Logistics is essential to the modern retail business — getting products to customers quickly and in good condition is the fundamental mission of any retailer. Often overlooked, however, is the impact of reverse logistics; according to The National Retail Federation (NRF), a total of $400 billion worth of merchandise was returned in 2018 alone — and recent events guarantee that number will only grow.
“Right now, there’s a drastic shift in the economy of goods being purchased remotely rather than at brick and mortar stores,” says Tony Sciarrotta, executive director of the Reverse Logistics Association (RLA). “That means the returns are going to increase.”
Reverse logistics
That means companies interested in growth and sustainability must have a robust reverse logistics plan.
“Reverse logistics is everything that happens after the point of sale,” explains Sciarrotta. “Every company that sells a product has to deal with the reverse side.” This includes the packaging that must be opened, the packing materials, instructions or other documentation, and, of course, the product itself. This complicates returns, as customers often discard packaging and other materials, or send back assembled products.
And, not having a solid grasp on your company’s reverse logistics can be damaging — and expensive. “In e-commerce, return rates are two to three times higher than brick and mortar returns for most product categories,” Sciarrotta says.
Exceeding Expectations
Reverse logistics also ties directly into customer satisfaction. “Upwards of 80 percent of people measure a retailer by their returns policies,” Sciarrotta says. “They won’t buy it unless they feel they’ve got an assurance of an easy and simple return.”
Another reason to dig into the reverse side of your supply chain is cost. “The reverse logistics chain is a money pit,” Sciarrotta warns. “Every piece that comes back costs you; you rarely get 100 percent recovery on a product, because there are multiple touchpoints — the product has to be packaged for return, which you might be paying for.”
He thinks one way to deal with those costs is through secondary markets. “Nordstrom Rack stores are outpacing Nordstrom stores in terms of sales growth,” he notes, while the returns going to other stores wind up on the secondary marketplace, including stores like Big Lots, Dirt Cheap, and Bargain Hunt, as well as platforms such as eBay, Craigslist, or Amazon Marketplace. “That secondary market is important,” Sciarrotta says, “because the demographics are people who don’t have as much disposable income.”
Unpredictable global events stress supply chains, underscoring the importance of a reverse logistics plan. “A side effect of the COVID-19 pandemic is the factories in China and overseas shut down,” Sciarrotta explains, “and the returns world got more active in that secondary market. All of the computers and televisions and other electronics that were returned in the last six months were in higher demand because new goods were in less supply. And all these thousands and millions of people who used to work in an office and used to have a desktop computer were scrambling to find laptops to work from home. Companies like Hewlett Packard are actually running out of refurbished laptop computers because the demand has gotten so high.”
The bottom line, Sciarrotta emphasizes, is the bottom line. “If every company would focus on the reverse side, they could improve their company’s bottom line and customer loyalty. You can ultimately reduce your returns and your costs. Focusing on making the customer happy, delivering to your customer something that exceeds their expectations — that is the most important aspect of the new economy.”