Christmas may be over. But the holiday shopping season is far from done yet. Stores and retailers are now preparing for one of the largest return seasons ever. Consumers returned an estimated $428 billion in merchandise to retailers in 2020. That’s approximately 10.6% of total U.S. retail sales in 2020, according to a report by the National Retail Federation and Appriss Retail.
2020 saw an increase in returns from online purchases thanks to the pandemic. The higher the sales, the higher the returns will be. In 2021-22, the NRF has forecast about $860 billion in holiday sales. This promises to impact the value of goods returned as well.
Retailers and manufacturers (as well as the supply chain and logistics networks) prepare every year for a deluge of presents being returned. Starting post-Black Friday and Cyber Monday, reverse logistics form a huge portion of the processes retailers, manufacturers and logistics providers need to look at. According to retail returns specialist ZigZag Global, the value of returned products (74%) has increased significantly from 2019 to 2021.
But while returns are free for consumers, they are not free for retailers and manufacturers. Many players, especially online, use free returns as a policy to maximize sales. But reverse logistics, including getting the returned product from the consumers back to store shelves accrue various costs for retailers. They need to factor in customer service, pickup, and delivery, warehousing, processing, as well as losses from products that can only be resold at deep discounts or liquidated.
According to reverse logistics provider Optoro, two out of three consumers will return at least one gift during the holiday season. They will be re-introducing returned products worth at least $66.7 billion into the supply chain, given the higher-than-average return rate for online sales. This process is commonly known as reverse logistics.
So why do customers return products?
1. While consumers can simply change their minds about products and return them, there are also instances of fraudulent purchases online today. ZigZag Global’s study found that 33% of Black Friday returns in 2021 result from bracketing. This involves buying products to try different sizes and colors at home to return at least one item.
2. There are also practices like wardrobing and staging. These practices involve buying products, using them once and returning them, or just posing with these new products for social media and returning them, respectively. While retailers are looking for ways to deal with these fraudulent practices, they usually prefer to turn these products around and get them recalibrated into the supply chain and on the shelves.
3. But processing returns adds more stress to the already disrupted supply chain. Essentially, if returns are not processed fast enough, they occupy space in the warehouses and reduce retailers’ efficiency, thus affecting retailers’ ability to fulfill other orders.
4. Ongoing supply chain issues have also resulted in a lack of variants of all sizes or colors on the shelves. With products ordered online, this is even more relevant as goods could take a long time to reach the destination, or inaccurate items are shipped. This automatically increases the probability of returns.
As a result, businesses must decide what to do with such seasonal returns to recapture product values and minimize waste.
How retailers and other stakeholders deal with returns
1. Though costs across products and industries vary because of things like weight and distance, a return can cost as much as 66% of the price of an item, or $33 for a product whose original retail price was $50. Many factors contribute to the high cost of reverse logistics, including transportation, processing, discounting, and liquidation losses.
2. For retailers already facing the high costs of supply chain disruptions, some returns are just not worth the trouble, especially with customers reluctant to venture to stores to drop off returns. So some retailers began telling customers to keep their refunded holiday items.
3. Amazon.com Inc, Walmart Inc., and other companies have used artificial intelligence (AI) to decide how economically workable it is to process a return. For less expensive items or large ones that would incur huge shipping fees, it is cheaper to refund the purchase but let the customer keep the product.
4. In fact, according to a survey by Narvar in July, 75% of customers have been told to keep items despite receiving a refund.
5. To handle the returns for bulky goods like furniture, retailers are setting up dedicated handling sites and involving reverse logistics partners.
6. Retailers face more issues with returns of bulky or large items like furniture. Once an unwanted item is picked up, retailers need to assess its condition and decide whether to resell, liquidate it or send it to a landfill. If they reject the item, it might need to travel back to a warehouse, increasing the cost of transportation.
7. For example, in 2020, delivery operators FedEx Corp. and United Parcel Service Inc. (UPS) added $24 fees on packages weighing over 50 pounds and lowered the surcharge threshold from 70 pounds. Both carriers also charge extra for shipments that exceed certain dimensions.
8. Some brands have invested in dedicated last-mile delivery operations where returned goods from one company are consolidated locally and shipped. In other cases, unwanted products flow through terminals that handle freight for dozens of clients.
Retailers affected by nearly two years of supply chain volatility have a renewed appreciation for these unwanted but popular items. Thanks to automation, these can go back on sale within days rather than months. These returns can replenish retailers’ low inventories while skirting the astronomical rates and congestion of transpacific shipping. More and more retailers can leverage returns to fill inventory gaps fueled by the supply chain crisis globally.
Meanwhile, if you are looking for a safe and dependent trucking option to process all your reverse logistics this holiday season, you need to look no further than Gillson Trucking. One of Inc 5000’s list of fastest-growing companies in North America, TeamGillson, provides various trucking options. Using the latest technology allows Gillson Trucking to provide customers with fast, safe, and eco-friendly freight shipping options. Contact Gillson now to know more or get a quote.