The National Retail Federation (NRF) predicts that in 2023, retail sales will grow between 4% and 6% to generate over $5 trillion. Online and non-store sales contribute a staggering nearly $1.5 trillion, with multichannel sales contributing to e-commerce growth.
Accompanying such robust sales, however, are returns that are predicted to cost retailers over $200 billion in 2023. According to the Forbes article, the online return rate has surpassed the overall e-commerce sales rate. Returns have become a significant cost factor for retailers.
The Challenges of Returns
Retailers face several key challenges when it comes to handling product returns. First, processing, transportation, restocking, and reselling returns will only grow more expensive and eat into profit margins.
Some consumers abuse lenient return policies, essentially “renting” products before returning them. Retailers must guard against return fraud, but implementing effective fraud protection measures without inconveniencing legitimate customers can be a delicate balance. And even with legitimate returns, some customers will exploit overly generous policies, creating significant expenses for retailers.
Used returned items may include defects or be unsellable. Checking and ensuring return quality is time-consuming and subjective, particularly for items like clothing and electronics. Mistakes in determining an item’s condition before reselling it can lead to unhappy customers.
Returns disrupt inventory visibility and planning throughout the supply chain, especially with goods returned to stores. Incorrect decisions about whether a product should be resold as new, open-box, refurbished, or disposed of leads to overstock or understock situations.
Responsible disposal or recycling of returned items, especially electronics and other potentially hazardous products, is becoming increasingly important due to environmental concerns and regulations. But, handling returns sustainably presents its own set of challenges.
Returns often involve legal and regulatory considerations as retailers must comply with consumer protection laws, such as offering refunds or exchanges within specified timeframes. The return process can significantly impact customer satisfaction, with a smooth, hassle-free process enhancing CX versus a slow or difficult process deterring repeat business.
Enter Centralized Return Centers and Warehouses
To address these challenges, retailers often implement efficient return policies, invest in technology for better tracking and analysis, offer transparent communication with customers, and continually refine their operations.
Many also use data analytics to identify trends and reduce the overall rate of returns by improving product quality and customer education. Ultimately, successfully managing returns is essential for maintaining customer trust and competitiveness in the retail industry.
While they have always played a role in the supply chain, return centers and warehouses are assuming a greater role in reverse logistics in partnership with the retailers.
With returns growing as a significant part of e-commerce operations (30% of all online purchases are returned compared to just under 9% of items bought in brick-and-mortar stores), having a dedicated returns facility enables e-commerce companies to handle large return volumes more effectively.
Processing returns requires different workflows and space allocation compared to new order fulfillment. Employees must inspect, categorize, and route returns to appropriate processing areas like refurbishing, discarding, or restocking. A separate section with optimized layouts facilitates the handling of returned inventory.
Quick return processing improves customer experience (CX) and loyalty. Customers expect fast, easy returns and meeting those expectations impacts future purchase behavior. Dedicated return centers help receive, validate, and process returns rapidly.
Efficiently re-entering returned merchandise into inventory is critical for recovering value. These centers allow all the steps needed to enable a faster turnaround to resell returned goods, which reduces write-offs and improves working capital cycles.
Analyzing return reasons in one area allows the identification of systemic issues. Employees can evaluate batches of returned products to determine root causes, like defects, sizing issues, inadequate product descriptions, etc. — all feedback essential for vendors and manufacturers.
Leveraging Technology to Optimize Workflows
To address the key challenges of product returns, return centers can use automation to streamline processing, optimize workflows, and more.
Sorting systems sort returned items by type, condition, size, and other parameters to quickly route them to the appropriate processing area. Inspection stations use scales, scanners, and sensors to assess, measure, and detect issues, which also helps categorize conditions and route accordingly.
Packaging solutions determine the right-sized boxes and envelopes to repackage items for resale or redistribution, eliminating wasted packaging. Identification and data capture (AIDC) uses radio-frequency identification (RFID) and barcode scanners to collect data on returned inventory for tracking and analytics.
Robotic arms and conveyors move items through processing steps and stations like unboxing, inspection, and repackaging. Autonomous mobile robots (AMRs) can navigate autonomously around the warehouse to transport loads.
Automated storage and retrieval systems (ASRS) include robotic cranes and shuttles to store and retrieve inventory from densely packed storage systems. Automated packaging robots can customize, construct, and right-size packaging like boxes and pallets to fit items snugly based on dimensions.
Integrated enterprise resource planning (ERP) systems automatically process return-related financial transactions like refunds, inventory adjustments, and restocking. Warehouse management systems (WMS) provide visibility and coordination by tracking inventory in real-time as it moves through each station. Predictive analytics use data to detect early trends and predict inbound volumes, helping managers plan staffing and resources accordingly.
Overcoming Return Challenges by Using Reverse Logistics
Returning items to an appropriate location, especially in multichannel or omnichannel retail, can be challenging. Retailers must establish efficient reverse logistics systems to handle returns coming from multiple sources and have turned to warehouses and return centers to help optimize returns and inventory management. Processes include:
- Routing all returns to a centralized return center rather than individual stores, which allows greater economies of scale in processing return volumes more quickly.
- Implementing automated systems and specialized workflows to quickly sort, inspect, and identify the disposition of returned items — a process that speeds up processing and reduces handling costs.
- Refurbishing and repairing goods at the centralized warehouse to resell, rather than discard, items to help recover inventory value.
- Analyzing return data to identify trends and root causes and gain insights to modify product designs, product detail pages and more.
- Redistributing returned inventory from the central warehouse to locations with demand rather than sending everything back to the original store, which also reduces transportation costs.
- Implementing centralized order management systems offering visibility into returned inventory levels at the warehouse, allowing managers to reuse stock more efficiently.
- Leveraging concentrated volumes of returns at the centralized facility for cost-effective resale to liquidators or other secondary channels.
- Providing store associates with better visibility into the status of returned items and expected completion timelines for crediting customers.
- Improving working capital by accelerating the returns process and reducing the “refund period” after customer returns.
Overall, retail returns present complex operational, financial and sustainability issues. Retailers must optimize policies, processes and technology to handle product returns efficiently. Improving the customer returns experience while controlling costs remains an omnichannel challenge.
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