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Reverse Logistics Returns Opportunity: Win Customers & Save Money

Reverse logistics

Brands and consumers often share a similar perspective when it comes to returns: it’s their least favorite part of the buying experience. Even brands with the best products must handle returns, but when it comes to supply chain and go-to-market strategy, returns are typically glossed over. Why is that?

A big piece of returns neglect is that the returns process is not most companies’ area of expertise. Today’s most competitive brands are laser-focused on developing and selling the next ground-breaking product. Few have perfected the returns process, never mind turned returns into a differentiator for their business. Preparing for the product to come back may feel less than productive, even like a failure—which is likely part of the reason returns have long been associated exclusively with loss. 

Yet in today’s business landscape, the margin for error, efficiency or complacency is rapidly shrinking. Brands need a tight end-to-end supply chain that not only enables business goals but also meets evolving consumer expectations and buying behaviors.

What modern shopping means for returns

The modern buying experience is changing, from what it looks like to where it’s happening. As more consumers shop online—with more than 2.14 billion people worldwide expected to buy goods and services online in 2021, up from 1.66 billion in 2016—returns are becoming the new normal.

Return rates are…

8-10% for brick-and-mortar
20% for e-commerce
30% for holiday e-commerce
50% for “expensive” products1

Not only are returns more frequent with online shopping (about double), but they are also intentional. Forty-one percent of online shoppers buy variations of a product with the intent of returning. Forty-two percent have returned an online purchase in the last six months. While returns used to be a smaller slice of the purchasing pie, and brands could get by on traditional approaches, a larger percentage calls for a more robust approach.

There is a clear financial necessity to pay attention to returns. In the United States alone, return deliveries are estimated to cost $550 billion by 2020, 75.2% percent more than in 2016. What’s more, this figure doesn’t even account for restocking expenses or inventory losses. 

Retailers lose more than $600 billion each year to sales returns2

The impact of returns on business and brand is growing. To remain agile and competitive, brands need to approach reverse logistics for what it truly is: an essential, not overlooked, piece of every business plan and supply chain strategy. Those that optimize their returns will not only avoid being left in the dust of a shifting market but also gain the business benefits that come with strengthened, streamlined operations.

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Why Businesses Should Maximize Returns

While returns are a pain point for many brands—and there may be reluctance around investing in this area—companies stand to reap major business benefits from an optimized reverse logistics strategy.

Financial savings

Companies that don’t optimize their returns are losing money and wasting an opportunity to increase ROI. In many cases, when brands receive a returned product, especially when it was damaged or defective, they replace it with a new product. Where does the original, defective product go? Oftentimes, nowhere—certainly not back into the hands of consumers. 

The refurbished market for consumer electronics alone is estimated to be $10 billion.3

84% of consumers who have purchased refurbished products are satisfied with product functionality and the price paid for the value received3

Strategic returns help brands create b stock inventory. Returned goods that can’t be sold or resold as new to the market can be sold as b stock in different marketplaces, like eBay. It can also be used for product replacements under warranty. This way, companies can still turn a profit rather than chalking every returned product up to a loss. In fact, UPS reports that high-tech manufacturers without a well-developed reverse logistics process could be losing more than 50 percent of returned inventory value since most of the returned products can be sold in secondary markets.

By offering b stock, brands are not only not losing money, but they are adding value to their go-to-market strategy. Maximizing this market opportunity with a comprehensive supply chain strategy is essential for brands that want total financial efficiency.

Environmental impacts

As brands get creative in turning returned products into revenue, they are also becoming more environmentally friendly. Reduce, reuse, recycle—the grade school mantra—still holds true in the supply chain. By finding a valuable way to repurpose returned products and find them a home, companies are reducing the number of items that are scrapped. In turn, they are reducing the number of products that wind up collecting dust on warehouse shelves and, eventually, end up in landfills.

30% of returned items don’t make it into the hands of another customer and end up in landfills4

Not only is this harming the environment and producing massive amounts of waste, but it can damage brand reputation. Today’s consumers, especially millennials, care about brands’ corporate social responsibility, and, in particular, sustainability. To get ahead of negative press and environmental impacts, brands can take measures to implement recycling best practices in their supply chain. For example, consumer electronics brands can become R2-certified—the responsible recycling program—to make sure electronics are recycled in an environmentally friendly manner.

There are four billion pounds of returned products loaded into landfills each year4

Recycling also has financial benefits. It’s expensive to dispose of product components, so eliminating this step can cut out extra expenses.

Customer Experience

Let’s face it—returns are a pain for brands, but they are notoriously an inconvenient, dreaded experience for consumers. Walker study found that by the year 2020, customer experience will overtake price and product as the key brand differentiator. With that, brands need to optimize returns with consumers in mind to go the extra mile.

What should optimized returns look like to the consumer? While that will vary per business, market trends have established an increasingly universal truth: today’s consumers expect immediacy. Brands are well aware of demands for speed when it comes to forward logistics; consumers want their products and they want them now. Yet, many brands have neglected to deliver on these demands when it comes to reverse logistics, especially when the payment has already been processed—or worse, when a consumer wants to be reimbursed.

Ninety-six percent of consumers said they would shop with a retailer again based on an “easy” or “very easy” return experience. As a customer priority, brands need to maximize the opportunity to win consumer loyalty in an increasingly competitive market. For example, avid workout enthusiasts love their wearable technology. It is essential for their daily routine, and they will be negatively impacted if they need to return that product and go without it. In many cases, the returns process can take weeks, which is too long to keep the consumer waiting.

With a robust reverse logistics strategy, brands can streamline the returns process so that consumers only need to go without their products for 24-48 hours. An infrastructure that enables consumers to provide feedback online or over the phone, describing the issue before even making the return, means that brands can quickly ship out a replacement. This turnaround minimizes the window where consumers are inconvenienced.

Gaining the competitive edge

Making the returns process easy, sustainable and financially efficient can be a major value add to a business. Not many organizations have achieved this level of optimization, so those that do earlier have the opportunity to elevate business and grow brand loyalty before the market (and competition) catches up. 

Are YOU ready for Reverse Logistics?

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How to Build a Reverse Logistics Strategy

A reverse logistics strategy is specific to the brand’s business and customer. As brands build their infrastructure, they need to tailor their approach based on the type of customer they serve and what their expectations will be. These are the main decisions and questions that each brand should consider as they build their returns strategy.

Returns authorization and grading

There are two main approaches that brands can take to authorize returns. E-commerce giants that focus on quick turnaround times focus on quantity over quality. Consumers who want to make a return can visit their website, fill out an online form that asks for general reasons for returns, print their shipping label and ship the product back to the company. The reasons for return are typically high-level, such as that the product had a defect or was not what they expected. While there may be an opportunity for consumers to offer more information, it is not seen as a necessity. Consumers often appreciate this approach because it’s quick and easy for them.

Reasons for the top 75% of returns5:
1. Customer ordered incorrect product or size
2 . Customer decided product not needed or wanted
3. Customer returned with no reason given
4. Product did not fit description on website or catalog
5. Product did not fit customer’s expectation
6. Company shipped incorrect product or size

Other companies require the consumer to have human interaction. Call center representatives can ask questions about the consumers’ experience and discover more details about the reason for the return. While this approach takes longer on the front end, which consumers may not prefer, it can expedite the returns authorization on the backend, as the brand’s inspection team is equipped with the data they need to determine next steps for the product.

The ideal returns authorization process should reach a happy medium of these two approaches. The more information brands have from consumers on the front end—without posing too much inconvenience—the more time savings for employees on the warehouse floor inspecting the product. Once the product is inspected, brands need to be given a stock grade. Because grading criteria are specific to each company, brands need to be very intentional in how they define what qualifies as a stock, b stock, and c stock. They must also determine where products go once graded. Do they want b stock to appear on e-commerce sites such as eBay?

58% of consumers want a hassle-free “no questions asked” return policy6

Refurbish, recover or repair?

When a returned product comes back, there are a few different actions that brands can take.

Recovery

Sometimes perfectly functioning products are returned simply due to customer preference or a mistake with shipping or ordering. In this case, the brand can re-sell the product as b stock to another consumer. The original consumer can receive a new or refurbished product in exchange or, in some cases, a refund.

Managing the “return and repair” process accounts for 10% of total supply chain costs7

Repair

20% of returned products are defective. When a returned product is broken but fixable, brands can run a series of tests, capture reason codes for what’s wrong and send products to a licensed repair center to be revamped. Once the product is good-as-new, it can be returned to the customer. If this repair process takes too long, the consumer can receive a replacement product, and the repaired one can re-enter the market once it’s ready. To help prevent future returns, brands can perform failure data analysis to give clients visibility into product flaws.

Refurbish/remarket

When the product takes a bit longer to rework and consumers do receive refunds and replacements, the repaired original product doesn’t have a consumer to return to immediately. Products with promise can be refurbished to fully functional and cosmetic standards and remarketed by the company as b stock to loyal consumers. Brands will need to add precautionary processes before returning the product to the market, including data wipes that ensure the protection of personal data on used consumer electronics.

Customer experience

Now that returns are an integral element of the customer experience, brands need to determine exactly what they want that experience to look like.

69% of shoppers check the returns page before making a purchase8

62% of consumers “would buy again” from a brand offering free returns or exchanges

69% are deterred from buying online by having to pay for return shipping

90% “highly value” free returns9

Free Returns

Brands do not have to offer free returns, though consumers are increasingly appreciating those that do. That said, free returns may not work with every brand’s financial plan. It is important to weigh the cost and benefit of free returns to see how much it truly adds to the business.

Returns timeline

The window for when consumers can make a return varies widely across businesses and industry. The U.S. typically has a tighter window for returns, for example, than companies in the EU, which may have an 18-month policy. Smaller windows for returns typically mean the products come back in better condition. Buyer’s remorse creates less wear and tear on a product if it happens in 30 days rather than 6 months.

Brands can implement multi-tiered timelines for returns. For example, if a product is returned in the first 30 days, it can have signs of being worn or used. If it comes back in 90 days, it can’t have been worn and the tag needs to be attached.

Reimbursement for returns is another decision that brands must make:

          1. Do they offer full money back to the payment method?
          2. Do they offer a product exchange?
          3. A store credit or gift card?

Consumers are paying more and more attention to returns policies—looking even before they make a purchase. Brands can think of return policies as the mission statement for the customer service they want to deliver with their reverse logistics.

Are YOU ready for Reverse Logistics?

Download our FREE ebook to discover how to prepare your supply chain for Reverse Logistics.

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How to Build an Infrastructure for Returns

To meet expectations for what makes a high-quality returns experience, brands need to invest in an optimized reverse logistics infrastructure. This requires implementing the necessary solutions and processes to help the returns process run smoothly. Returns processes are not one-size-fits-all and often need to be customized to the brand’s business needs and their consumers’ expectations. However, there are a few components that are critical for every company.

Warehouse management system (WMS)

A WMS should be at the core of every supply chain IT stack and is particularly essential for processing returns efficiently. It is designed to support and optimize warehouse functionality—moving and storing materials in and out of the warehouse—and distribution center management. The WMS receives orders from the ERP system, manages these in a database and supplies them to the connected conveyor control systems.

A WMS will track all the data that is essential for forecasting, including disposition, serial number, damage type and more. Brands need access to this data, especially historical data, to understand what resources will be needed to handle returns as they come in. In particular, they must be prepared with the necessary labor to guarantee quickly processed returns.

Returns authorization

Returns authorization is one of the more critical, and equally underestimated, components in an optimized returns process. The authorization process specifies the reason that a consumer is returning the product, which can dictate and expedite next steps. Many businesses do not have a system in place for returns authorization, which means that when a product comes back, a team has to figure out why the consumer didn’t want it. Was it preference, damage or product confusion? Did the brand ship the wrong item?

This lack of visibility—not knowing what products are coming back and why—is one of the bigger challenges that companies face in optimizing returns. Without data on the reason for return, inspection teams must embark on a five- to 10-step inspection process, in which they test the device and locate if and where there is a defect. If brands can collect the right data through returns authorization on the front end, however, they can give teams a head start on the inspection process, cutting it down to one to two steps. They are also able to allocate the appropriate amount of labor so returns are processed in a more timely manner.

Criteria to grade returns

Once returned products go through the authorization and inspection process, as well as any necessary repairs or refurbishing, brands need a way to determine where they go next. They need an established system to grade the quality and usability of returns. Typically, a stock is new, b stock is a refurbished item (good as new) and c stock would not go back to the consumer and may need to be recycled. However, what qualifies as a, b or c stock will differ depending on the brand, its products and its customer base. Where one brand’s customer may not mind a nearly undetectable scratch on a product, another brand’s customer may refuse to receive anything that is less than perfect.

Establishing grading criteria and then training inspection teams accordingly is crucial so that standards are understood throughout the entire supply chain. This system ensures that consumers receive exactly what the brand wants them to—a perfect example of a returns strategy customized to the brand, rather than working as a one-size-fits-all solution.

Packaging

Packaging is part of the customer experience. That said, brands have historically focused more on packaging and presentation on the front end, rather than on returns. This makes sense; when a consumer purchases an item or sees it in the store, packaging is part of the draw and the brand experience. People record themselves “unboxing” products and post videos online for others to enjoy the experience of the reveal.

Yet when it comes to shipping back returns, packaging hasn’t been considered by brands in the same thoughtful way. Most often, consumers need to acquire their own packaging to send back a returned item. Then, when the brand ships back the replacement or the repaired product, the packaging is less robust. The niceties that come with branded labels and boxing are often missing. It’s easier for brands to send refurbished items in simpler, lower-cost packaging, such as a resealable plastic bag.

However, consumers want to feel just as good about their purchase the second time around. This is especially true with “expensive” or luxury products, where the consumer has made a larger financial investment. For example, if a consumer bought a $200 consumer electronic, they feel that they have paid for the entire package. If they return the item—whether it’s one or six months later—they want the same quality opening experience.

Brands have to consider what role their packaging plays in the customer experience and how that experience looks with returns. “Return packaging” is a new method brands are adopting, where they design shipping containers so that customers can reuse the original packaging, close it up and drop it off at their post office. If the brand offers free returns, consumers can just place the prepaid label on the packaging and are good to go. This ease turns the hassle of returns into a convenience—though it may not be financially realistic for every brand. It’s most important that companies start to consider packaging in more depth, from sourcing materials to adding branded labels and more.

In-store returns

While in-store returns do not apply to every brand, those that have brick-and-mortar locations or offer their products through retailers need to consider how to handle returns that come back to physical locations. Increasingly, consumers are ordering products online and returning them in stores, which is a convenient value-add to the customer experience. That said, it can slow down the back end of the supply chain, delaying the inspection process and getting the product back in the marketplace. 

The benefit of in-store returns is that when face to face, consumers may provide more information on returns authorization. The negative is that there can be fraudulent returns, such as returning an old product in new packaging and getting reimbursed for the new product price.

For returns to work, the strategy needs to provide satisfaction for the consumer and cost control for the company. Reverse logistics can feel like a major undertaking and investment, especially with forward logistics providing its own challenges. Organizations need a partner that knows what questions to ask and how to turn around products quickly based on the needs of the business and the consumer.

Are YOU ready for Reverse Logistics?

Download our FREE ebook to discover how to prepare your supply chain for Reverse Logistics.

Discover Reverse Logistics

Grab your free ebook

Fill out the form below to receive your free ebook and discover the path toward Reverse Logistics.

 

Sources

  1. https://www.shopify.com/enterprise/ecommerce-returns
  2. https://www.ihlservices.com/
  3. https://www.liquidityservices.com/wp-content/uploads/2018/07/wp_rtcb0101_1502.pdf
  4. https://www.retaildive.com/news/why-retail-has-a-growing-reverse-supply-chain-problemand-how-to-fix-it/422136/
  5. https://www.logisticsmgmt.com/wp_content/purolator_wp_content_091213.pdf
  6. https://appriss.com/retail/wp-content/uploads/sites/4/2018/12/AR3018_2018-Customer-Returns-in-the-Retail-Industry_Digital.pdf
  7. http://www.rlmagazine.com/RLMagazine_10thEdition.pdf
  8. https://www.invespcro.com/blog/ecommerce-product-return-rate-statistics/
  9. https://www.shopify.com/enterprise/ecommerce-returns

About Us

Steel Connect, Inc. is a publicly-traded diversified holding company (Nasdaq Global Select Market symbol “STCN”) with two wholly-owned subsidiaries, ModusLink Corporation and IWCO Direct, that have market-leading positions in supply chain management and direct marketing.

ModusLink Corporation provides digital and physical supply chain solutions to many of the world’s leading brands across a diverse range of industries, including consumer electronics, telecommunications, computing and storage, software and content, consumer packaged goods, medical devices, retail and luxury and connected devices.  With a global footprint spanning North America, Europe and the Asia Pacific, the Company’s solutions and services are designed to improve end-to-end supply chains in order to drive growth, lower costs and improve profitability.

ModusLink Corporation
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+1.781.663.5000