Consultant Insight: Returns are a growing problem in the multichannel retail market

As multichannel retail becomes the norm, retailers are examining their reverse logistics processes. [caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] To improve returns, 72% of retailers are investing in their returns management processes, according to a GXO Logistics survey. The survey further noted that in the past 12 months, 36% of retailers said that online returns have increased while 37% of retailers said returns have increased their operational costs. Consumers returned an estimated $428 billion in merchandise to retailers — approximately 10.6% of total U.S. retail sales in 2020, according to the National Retail Federation (NRF). Of the $428 billion, online returns more than doubled to $102 billion in 2020 from 2019 and are a major driver of the overall growth of returns. The NRF predicts spend on global reverse logistics to rise to $604 billion by 2025. Returns vary by retail category, as illustrated in the table below. Retail Category Average Online Return Rate Drug/Pharmacies 1.6% Hard Goods 3.8% Beauty 4.3% Sporting Goods 7.6% Footwear 9.1% Department Stores 11.4% Home Improvement 11.5% Houseware 11.5% Apparel 12.2% Auto Parts 19.4% Source: NRF/Appriss Survey GXO Logistics During its Investor Day presentation July 13, executives at the Greenwich, Conn.-based GXO Logistics highlighted reverse logistics capabilities as one of the fastest-growing revenue drivers of its e-commerce business. GXO’s reverse logistics revenue has grown at a CAGR of almost 16% over the past three years. Executives noted that when one of their brick-and-mortar customers converts to online sales, it creates an opportunity for three to 10 times the revenue, due to the demand for more complex activity — increased picking, packing and sortation needs, as well as value-added services to maintain inventory turnover. “Our customers have an acute need to get these returns back into inventory where they can be monetized, avoiding a future write-off for them,” Richard Cawston, president for Europe at GXO Logistics told analysts. “If you have e-commerce, you have reverse. And what we’ve been able to do is speed the process of reverse for our customers.” New entrants The growth in returns and the rise in sustainable logistics solutions has prompted the creation of new reverse-logistics startups. FloorFound, for example, is an online returns lifecycle platform that manages transportation, inspection, storage, merchandising and resale of oversized returns, and offers intelligence on resale values. “About 15% of total furniture purchases are returned — and about half of that is resalable,” according to FloorFound co-founder Chris Richter. Through co-branded hosted subdomains, FloorFound sells returned items directly to consumers through a retailer’s website and various online channels, including Facebook and eBay. That benefits retailers by recovering some of the costs of the returned item and benefits the environment by keeping such items out of landfills. Five billion pounds of returned items end up in landfills per year, estimates Optoro, a returns technology provider. Happy Returns is a box-free returns management solution that provides more than 2,600 in-person return drop-off locations in more than 1,200 unique metro areas. In late 2020, Happy Returns partnered with FedEx to aggregate box-free returns into one shipment that is then sorted, processed and returned to each participating individual merchant. In May, PayPal acquired Happy Returns. “The post-purchase experience is something we’ve been looking into, since it’s such a pain point,” Frank Keller, senior vice president of consumer in-store and digital commerce at PayPal, told media outlet CNBC . “People want to shop online and return in store, and vice versa. For retailers, we’re providing more comprehensive services beyond payments.” G2, ReverseLogix, Returnly, Loop Returns and ShopTurn are all part of a growing list of reverse logistics startups looking to reduce returns costs, create end-to-end processes and help businesses — perhaps — profit. Outlook The NRF estimates retail sales will grow by 10.5% to 13% and online sales will account for up to 23% of the market, or $1.09 trillion this year. Based on NRF data, the projection for returns this year could be around $503 billion, a 17.5% increase over 2020, according to Chuck Johnston, chief strategy officer of goTRG, a reverse logistics management company. “With reverse logistics costs amounting to nearly 60% of the original sales price, retailers face significant losses unless they can reduce costs and recover profits from those items,” Johnston noted in an article from Supply Chain Brain. “2022 will be the year of reverse logistics,” Brenda Stoner, founder and CEO of same-day delivery startup Pickup, said at the recent Home Delivery World conference. The delivery provider for big and bulky items is working with such retailers as Big Lots and Williams-Sonoma to provide delivery and returns by ensuring the customer is happy with their purchase, and inspecting it to ensure there is no damage.

Consultant Insight: Returns are a growing problem in the multichannel retail market

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