A Forward Look at Reverse Logistics for the Holidays

Reverse logistics is a priority for retailers year-round, but when it comes to the holiday season, it becomes a laser focus for brands looking to keep customer service levels up after the busiest time of the year. Retailers receive returns throughout the year, but during and after the holidays, many will see their returns increase substantially, sometimes by 100 percent or more. With holiday sales expected to reach $630.5 billion, according to the National Retail Federation, there will be billions of dollars worth of items being returned by the time the wrapping paper and bows are thrown away.

By streamlining returns, retailers have the opportunity to make the experience as pleasant as possible and in turn leverage the interaction with the customer for active selling. However, there are a number of challenges retailers must overcome when it comes to reverse logistics during and after the holidays. Retailers should plan for the capacity required to handle returns through all channels. They will need to ask a number of questions in order to streamline planning and finalize details before the holiday return influx.

1. What return options are offered? The return options offered will determine the flow paths of product from the customer back to a place where the inventory can be sold (usually a store or warehouse). The product may also be processed as a return to vendor or sorted to a variety of disposition channels. Understanding the options and flow paths will give retailers the ability to understand where capacity will be needed to handle returns. Keep in mind information flow will also allow retailers to plan for resources not necessarily related to the handling of inventory, such as customer service agents and systems.

2. Where will capacity be strained? With omnichannel retailing, brands are seeing a significant increase of in-store returns. Most retailers plan for this in advance, but many may not account for the labor needed for sorting and preparing product for shipment either back to the vendor or to a central returns processing center. Additionally, retailers should train sales associates to take advantage of increased foot traffic from in-store returns to push for potential sales. If a retailer operates a centralized return center, additional capacity will be needed there as well.

3. What kind of return options should be offered? There are several ways retailers can offer returns, including providing a pre-paid return label, accepting returns in stores and allowing customers to request to print their own return label. Retailers should analyze their options prior to the holiday season and weigh the costs associated with each, always considering which option would result in highest customer satisfaction.

4. What happens to returned items? Smaller back rooms are common for retailers as they desire to use as much of the space they rent or own for proactive selling. As a result, retailers typically don't have much space to house returned items — especially if the products sold are large. Therefore, retailers need to have a plan in place to remove product from the store that isn’t re-sellable as soon as possible. And because there will be more returns after the holidays than throughout the rest of the year, the process of removing returned items might need to be adjusted. Disposition codes or criteria may change during the holidays, for example. If a retailer’s returns strategy or flow path involves a third-party provider, it should have a conversation with that provider to determine how it plans to handle not only its returns volume, but that of all its customers.

5. What items are eligible for return? Many retailers only allow returns on certain items. With deep discounts being offered during the holiday rush, retailers may choose to limit return eligibility for certain products that are on sale or clearance because the cost of return would outweigh the profit of the sale.

Keep in mind, not all items that are returned will end up back on the sales floor or re-sold online. Standards as to what constitutes a re-sellable item are likely already in place, but retailers should determine if they want to adjust their policy specific to holiday purchases.

6. If the customer received free shipping due to reaching a certain monetary threshold, will they now be charged for shipping to return an item? Many retailers offer free shipping on orders that exceed a certain dollar amount. While this is a great way to build customer loyalty and grow average order value, it also requires retailers determine what they will do if someone returns part of their purchase that qualified for free shipping. For example, let’s say someone must spend $50 to qualify for free shipping. She buys two $25 dollar shirts. If she returns one of those shirts, will she then be charged for shipping?

Reverse logistics represent a significant source of untapped profitability. While many challenges and up-front costs are present, reverse logistics offers retailers the unique opportunity to differentiate themselves after the holiday shopping season, keeping the retailer top of mind for shoppers going into the new year.

Joel Garcia is a partner and senior director of supply chain solutions for enVista, a global supply chain consulting and IT services firm.