companies automated refunds upon scanning a return, even before it reached a warehouse for inspection. This led to issues like refunding for counterfeit products or items that were worn or used. Being able to process returns efficiently while delaying the decision until product verification is crucial. This is where visibility on the front end matters — integrating the initial order-to-delivery process with the returns process will help the business understand customer profiles better, helping make informed decisions based on returns frequency.

Traditionally, returns have been seen as an added cost to doing business — a necessary, albeit complex and unattractive, part of selling through e-commerce and storefronts. However, it is about time to start viewing returns not as a cost center but as an opportunity. This shift in perspective can lead to a better customer experience and improved resource and operational efficiency.