Retailers Need to Rethink Their Reverse Logistics Strategy

By Mo Cheema

When the pandemic related lockdowns shut down retail locations, it impacted the in-store purchases and the in-store returns. Consumers’ pre-purchased items could no longer be returned in stores. This consequence created pent-up demand and frustrated customers. In this new reality, many retailers decided to extend the return deadlines to “woo” shoppers and make up for lost sales. Unfortunately, the extended return deadlines made more items eligible to be returned and is now causing a huge backlog in shipping and processing returns. A good example of retailers trying to woo their shoppers is Walmart’s recent announcement of a partnership with FedEx to pick-up return packages from the doorstep for free, service called “Carrier Pickup by FedEx.” After having issued the full refund of the item to the shopper, Walmart would have to absord the cost of free shipping and free return, as well as other operational costs such as processing the return through quality control and refund transaction fee. Given this process, it’s hard to see how this can be a good strategy for Walmart. What’s needed is a better omnichannel shopper experience and efficient fulfillment processes.

Although a juggernaut like Walmart can offer free return shipping for shoppers, not all retailers have the financial means to offer the same service. If they did, it would go directly into eliminating their profit margins from other sales that are successful. The good news is, there are better options available for customer returns. Let’s look at a few:

  1. Returnless Refund / Returnless Exchange

The reverse logistics of getting the product back from the shopper has massive costs associated with it. There is also a lack of resources and knowledge on what to do or how to handle the items when they come back. Therefore, Amazon launched “returnless refunds” service that sellers opt-in. Many sellers prefer their shoppers to keep, donate or throw away the item. The shopper receives a full refund and now do as they please with the item. Some retailers take this a step further and even ship a new item to the shopper for free, as an exchange, usually a different color or size, etc. It is important for retailers to maintain the quality image of their brands and are willing to take a hit on profits just as long as shoppers keep coming back. With this type of strategy, retailers may shrink their margins, but they will win customer loyalty, grow the customer lifetime value, and increase customer retention rate.

  1. Refund Now, Return Later / Exchange Now, Return Later

Anyone who has run a business understands the pains of accounts receivable. Funds are always needed right away for operating expenses. Shoppers who return an item, feel the same way while waiting for the refund to hit their bank account. They shouldn’t be punished like this for making returns, otherwise, they may never come back. That’s why Returnly is helping retailers embrace the customer dissatisfaction of an item with open arms, by taking the role of middleman. This helps shoppers avoid the dreaded holdover period between the time an item is returned and the time a refund is received. Returnly fronts shoppers the money from their return so it can be used to purchase other items. Once the retailer receives the original item, they refund the money to Returnly rather than the shopper. Returnly has also developed a similar solution for exchanging an item which allows a shopper to get the right item before returning the wrong one with zero risk to the retailer.

  1. Consolidate Return Shipments

As eCommerce has grown over the years, so have returns, and they are projected to continue to grow. Retailers wanting to reduce the return shipping costs are opting for in-person returns. In-person returns work in favor of those retailers that have a large physical presence where the shoppers can easily drop-off unwanted items. But how can this model work for online retailers that have little to no physical presence? The online retailers can outsource the management of their returns to companies such as Happy Returns and Optoro. Both these solutions aim to decrease shipping costs for retailers by consolidating returns into one shipment. In anticipation of a record-setting holiday returns season, FedEx and Happy Returns announced a partnership before peak season to enable shoppers to drop-off package-less items at any of FedEx Office’s brick and mortar locations. Happy Returns receives the items from FedEx, sorts and returns them to individual brand fulfillment centers, utilizing its reverse logistics system. Products are shipped in reusable totes, enabling a reduction in cardboard waste and carbon, furthering sustainability and closed-loop goals as items make their way back to retailers. Optoro formed a similar partnership with Staples allowing shoppers to drop-off items from any participating online retailer at a Staples location to avoid the “arts and craft” hassle of packaging up and shipping out a return. Optoro differentiates their returns solution from Happy Returns by including tools to help with the resale of the returned items. Other major retailers like American Eagle Outfitters, Under Armor, Best Buy, Target and Bed, Bath & Beyond are anticipated to join the Optoro returns ecosystem in 2021.

  1. Your Home, Your Fitting Room

Online shopping is not perfect. We can’t always tell what is or is not a good fit, a good match, etc. For example, on small mobile screens shoppers can’t easily tell the difference between grey and charcoal color garment. Therefore, if we look closely at the consumer buying behavior, we will learn that shoppers usually end up purchasing both to make a final decision. That’s why Amazon is on a mission to develop a new delivery robot that will wait while shoppers try on clothes, giving them more time to decide, before returning unwanted items. This concept was previously originated in the luxury retail industry. Due to the high profit margin of such products, luxury retailers could afford to hire or outsource white-glove delivery drivers that would bring various designs and colors of a similar wardrobe for the shopper to try on and return anything they did not want. It was also an opportunity to up-sell products.

This concept can work for smaller, non-luxury retailers as well, and in some ways, this is already happening today. What do you think happens to all the undeliverable packages? The packages end up going back to the seller, putting the round-trip burden of costing on them. Retailers need to work with delivery companies to get in front of this problem and turn it into a competitive advantage. If delivery companies use the same infrastructure and implement a waiting period as part of the delivery execution, they can make this process work to their customers’ favor and become the ideal delivery partner. A delivery driver would pick up the items from the local retail store, deliver them to the shopper, wait for the shopper to try and test the items, and return unwanted items to the driver to drop-off at the store. COVID restrictions have forced retailers to close fitting rooms, so they must be more innovative. Consumers aren’t going to the stores, they are shopping digitally in their pajamas, but this is an opportunity for the digital world to meet the physical world by turning shoppers’ homes into their fitting rooms.

  1. Self-Serve, Contactless Returns

As the COVID pandemic has shown us, the future is self-serve and contactless. Shoppers want to do everything on their own and technology is empowering them with the necessary tools to achieve best results. Regardless of the business model a retailer may use to process returns, there needs to be a platform where the physical goods can be held in a secure fashion that supports chain-of-custody. The iPickup® platform allows shoppers contactless pick-up of Buy Online, Pickup in Store (BOPIS) items by scanning a QR code without having to interact with anyone. It is a self-serve, smart-shelving unit that notifies shoppers when their order has been staged and ready for pick-up. It provides the physical platform that supports the various flavors of the return solutions; mentioned above – all in one solution. The iPickup platform enables quick and easy Buy Online, Return in Store (BORIS) for shoppers without ever having to wait in line. It can also enable shoppers to Buy Online, Exchange in Store (BOXIS) by making sure an item to be exchanged is staged and ready for pick-up when a shopper comes to drop-off the original, unwanted item, all within 15 seconds. In a move to circumvent the closed fitting rooms, future iPickup platform releases could allow shoppers to determine what they want to keep. The iPickup platform could also receive returns from any participating retailer at its collection point locations. This helps online retailers establish a physical presence to help decrease their shipping and return costs. The iPickup platform is truly an in-store staging and fulfillment hub that is helping retailers design and provide a fully integrated omnichannel fulfillment experience for shoppers.

Conclusion

With an average return rate for online purchases around 30 percent, according to the National Retail Federation (NRF), retailers need to seriously reconsider their reverse logistics strategy. For starters, they must critically analyze the impact of returns to their profit margins and forecast how much they could save by implementing some of the solutions discussed above. Then, a top-down commitment to reducing returns related costs must be implemented. Not all solutions will be appropriate to any specific retailer. They must test various alternative solutions and elicit feedback from on-the-ground associates, customers and measure Key Performance Indicators (KPIs) to determine the best strategy for their brand. I am currently helping various retailers design omnichannel fulfillment capabilities for returns and pickups, I’d be happy to lead these conversations for your brand as well.

Mo Cheema is helping to make the brick and mortar retailers the focal point of commerce as Director of Solutions Design and Implementation at Position Imaging. He also had a highly influential career at UPS, where he spearheaded several new product and business concepts, developed a strategically aligned product road-map to streamline the global last mile delivery for drivers, and routinely engaged with the senior level executives to influence investment decisions.

Related Posts

How the Multi-Channel Shopper is Changing the BOPIS Game

Online shopping is not going away anytime soon. The multi-channel shopper has pushed retailers to essentially, adapt or die. The need for a buy online and pickup in store (BOPIS) system has grown increasingly more important. Opting for BOPIS helps shoppers save on...

Why a Smart Package Room is Better than a Pickup Locker

The rise of eCommerce and same-day delivery have pushed the need for a convenient and secure option when it comes to package management. What happens when large residential buildings or apartment complexes face the onslaught of package delivery?  A quick option is to...