Returns are an inevitable part of the retail process, especially for the apparel retail industry. It has been estimated that in 2023, people in the US bought over US $ 5 trillion worth of goods. Yet shoppers in 2022 returned 16.5 per cent of items they purchased online and in stores, valued at nearly US $ 817 billion and double the percentage of goods returned in 2019, according to National Retail Federation. This trend is especially noticeable after holiday seasons during which consumers who buy a large amount of retail goods, inevitably return or discard them. The returns eat into profit margins and force merchants to cope with the unwieldy and unpredictable flow of goods coming back.
Reverse Logistics is a vast and largely unseen part of the retail economy, the operations that take over when sales go wrong, when gifts are broken or simply unwanted or when clothing that looked just right in the store falls flat in the mirror at home.
Returns and their consequences
According to a survey by e-commerce fulfilment company Radial, over three-fifths of retail executives stated that the expense of restocking and repackaging (60 per cent) and returned merchandise that cannot be exchanged (60 per cent) presented the largest obstacles in reverse logistics. Retail executives also mentioned that sustaining profit margins was extremely challenging (43 per cent), that customers were returning too much merchandise without exchanging it (39 per cent) and that there was not enough warehouse or storage space (14 per cent).
According to projections made by returns services provider Optoro, between Thanksgiving and the end of January in 2024, US customers are expected to return US $ 173 billion worth of goods. Similarly Gartner states that when the cost of processing returns is taken into consideration together with the initial selling price of the item, businesses lose about 50 per cent of their profit on returns. According to Pollen Returns, a reverse logistics company based in the US, over 30 per cent of all returned goods are resold. When items do return to the shelves, they are frequently marked down since they are out of season.
Retailers have been seeking to stop returns from depleting their profit margins. Fast-fashion retailers H&M and Zara have begun to charge consumers for returning things by mail. Gap, which owns the clothing brand Old Navy, has added online tools that show how its clothing will fit, thereby reducing the prospect of returns. Amazon, the massive online retailer, now notifies customers about frequently returned goods and encourages them to examine their purchases again.
Rise of Reverse Logistics
Bloomberg affirms that venture capital firms have pumped in nearly US $ 200 million into reverse logistics start-ups in 2022—over 2.5x as much as in 2021, highlighting the growing recognition of the strategic value of mastering the art of reverse logistics. This is a ballooning global industry that valued at nearly US $ 1 trillion in 2022.
Many retailers outsource e-commerce returns management to third party logistics which offer superior operational execution and management, frequently at a cheaper cost than managing directly because they have the necessary industry experience and technological know-how, having specialised in this complex environment. The key is to view reverse logistics as a necessary operational function and a strategic asset that can drive customer satisfaction, reduce costs and unlock new business opportunities.
Retail companies are coming up with innovative ways to improve the calibre of their reverse logistics procedures, primarily through contracting out this work to third parties. Retailers and logistics service providers (LSPs) are working to manage product returns as effectively and efficiently as possible.
The function of reverse logistics in the whole supply chain affects customer experience, loyalty and brand image in addition to costs. For companies across the several supply chain functions, it may be expensive. They typically need twice as much money for manpower and transportation, in addition to more space for warehousing merchandise. From a commercial standpoint, this might also reduce profit margins because customers might decide not to exchange goods or make another buy after making a return.
Reverse Logistics and Apparel Retail
Even for picky items like clothes, return rates were in the single digits prior to the emergence of online shopping; today, 20 per cent to 30 percent of all purchases are returned. Very few retailers, apart from the behemoths like Amazon and Walmart, take on the tedious and disorganised task of assessing the vast array of products available.
Reverse logistics companies like Inmar Intelligence, based out of the US, are invaluable for apparel retailers to take care of all the returned clothing that customers dump. Inmar Intelligence with its 3,00,000 sq.ft. warehouse is on the front line in the business of reverse logistics. According to the company, its 17 sites handle half a billion returned goods annually. Every day, Inmar’s material handlers process over 1,00,000 consumer goods at specified locations for a variety of retailers, including big-box shops, clothing labels, e-commerce behemoths and suppliers of home décor.
Companies that sell their own goods directly to consumers see over 90 per cent of returns coming back into their inventory on an average, according to Inmar. Meanwhile, Inmar’s data shows that multi-brand retailers achieve less than half of their returns from multibrand retail, mostly due to the more complicated logistics involved and the generally less appealing brands offered by these stores. The process of choosing each given product’s destination is more challenging because the potential outcomes for apparel are numerous. Liquidated apparel can be bought up by a wide range of wholesalers and discounters and manufacturers can be extremely particular about where their products appear.
Retailers looking to reduce return rates or identify faulty products might find great value in the vast amounts of data that Inmar gathers on what is returned and why. However, the financial line of merchants can only benefit so much from data regarding customer returns. Excess inventory or extra merchandise that comes straight from shops, accounts for the majority of returns that Inmar processes. By either selling them or sending them back to the manufacturer or distributor where they originally purchased it, they attempt to salvage at least some value from anything their consumers didn’t want.
Return Solutions
Gear Up for AOI’s next edition to explore cutting-edge strategies and technologies that leverage data analysis and intelligent systems to optimise efficiency in managing product returns, repairs and recycling within the reverse supply chain! We will decode solutions such as:
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